Rajasthan High Court - Jaipur
Pr Commissioner Of Income Tax-I Jaipur vs M/S Panchsheel Colonizers Pvt Ltd on 20 February, 2018
Author: K.S.Jhaveri
Bench: K.S.Jhaveri
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT
JAIPUR
D.B. Income Tax Appeal No. 3 / 2018
Principal Commissioner of Income Tax-I, New Central Revenue
Building, Statue Circle, Jaipur (Raj.)
----Appellant
Versus
M/s. Panchsheel Colonizers Pvt. Ltd., C-17, Panchsheel Colony,
Ajmer Road, Jaipur.
----Respondent
D.B. Income Tax Appeal No. 4 / 2018
Principal Commissioner of Income Tax-I, New Central Revenue
Building, Statue Circle, Jaipur (Raj.)
----Appellant
Versus
M/s. Panchsheel Colonizers Pvt. Ltd., C-17, Panchsheel Colony,
Ajmer Road, Jaipur.
----Respondent
_____________________________________________________
For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay
_____________________________________________________
HON'BLE MR. JUSTICE K.S.JHAVERI
HON'BLE MR. JUSTICE VIJAY KUMAR VYAS
Judgment
20/02/2018
1. In both these appeals common question of law and facts are
involved hence they are decided by this common judgment.
2. By way of these appeals, the appellant has assailed the
judgment and order of the Tribunal whereby tribunal has
dismissed the appeals of the department.
3. Counsel for the appellant has framed following substantial
questions of law:-
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3.1 Appeal No.3/2018
"i) Whether on the facts and circumstances of
the case, the Tribunal was justified in deleting
the addition made by the Assessing Officer by
applying Percentage Completion Method,
without appreciating that the actual receipts on
sale of flats could be ascertained on the basis of
sale/allotment agreements entered by the
assessee and the assessee has contravened AS-
7 and AS-9, which tantamount to not following
AS-1 provided in Section 145(2) of the Act?
ii) Whether on the facts and circumstances of
the case, the Tribunal was justified in holding
that the Assessing Officer rejected the accounts
on the sole ground that the assessee has not
followed Accounting Standard-7 and AS-9 for
recognition of revenue, though the AO had
examined actual allotment agreement and had
then reached the conclusion that revenue could
be reliably recognized on the basis of
Percentage Completion Method?
iii) Whether on the facts and circumstances of
the case the tribunal has erred in confirming
deletion the disallowance made under Section
40(a)(ai) on the ground that assessee has
followed project completion method and
expenses have not been claimed ignoring the
fact that said expenses were included in work-
in-progress, to be claimed as revenue expenses
subsequently?"
3.2 Appeal No.4/2018
"i) Whether on the facts and circumstances of
the case, the Tribunal was justified in deleting
the addition made by the Assessing Officer by
applying Percentage Completion Method,
without appreciating that the actual receipts on
sale of flats could be ascertained on the basis of
sale/allotment agreements entered by the
assessee and the assessee has contravened AS-
7 and AS-9, which tantamount to not following
AS-1 provided in Section 145(2) of the Act?
ii) Whether on the facts and circumstances of
the case, the Tribunal was justified in holding
that the Assessing Officer rejected the accounts
on the sole ground that the assessee has not
followed Accounting Standard-7 and AS-9 for
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recognition of revenue, though the AO had
examined actual allotment agreement and had
then reached the conclusion that revenue could
be reliably recognized on the basis of
Percentage Completion Method?
iii) Whether on the facts and circumstances of
the case the tribunal has erred in confirming
deletion the disallowance made under Section
40(a)(ai) & 40A(3) on the ground that assessee
has followed project completion method and
expenses have not been claimed ignoring the
fact that said expenses were included in work-
in-progress, to be claimed as revenue expenses
subsequently?"
