The Income Tax Appellate Tribunal (ITAT), Mumbai Bench has held that notional valuation cannot be made a basis for addition and deletes addition of closing construction work-in-progress (WIP).
The appellant, HCC Samsung Joint Venture, is a joint venture formed between M/s Hindustan Construction Company Ltd. (HCC) and Samsung C & T Corporation to execute the design and construction of tunnels as part of the Delhi MRTS Project of Delhi Metro Rail Corporation. The appellant filed its return of income on the basis of one set of audited financial statements reporting a claiming a loss of ₹24,31,31,346/-.
During the scrutiny assessment, the appellant filed another set of the audited financial statement was filed and explained that the second set of the financial statement was prepared for the purpose of Management Information System (MIS) accounting purpose. The Assessing Officer observed that the first set of audited financial statements on the basis of which return of income has been filed and brought to tax closing construction work-in-progress (WIP) of ₹32,29,26,445/-. On appeal, the CIT(A) sustained the addition. Hence, the aggrieved appellant filed an appeal before the ITAT.
The counsel for the appellant submitted that the additional amount of WIP is merely a valuation difference. According to the appellant, it has valued the construction WIP for the purpose of MIS financial statement at a higher value for the purpose of consolidation with the financial statement of the joint venture partner i.e., M/s HCC Ltd.
The counsel for the respondent submitted that the appellant has not furnished any reasons as to why the second set of the financial statement was prepared and that too was duly audited by the said auditor who signed the first financial statement and the appellant has not furnished details of construction WIP of ₹3229.26 lakhs.
The Tribunal observed that if in books of account any expenditure corresponding to the additional amount of construction of WIP is not found debited, then the amount is only in the nature of notional valuation which has been carried out by the joint venture partner purpose of consolidating in its books of account and which cannot be made a basis for addition in the hands of the assessee.
The Coram of Mr. Aby T Varkey (Judicial Member) and Mr. Om Prakash Kant (Accountant Member) by relying on the decision of the Rajasthan High Court in the case of CIT v. Laxmi Engineer Industries has observed that there is no observation of the AO that quantity of construction work-in-progress is more than the quantity valued as per the first set of financial statement and delete the addition made by the Assessing Officer.
Mr. H.P. Mahajani and Mr. Kailash Kanojia appeared on behalf of the appellant and respondent respectively.
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