Year
ending","Total revenue expenditure of the company for
the year",Total WIP,"Addition to WIP during
the year","Percentage of revenue expenditure
captured as WIP
31.3.1999,"3,666,99,396","51,00,000",0,13.9
31.3.2000,"9,19,98,329.75","2,48,10,000","1,97,10,000",21.42
31.3.2001,"3,42,19,821","3,28,49,514","80,39,514",23.49
31.3.2002,"5,14,30,152","4,95,28,714","1,66,79,200",32.43
31.3.2003,"3,23,33,856","5,98,12,400","1,02,83,686",31.8
9. We have heard the rival submissions and perused the orders. The facts which are not disputed are that the amount appearing under the head work-,,,,
in-progress as on 31-3-2003 coming to Rs. 5,98,12,400 was a percentage of the revenue expenditure of the Assessee-company, transferred to such",,,,
work-in-progress for various years starting from the year ending 31-3-1999 to 31-3-2003. There is also no dispute that such work-in-progress was,,,,
shown by the Assessee in its profit and loss account every year. This is clearly mentioned by the assessing officer at page 2 of the assessment order.,,,,
Had it been capital asset, there is no question of the amount appearing in the profit and loss account. The presumption taken by the assessing officer is",,,,
that opening work-in-progress and closing work-in-progress though it appeared in the profit and loss account was capital work-in-progress. The,,,,
opinion of the assessing officer that it was the value of designs developed by the Assessee over a number of years, which was exclusively used by it",,,,
for manufacture of transformers, does not appear to be on a strong footing. This is for the reason that the Assessee had been showing such work-in-",,,,
progress as a percentage of its revenue expenditure. Even if we consider that such work-in-progress represented designs, which were by itself never",,,,
meant for sale, it still remains a fact that effectively the amounts included in such work-in-progress were nothing but expenditure which were revenue",,,,
in nature. No doubt, such revenue expenditure would have been claimed by the Assessee in full in respective previous years. But by making a credit",,,,
entry in the profit and loss account for work-in-progress, the claim of such revenue expenditure would stand deflated to that extent in the respective",,,,
years. The revenue has not doubted the veracity of the claim of the Assessee that the value of such work-in-progress shown by it in its profit and loss,,,,
account was ""nil"" as on 31-3-2004. Its only qualm is that such amount represented capital work-in-progress. Had it been capital work-in-progress, no",,,,
doubt the Assessee would not have shown it as part of its profit and loss account. Just because the Assessee had not independently sold its designs, it",,,,
would not convert work-in-progress shown by it in its profit and loss account on a year-to-year basis to capital work-in-progress. The expenditure,,,,
comprised in such work-in-progress all along remained, at all points of time, nothing but expenditure which was revenue in nature. The Assessee",,,,
having found that there was no value for such work-in-progress either because there was no asset or stock underlying to support such valuation, it",,,,
was well within right to value it at ""nil"" at the end of the relevant previous year. It could not be faulted in adopting such a treatment since such work-",,,,
in-progress entered in its profit and loss account every year and it cannot be asked to forget about such work-in-progress in the year in which it found,,,,
the value thereof to be nil. If that be so, and if it was considered as capital work-in-progress, no doubt it ought to be excluded also from the opening",,,,
stock of the profit and loss account, for the relevant previous year and for doing that, in any case, it would have to effect a specific write off, and the",,,,
consequence thereof would have been the same. As to the reliance placed by the revenue on the decision of the Hon'ble Apex Court in the case of,,,,
Chainrup Sampatram (1953)24 ITR 481 it was only held therein that closing stock had to be valued at cost or market price whichever was lower. The,,,,
Hon'ble Apex Court clearly mandated that anticipated loss was to be taken into account but never anticipated profit while valuing the stock. This,,,,
decision in our opinion supports the case of the Assessee that when net realisable value was nil, it could not be forced to make a valuation at a higher",,,,
amount. As for the decision in Scientific Engineering House P. Ltd. (1986)157 ITR 86, it was held therein that ""plant"" was not confined to an",,,,
apparatus which was used for operations and any article of some degree of durability if it fulfilled the function of plant and was tool of his trade,,,,
needed to be considered as capital asset. Here, on the other hand the Assessees case is that there is no durability for designs and there was no",,,,
possibility of any repeat orders and, therefore, work-in-progress could never have been considered as to have a sufficient durability to call it a work-in-",,,,
progress. Hence in our opinion, the learned Commissioner (Appeals) was justified in deleting the addition made by the assessing officer. No",,,,
interference is called for.,,,,
10. Now we take up the Assessees cross-objection wherein the Assessee seeks that if work-in-progress is held as capital asset, then depreciation has",,,,
to be granted to it. Since we have already confirmed the decision of the learned Commissioner (Appeals) deleting the addition, the cross-objections",,,,
raised by the Assessee has become infructuous. Such cross-objections stand dismissed.,,,,
11. In the result, the appeal of the revenue as well as the cross-objection of the Assessee stand dismissed.",,,,
12. The order was pronounced in the court on 15-4-2010.,,,,