4. The facts of the case are that the appellant had filed return
of income on 29.9.2011 declaring nil income. Subsequently, the
same was selected for scrutiny and notice u/s 143(2) was issued
on 1.8.2012. The appellant is a real state developer and has
launched a residential scheme at Ajmer Road, Jaipur. The AO
observed that the appellant had not prepared any P & L account
for the year under consideration. The company has prepared a
statement of work in progress and capitalized all sort of direct and
indirect expenses. The AO was not satisfied with the system of
accountancy being adopted by the appellant and he proceeded to
re-cast the trading and profit and loss account taking into
consideration the previous assessment made in the appellant's
own case. Thereafter, he considered the allowability of various
expenses and held that donation and charity of Rs.2,70,200/-,
Interest on TDS of Rs.33,442/-, Depreciation on AC of Rs.7,670/-
are not allowable. Further, he made disallowance of
Rs.1,22,65,012/- by invoking the provisions of section 40(a)(ia).
Thus, the income was computed at Rs.14,51,770/-. After setting
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off the unabsorbed depreciation for A.Y. 2008-09 and 2009-10,
the total income was assessed at NIL.
5. Now, the issues are squarely covered by the decision of this
court in ITA No.23/2013 (CIT Central Jaipur vs. M/s Unique
Builders And Developers Jpr) decided on 19.5.2017 wherein it has
been observed as under:-
"4.3 Counsel for the appellant has relied
upon the decision of Supreme Court in the
case of S.N. Namasivayam Chettiar vs.
The Commissioner of Income Tax,
Madras AIR 1960 SCC 729 where the
Supreme Court has observed as under:
"10. It was then urged that the four
reasons given, which we have out above,
could not make s. 13 applicable. For the
rejection of accounts several reasons were
given by the Appellate Tribunal; one these
reasons was the non-production of stock
registers and manufacturing accounts This
reason was given by the Income-tax Officer
and adopted by the Appellate Tribunal. It
was submitted that the non-production of
stock account was not such a defect as to
entitle the Taxing Authorities to reject the
books and apply the proviso to S. 13.
Reliance was placed on the judgment of the
Punjab High Court in Pandit Brothers v.
Commissioner of Income-tax, Delhi,
MANU/PH/0015/1955. The facts in that case
were very different. The income-tax Officer
there added a certain sum to the assessee's
profits on the ground that the expense ratio
was too high and the profits disclosed were
too low and there was no stock register. The
finding in that case was that the assessee
maintained regular accounts of his
purchases and sales and there was no
finding by Income-tax Officer that in his
opinion the income could not properly be
deduced therefrom. Khosla, J. (as he then
was) there said :
'There is no finding that there was material
before the Income-tax Officer to lead him to
the conclusion that a proper statement of
income, profits and gains could not be
deduced from the material placed before
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him. All he said was that the profits
appeared to be somewhat low and there
was no stock register'.
The want of a stock register was, in that
particular case, not a very serious defect
because the account books had been found
and accepted as correct and disclosed a
true state of affairs. It cannot therefore be
said that that case laid down as a
proposition of law that the want of a stock
register by which a proper check could be
made was not such a serious defect as to
make the proviso to s. 13 inapplicable."
4.4 He has also relied on the decision in
the case of Commissioner Of Income Tax,
vs. M/S Bilahari Investment (P) Ltd. 2008
(4) SCC 232 wherein it is held as under:
"11. The limited controversy is whether the
completed contract method of accounting
adopted by the assessees as method of
accounting for chit discount is required to
be substituted by percentage of completion
method.
12. In this connection, it is the case of the
assessees that, profits (loss) accrued to the
assessees only when the dividends
exceeded the discount paid and that
difference could be known only on the
termination of the chit when the total figure
of dividend received and discount paid
would be available. That, it would be
possible for the assessees to make profits
only when the sum total of the dividend
received exceeded the sum total of
discounts suffered which is debited to P & L
account. According to the assessees, the
Department has all along been accepting
the completed contract method and,
therefore, there was no justification in law
or in facts for deviating from the accepted
practice. According to the assessees, a chit
transaction has been treated by the various
courts as one single scheme running for the
full period and, therefore, according to the
assessees, the completed contract method
adopted by it over the years was not
required to be substituted by any other
method of accounting.21. Before
concluding, we may point out that
under section 211(2) of the Companies Act,
Accounting Standards ("AS") enacted by
the Institute of Chartered Accountants
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havenow been adopted [see: judgment of
this Court in J.K. Industries case (supra)].
