Disallowance Invalid When Amount Not Charged to P&L: ITAT deletes ₹25.55 Lakh WIP Addition Citing 'Presumption' Basis [Read Order]
Observing that the amount added as Work-in-Progress (WIP) was never debited to the Profit and Loss (P&L), the Tribunal ruled the disallowance was invalid
Disallowance
Disallowance
Axora Resources Limited The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) deleted an addition of ₹25,55,776 made on account of unsubstantiated Capital Work-in-Progress (WIP) and held that such disallowance cannot be sustained on the basis of presumption when the amount has not been claimed as an expense in the Profit and Loss account.
Axora Resources Limited (assessee) in the assessment proceedings, the Assessing Officer (AO) observed from the assessee’s records that the total Capital Work-in-Progress as of March 31, 2022, was ₹2,55,89,774.
The AO concluded that the details were insufficient after the assessee furnished head-wise details and evidence. The AO made a disallowance of 10% of the total capital WIP, amounting to ₹25,55,776, and added the same to the income of the assessee.
Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) affirmed the AO’s order on the grounds that the assessee had not furnished supporting evidence. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.
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The assessee contended that the amount in question related to expenses incurred on the Capital Account for an Antimony Plant and the amount was never charged to the Profit and Loss Account.
The two-member bench comprising Duvvuru RL Reddy (Vice President) and Rajesh Kumar (Accountant Member) noted that the AO had overlooked the assessee’s plea that the amount was never charged to the P&L Account but was an expense on the capital account.
The Tribunal observed that there was no basis for disallowance out of such capital WIP when it was not charged to the profit and loss account. The Tribunal ruled that disallowance cannot be made on the basis of presumption and surmises.
The Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition. The appeal of the assessee was partly allowed.
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