10 Section 69C – Unexplained expenditure (Work-in-progress)

CIT vs. B. G. Shirke Construction
Technology (P.) Ltd.; [2018] 96 taxmann.com 608 (Bom):
Date of the order: 8^th August, 2018

A. Y. 2009-10

The
respondent-assessee was a company engaged in the business of civil
construction. There was search and seizure operation conducted in the
respondent’s premises. During the course of search, valuation report of the
site engineers of the projects regarding Work in Progress (WIP) as on 30/11/2008
were found. It was noticed the figures indicated in the valuation report of the
site engineers were higher than the work-in-progress recorded in the books of
the respondent as on 30/11/2008. As per the provisional profit and loss
account, this difference was Rs. 9.30 crores. Thus, the respondent had agreed
to addition of Rs. 10 crores being made. However, at the end of subject
assessment year in its return of income the respondent had not offered the
additional income of Rs. 10 crores. Nevertheless, the Assessing Officer
proceeded to add Rs. 10 Crores being the additional income on account of excess
work-in-progress, which was financed out of unexplained source of income.
Resultantly, the Assessing Officer made an addition of Rs. 10 crores u/s. 69C of
the Act.

The
Commissioner (Appeals) deleted the addition of Rs. 10 crores holding that the
Assessing Officer did not controvert statement of the appellant that he had
correctly taken value of work-in-progress. Further, it held the Assessing
Officer had not brought on record any evidence to show that the appellant had
not recorded sales, purchase, other expenses properly in its books of account.
The Tribunal recorded the fact that the Assessing Officer had not disputed the
valuation of closing work-in-progress as on 31/03/2009. This figure had been
arrived on actual verification. There was also no disallowance of any
expenditure or suppression of income detected by the revenue. In the aforesaid
facts, the Tribunal held that in the absence of any material being brought on
record to show that the valuation done as on 31/03/2009 was incorrect, no
occasion to apply section 69C could arise. The Tribunal upheld the decision of
the Commissioner (Appeals).

On appeal
by the Revenue, the Bombay High Court upheld the decision of the Tribunal and
held as under:

“i)    Both the Commissioner (Appeals) as well as
the Tribunal have rendered a finding that work-in-progress as indicated in its
return of income for the year ending 31/03/2009 correctly reflects the closing
work-in-progress determined on physical verification. On facts both the
Commissioner (Appeals) as well as the Tribunal have rendered a finding that the
value of work-in-progress as done by its site engineers in November, 2008 was
only on provisional basis. No verification was ever done by the search party.
The return filed on 31/03/2009 showing its closing work-in-progress has been
accepted by the Assessing Officer. In the aforesaid facts, unless it is first
established by the revenue that there is unexplained expenditure, no occasion
to apply section 69C can arise.

ii)    The revenue has not challenged the
concurrent findings of the Commissioner (Appeals) as well as of the Tribunal
that the work-in-progress as disclosed during the time of search was on
provisional basis and it was taken into consideration while determining the
work-in-progress as on 31/03/2009. The proposed question that the Tribunal held
that there is a difference in the book value and the physical value of the
work-in-progress is factually not correct. The revenue was not able to
substantiate the above presumption in the question as framed.

iii)    In view of the above, the question as
proposed does not give rise to any substantial question of law.”