Shri Tripathi, learned counsel for the
Department, has placed reliance on AS 22
as the basis of his argument that the
completed contract method should be
substituted by deferred revenue
expenditure (spreading the said
expenditure on proportionate basis over a
period of time). He also relied upon the
concept of timing difference introduced by
AS 22. It may be stated that all these
developments are of recent origin. It is
open to the Department to consider these
new accounting standards and concepts in
future cases of chit transactions. We
express no opinion in that regard. Suffice it
to state that, these new concepts and
accounting standards have not been
invoked by the Department in the present
batch of civil appeals."
4.5 He has further relied upon the
decision in the case of (2008) 15 SCC 112
wherein it has been held as under:
"In cases where the Department wants to
tax an assessee on the ground of the
liability arising in a particular year, it
should always ascertain the method of
accounting followed by the assessee in the
past and whether change in method of
accounting was warranted on the ground
that profit is being under estimated under
the impugned method of accounting. If the
AO comes to the conclusion that there is
under estimation of profits, he must give
facts and figures in that regard and
demonstrate to the Court that the
impugned method of accounting adopted
by the assessee results in under estimation
of profits and is therefore rejected.
Otherwise, the presumption would be that
the entire exercise is Revenue neutral."
5. Counsel for the appellant has
contended that the observations which
have been made by the Tribunal in para 12
& 13 are contrary to law, which reads as
under:
We have heard parties with reference to
material on record. The rival submissions
as well as case laws brought to our notice
have duly been considered. The assessee is
engaged in the business of construction as
a builder/real estate developer. The
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appellant has maintained complete books
of account which are duly audited by a
qualified Chartered Accountant. The
assessee maintains its accounts on
mercantile basis by regularly employing
Project Completion Method. The closing
stock has been valued consistently at lower
of cost or net realizable value. The auditors
have reported no change in method
adopted by the assessee. The revenue has
accepted this method in regular
assessments made from year to year. An
action under section 132 of the IT Act
("Act" for short) was taken on its business
premises on 28.01.2009. On the same very
day the members of the appellant group as
well as of the separated group and their
business/residential premises were also
searched by the department. The
assessee-appellant furnished return of
income in response to notice issued under
section 153A of the Act. The return of
income was furnished on the basis of books
of account maintained by it as no
document giving rise to undisclosed income
was found or detected by the search party.
The books of account seized during the
course of search were considered in
making the assessment pursuant to notices
issue under section 153A of the Act. The
Assessing Officer reached a finding that the
books of account maintained by the
assessee did not present true and complete
picture of its accounts and financial
transactions. The Assessing Officer after
making elaborate discussion has rejected
the books of account of the assessee by
application of provisions of section 145(3)
of the Act as they failed to depict the
complete picture of accounts and moreover
do not follow the method of accounting
standard as specified under section 145(2)
of the Act. The Assessing Officer has drawn
support from few judgments rendered by
the Appellate Tribunal and also by the
judgment in the case of Kachwala Gems
vs. JCIT,
MANU/SC/8797/2006MANU/SC/8797/2006
: 288 ITR 10 (SC) for invoking provisions
of section 145(3) of the Act.
"12.1. Section 145 as is relevant in the year
under appeal is reproduced as under:-
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Sec. 145(1) Income chargeable under the
head "Profits and gains of business or
profession" or "Income from other sources"
shall, subject to the provisions of sub-
section (2), be computed in accordance
with either cash or mercantile system of
accounting regularly employed by the
assessee.
(2) The Central Government may notify in
the Official Gazette from time to time
accounting standards to be followed by any
class of assessees or in respect of any class
of income.
(3) Where the Assessing Officer is not
satisfied about the correctness or
completeness of the accounts of the
assessee, or where the method of
accounting provided in sub-section (1) or
accounting standards as notified under sub-
section (2), have not been regularly
followed by the assessee, the Assessing
Officer may make an assessment in the
manner provided in section 144.
