Addition made in the present year to WIP to be considered as opening stock next year – ITAT

Addition made in the present year to work-in-progress to be considered as opening stock next year-ITAT directs AO

ABCAUS Case Law Citation:
ABCAUS 3018 (2019) (06) ITAT

The assessee was a private limited company engaged in civil construction. The Return of income of the company was processed u/s 143(1) of the Income Tax Act, 1961 (the Act). Subsequently the case was selected for scrutiny under CASS and notices u/s 143(2) and 142(1) were issued.

The Assessing Officer (AO) while examining the work-in-progress, called the assessee to explain the basis of evaluation of work-in-progress (WIP) and the assessee submitted that the valuation of WIp in the form of boulders, sand and morumum dumped was only on estimation.

However, the AO based on the value of boulders, transport crushed, labour and other incidental costs, inter alia made an addition of Rs. 50 lakhs to the value of work-in-progress declared at Rs. 1.50 crores by the assessee.

Aggrieved by the order, the assessee has filed an appeal with the CIT(A). The CIT(A) has confirmed the addition of Rs.50 lakhs in respect of work-in progress.

Aggrieved by the order, the assessee approached the Tribunal.

The assessee submitted that the CIT(A) had erred in confirming the addition of valuation of work-in-progress of Rs. 50 lakhs.

The assessee further emphasized that Rs.50 lakhs addition made in said financial year shall be considered in the opening balance of the next year.

The Tribunal found reasonability in the contention that the AO had made addition of Rs. 50 lakhs to the work-in-progress on the estimated basis and the same had to be considered as opening balance in the subsequent assessment year.

The Tribunal concurred that the addition in the present year due to difference in valuation of stock for work-in-progress to be considered as opining stock next year.

Accordingly, the Tribunal allowed this ground and directed the AO to treat the opening stock in the next financial year.

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