Voluntary declaration of additional income by increasing WIP was not proper, as assessee will take the additional benefit in the subsequent year – ITAT
In a recent judgment, ITAT has held that voluntary declaration/surrender of additional income by the assessee during the survey should not have been made by increasing the closing WIP as this would enable the assessee to claim increased expenditure next year.
ABCAUS Case Law Citation:
5151 (2026) (05) abacus.in ITAT
In the instant case, the Revenue had challenged the order passed by the CIT(A) deleting the addition made by the AO towards work-in-progress on the basis of various discrepancies found.
The assessee was a company engaged in real estate. During the course of survey u/s 133A of the Income Tax Act, 1961 (the Act), the assessee had surrendered an amount after considering the various discrepancies found in valuation of Work-in-Progress.
The assessee had agreed to declare additional income during the survey proceedings and accordingly, the assessee had declared the same as the additional income and the correspondingly increased the same in closing WIP and paid the tax.
The AO on the same amount of additional income offered after the survey, asked the assessee to substantiate the same by bringing on record the vouchers. However, in absence of any proper submission by the assessee, the AO made the impugned addition.
Before the Tribunal the assessee contended that the AO had basically doubted supporting bills and vouchers for expenditure incurred on the items included in the work in progress but by disallowing such expenses to the extent of Rs. 1 crore due to being supported by only self made vouchers, investment shown in the work in progress would be actually reduced by an amount of Rs. 1 crore shown in the Balance Sheet.
It was further contended that the contention of the AO for making addition on account of work in progress by doubting its valuation stating that supporting bills & vouchers were not produced and hence, books were not reliable, was not correct because he had neither rejected the books of account as per the provisions of section 145(3) nor specifically pointed out as to which particular bills & vouchers had not been produced that AO considered to be required for valuation of work-in-progress.
The Tribunal observed that the additional income offered by the assessee may be proper for the year under consideration and paid the relevant tax. Based on the above facts on record, the CIT(A) deleted the addition on the above addition with the observation that the AO did not have any corroborative evidence against the addition nor he rejected the books of account.
The Tribunal observed that no doubt the assessee had declared the additional income on the basis of survey and on the basis of declaration by the director of the assessee, the additional income was declared by increasing the WIP, which was in fact known fact that it was adjustment entry without there being any voucher, the AO made the addition on the basis of the above fact that there was no supporting documents to increase the WIP.
The Tribunal opined that voluntary declaration by the assessee to declare the additional income, they should have declared by other means not by increasing the WIP, as the assessee will take the additional benefit in the subsequent year without there being actual expenditure. It may be additional income for the year under consideration but it will claim additional expenditure in the subsequent year without making any expenditure in the earlier year.
Therefore, the Tribunal held that the action of the AO to reduce the WIP to the extent of undisclosed income was proper. The assessee was not expected to carry forward the WIP, which were not WIP actual terms.
Accordingly, the Tribunal allowed the ground raised by the Revenue.
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