ITAT Mumbai remits work-in-progress issue for re-evaluation, granting assessee opportunity to present case

The ITAT Mumbai remitted the issue of treating opening work-in-progress as a business loss back to the Assessing Officer for re-evaluation. The Tribunal emphasized the need for a detailed examination of the assessee's submissions and granted the assessee an opportunity to present their case. The delay in the pronouncement was attributed to the Covid-19 lockdown. The appeal by the assessee was allowed for statistical purposes on 16th July 2020.

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Issues:
Confirmation of opening work-in-progress as business loss.

Detailed Analysis:
The appeal pertains to the confirmation of the Assessing Officer's order by the CIT(A) regarding the treatment of the opening work-in-progress as a business loss. The Assessing Officer considered the opening work-in-progress of Rs. 5,71,59,128/- as a capital loss due to the demolition of a constructed property by the assessee. The firm, engaged in development and construction projects, had debited various expenses to work-in-progress during the year amounting to Rs. 90,98,858/-. The Assessing Officer opined that the demolition resulted in a capital loss, which the assessee disputed by providing detailed submissions regarding modifications in plans, court cases, and amendments in rules and regulations.

The Assessing Officer's decision was based on the inference that the expenditures incurred on the commercial property, which was subsequently demolished, constituted a business loss. The CIT(A) upheld this treatment, distinguishing a decision of the Delhi High Court cited by the assessee regarding the project completion method. The ITAT Mumbai, after hearing both parties, found that the authorities had not properly appreciated the detailed submissions made by the assessee. The Tribunal observed that the matter required a thorough examination of the veracity of the assessee's submissions, particularly regarding changes in rules and plans, and directed the Assessing Officer to reconsider the issue with reference to relevant evidence.

The ITAT Mumbai emphasized that substance prevails over form, and the assessee's claim of work-in-progress needed to be re-evaluated in light of the project completion method. The Tribunal remitted the issue to the Assessing Officer for a fresh consideration, instructing a detailed examination of the assessee's submissions and granting the assessee an adequate opportunity to present their case. The delay in pronouncement was attributed to the Covid-19 lockdown, in compliance with Rule 34(5) of the Appellate Tribunal Rules and a Bombay High Court decision extending time-bound periods. Ultimately, the appeal by the assessee was allowed for statistical purposes on 16th July 2020.

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