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2019 (10) TMI 630 - AT - Income TaxSale of scrap - Chargeability to tax - addition u/s 40A - HELD THAT:- Assessee was undertaking development of certain project and sole activity being carried out by the assessee was construction activity. The same is evident from the fact that WIP stood at ₹ 12.93 Crores at year-end. It is also undisputed fact that the assessee was following project completion method of accounting to offer income under the project. Therefore, the scrap generated out of construction / development activity, in our considered opinion was inextricably linked with assessee’s main activity and therefore, the same would rightly go on to reduce WIP. Therefore, this addition would not be sustainable in law. The assessee has rightly deducted the same from WIP. On the similar analogy, the disallowance made by Ld. AO u/s 40A(3) @20% of cash expenditure would not be separate item of addition but since no expenditure has been claimed by the assessee during the year, the same would go on to reduce WIP account. Therefore, Ld. AO is directed to reduce the said disallowance of ₹ 3 Lacs from WIP account. Additions u/s 69C - HELD THAT:- Upon perusal of factual matrix, we find that total expenditure found to be incurred by the assessee was ₹ 37.67 Lacs. Out of this expenditure, the amount paid through cheques was ₹ 12.73 Lacs. The cash expenditure is stated to be made to the extent of ₹ 15 Lacs, for which the assessee has already been saddled with disallowance u/s 40A(3) @20%. This would leave unexplained balance of ₹ 9.94 Lacs. The same would stand confirmed in view of the fact that the source of the same remained unexplained. Hence, the addition to the extent of ₹ 9.94 Lacs stands confirmed. These grounds stand partly allowed.
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