Excess work in progress from survey under section 69B cannot be taxed under section 115BBE as closing stock

ITAT Pune held that excess work in progress detected during survey and accepted by assessee under section 69B cannot be taxed under section 115BBE as it forms part of closing stock. The additional income declared becomes opening stock for subsequent assessment year 2016-17, allowing deduction while computing income. Regarding section 80IA deduction for wind power generation, ITAT ruled each windmill constitutes separate undertaking based on CBDT Circular 1/2016 and consistent with tribunal's previous decisions in assessee's own case for assessment years 2012-13 to 2014-15. Appeals allowed on both issues.

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Issues Involved:
1. Taxability of additional income declared during survey under Section 69B of the Income Tax Act, 1961.
2. Treatment of excess work in progress (WIP) declared during survey as part of closing WIP and its availability as opening WIP in the subsequent year.
3. Eligibility and computation of deduction under Section 80IA(4) of the Income Tax Act for windmills.

Detailed Analysis:

1. Taxability of Additional Income Declared During Survey Under Section 69B:
Facts and Arguments:
- The assessee, a partnership firm engaged in civil construction and power generation, declared additional income of Rs. 3,11,76,525/- during a survey conducted under Section 133A.
- The Assessing Officer (AO) added this amount as unexplained investment under Section 69B, citing that the excess stock was not accounted for in regular books.
- The AO held that no deduction is allowable against deemed income taxable under Sections 69 to 69D, as per Section 115BBE.
- The CIT(A) upheld the AO's decision, emphasizing that the onus of explaining the source of undisclosed income is on the assessee.

Tribunal's Decision:
- The Tribunal found merit in the assessee's argument that the additional income declared was based on impounded documents showing higher work in progress and no unaccounted expenditure was found.
- It noted that Section 69B does not explicitly prohibit considering such declared income as part of closing stock.
- The Tribunal held that the additional income declared as excess work in progress should form part of the closing stock and cannot be taxed under Section 115BBE.
- Consequently, the grounds raised by the assessee on this issue were allowed.

2. Treatment of Excess Work in Progress (WIP) Declared During Survey:
Facts and Arguments:
- The assessee claimed the excess WIP declared during the survey as part of the closing WIP for the assessment year 2015-16 and as opening WIP for 2016-17.
- The AO and CIT(A) rejected this claim, stating that allowing this would contradict Section 115BBE(2), which prohibits deductions against deemed income.

Tribunal's Decision:
- The Tribunal agreed with the assessee that the excess WIP declared should be considered as part of the closing WIP for 2015-16 and thus as opening WIP for 2016-17.
- It emphasized that the assessee did not claim any deduction or expenditure against the additional income declared.
- The Tribunal directed that the closing stock as on 31.03.2015 should be the opening stock for 2016-17, allowing the assessee's claim for deduction in the subsequent year.

3. Eligibility and Computation of Deduction Under Section 80IA(4) for Windmills:
Facts and Arguments:
- The assessee claimed deduction under Section 80IA(4) for profits derived from windmills.
- The AO denied the claim, arguing that all windmills should be considered as a single undertaking and that notional brought forward losses should be set off against the profits.
- The CIT(A) allowed the claim, following previous Tribunal decisions that each windmill should be treated as a separate undertaking.

Tribunal's Decision:
- The Tribunal upheld the CIT(A)'s decision, reiterating that each windmill should be considered a separate undertaking for the purpose of Section 80IA(4).
- It referenced multiple Tribunal and High Court decisions supporting this view, including the CBDT Circular No.1 of 2016, which clarified that the initial assessment year is when the deduction is first claimed.
- The Tribunal dismissed the Revenue's appeals, affirming that the assessee's windmills should be treated as separate units for deduction purposes.

Conclusion:
The Tribunal allowed the assessee's appeals regarding the treatment of additional income declared during the survey and the excess WIP, and upheld the CIT(A)'s decision on the eligibility and computation of deduction under Section 80IA(4) for windmills. The Revenue's appeals were dismissed.

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