TaxTMI 
TaxTMI 
2018 (4) TMI 319
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....ii. That on facts and circumstances of the case, the Ld. principle Commissioner of income tax has entered in law in allowing the jurisdictional assessing officer passed an order under section 263 read with section 143 (3) of the act. 3. The brief facts of the case are that assessee is a company engaged in the business of making of advertising films, feature films, documentaries and all related work. It filed its return of income on 26/9/2011 and total income of Rs. 2,61,58,730/-. The assessment u/s 143 (3) of the act was completed at the returned income vide order dated 28/2/2014. Subsequently, on examination of the record, the Ld. PCIT issued a show cause notice on 15/02/2016 holding that as per communication received from the senior departmental representative , ITAT, it was found that the no proportionate disallowance out of indirect expenses claimed in Profit and loss account in computing the work in progress had been made for the A.Y. 2011 - 12. It was further stated that on the similar disallowance by adjustment out of indirect expenses under the work in progress had been made for assessment year 2009 -10. According to the Ld. PCIT the order of the Ld. AO is erroneous and ....
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....ogy adopted by the assessee in arriving at the value of work in progress, but he should have also brought in some tangible material in the assessment order which would conclusively prove that the AO had applied his own mind to the material gathered with regard to the valuation of work in progress made in accordance with the said principles of accounting. Therefore according to him, there is no material available on the record suggesting so. He that in the submission dated 28/11/2013, it was fast submitted that it has taken into account both direct and indirect expenses in arriving at the value in progress as on 31/3/2011 further noted it. Further he noted that however in the later part of the same letter the authorized representative has claimed that the assessee followed direct cost method for valuing the projects remaining incomplete as on the balance sheet date. Therefore according to him it was an apparent contradiction in the submission of the assessee which was not examined by the Ld. assessing officer. Therefore, the Ld. CIT was of the opinion that there was no definite finding by the Ld. AO that valuation of work in progress was carried out by the assessee in accordance and....
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....te on sales to work in progress and restored the matter to the file of the Ld. assessing officer with a direction to examine all the expenses under administrative expenses other than directors remuneration on case to case basis, to find out whether the same are directly related to any of the three projects in reference and then include the specific expenses which are directly related to the project to the work in progress. He therefore submitted that as assessee has already included the direct cost therefore, the issue is squarely covered in favour of the assessee and therefore it cannot be said that the order of the Ld. assessing officer is erroneous. He further referred to the questionnaire issued by the Ld. assessing officer dated 5/6/2013 wherein as per serial No. 16 the Ld. assessing officer has asked for the details of the closing stock and also the basis of the valuation of the closing stock. He further referred to the letter dated 12/8/2013 submitted before the Ld. assessing officer wherein at serial No. 4 of the assessee has shown the details of the pending disputes between the revenue and the assessee with respect to the valuation of work in progress pending for assessmen....
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....ently submitted that explanation 2 inserted in section 263 of the income tax act by Finance Act 2015 w.e.f. 1/6/2015 clearly covers the issue in favour of the revenue as order is passed without making any inquiry and verifications which should have been made in view of the earlier orders of the AO. Even otherwise, she submitted that the coordinate bench itself has held that each expenditure is required to be considered out of the administrative expenses incurred by the assessee for valuation of WIP. In the present the case according to the explanation given by the assessee before the Ld. PCIT vide page No. 4 when the LD PCIT has given the proportionate expenses to be added to the work in progress amounting to Rs. 1714686/-. Therefore, it was submitted that there is an error in the order passed by the Ld. assessing officer originally for the reason that it is not also in conformity with the order of the coordinate bench in assessee's own case for assessment year 2009 -10. Further the ld AO has not applied his mind to the valuation of the work in progress made by the assessee. The Ld. CIT DR are also relied on the decision of the Hon'ble Supreme Court in case of Malabar industrial Co....
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....he Ld. assessing officer should have examined valuation of work in progress of the assessee in a particular manner to include part of the indirect expenditure, which are attributable to the particular projects. In the present case, it is apparent that Ld. assessing officer has not considered the issue in AY 2009 - 10 wherein it was considered. In that particular year the assessee has incurred administrative expenses and out of which only travelling expenses and professional fees were considered as the fixed expenditure related to the specific project and the balance expenditure was considered as expenditure under the profit and loss account and therefore they were not loaded to the cost of the work in progress. The matter reached to the level of the coordinate bench and wherein the issue was set aside to the file of the Ld. assessing officer with a direction to examine all expenses under administrative head whether they are related to the specific projects or not. In the present case also the total administrative expenditure incurred by the assessee of Rs. 30383018/- . Howvere assessee has alos transferred some of the expenditure to WIP. However still assessee has debited the unall....
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....ssue is pending before the coordinate bench where the issue involved is the valuation of the closing stock of work in progress. Even that does not show that the assessing officer has applied is mind on to determine the cost of the work in progress according to the earlier history of the case of the assessee. Therefore, according to us there is no Inquiry made by the Ld. assessing officer about the valuation of the closing stock of work in progress. Therefore, according to us the case of the assessee falls under the category of lack of Inquiry and not even the case of inadequate Inquiry. The Ld. authorized representative has cited before us the decision of the Mumbai bench in case of Narayan Tatu Rane in 70 Taxmann.com 227 wherein the recently introduced explanation has been considered in para No. 20 as under:- "20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out....