12.2. The first basis taken by the Assessing
Authority in reaching a finding that the
assessee's accounts do not depict correct
and complete picture of its accounts is that
the assessee has not maintained a detailed
qualitative and quantitative stock register
and failed to get the valuation of its closing
stock verified with the detailed day-wise
qualitative cum quantitative stock register.
The appellant's case before the authorities
below has, however, been that the
assessee had kept both quantitative and
qualitative details of material purchased by
it as is evident from various ledger
accounts related to construction material
that were forming part of the seized
material available with the assessing
authority. All the expenses relating to the
project including material purchased were
charged to project/work-in-progress and
directly taken to the balance sheet. In
other words, the materials purchased for
the project are issued to site immediately
after its purchase and transferred to
project in progress for determining profit at
the time of completion of the project. No
expenditure is charged to Profit & Loss
account. The quantity so issued to the
sites/projects is recorded in separate
records maintained for each item of
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building material used therein. There was
thus no need to maintain a detailed
quality-wise quantitative register by the
appellant. The lower authorities have not
pointed out any defect in the valuation of
project/work-in-progress. It is also not the
case of the Assessing Officer that there
have been omission or failure to record any
purchases or direct expenses to the project
in process nor even the case is that the
assessee has inflated the cost of such stock
held and disclosed by the assessee in the
financial statements presented along with
the return of income. In fact, this is a case
where the accounts were found duly
audited by a qualified Chartered
Accountant with no adverse comments with
respect to correctness and completeness of
the accounts maintained by the assessee
or the method of valuation adopted by him.
The appellant has valued the stock of
project in process at cost as all the
purchases of materials and direct expenses
were charged to this account. The books of
account stood seized as a result of search
on assessee-appellant and the same were
available with the Assessing Officer. The
assessee had also produced requisite
vouchers and other documents as were
demanded by the Assessing Officer from
time to time. It was, therefore, his own
duty to verify quantity of each quality of
goods purchased by the assessee and
correctness of valuation disclosed in the
accounts. For the remissness on the part of
the Assessing Officer, assessee cannot be
blamed. The Assessing Officer also appears
to have casually stated that as per AS-2 it
is essential that the details of both quality
as well as quantity of different items of
stocks including details of direct expenses
and costs are required to be maintained
meticulously. In fact, the AS-2 notified by
the CBDT relates to disclosure of prior
period and extra ordinary items and
change of accounting policies. The
accounts maintained by the assessee-
appellant conform to the commercially
accepted accounting standards and true
profits of assessee's business could be
deduced therefrom. The findings reached
by the Assessing Officer are thus not
factually correct with respect to the lacuna
pointed out by him on maintenance of
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stock record as well as valuation of
inventory held by the assessee.
12.3. In the case of Pandit Brothers vs. CIT,
MANU/PH/0015/1955MANU/PH/0015/1955
: 26 ITR 159, the Hon'ble Punjab & Haryana
High Court has held that the mere fact that
there is no stock register, it only cautions
him against the falsity of the return made
by the assessee. He cannot say that merely
there is no stock register, the accounts book
must be false. The Hon'ble Supreme Court
took note of this judgment in the case of
S.N. Namasivayam Chettiar vs. CIT, 38 ITR
570 (SC) and held that it is for the Income-
tax authorities to consider the material
which is placed before him and if after
taking into account in any case the absence
of stock register coupled with other
material, are of the opinion that correct
profits and gains could not be deduced then
they would be justified in applying the
proviso to section 13 of the IT Act, 1922.
On the peculiar facts in the present case in
appeal before us, merely because of non-
maintenance of a detailed qualitative and
quantitative register alone, the same could
not be a valid reason to reach a finding that
books of account do not present true and
complete picture of accounts and financial
transactions. The finding by the assessing
authority being perverse is, therefore, set
aside.
12.4. The second issue raised by the
assessing authority for invoking provisions
of section 145 of the Act is about non
verification of some of the vouchers
relating to payment in respect of direct
expenses. The perusal of the impugned
order reveals that this was only a prima
facie view which the assessing authority
entertained before issuing a show cause
notice to the assessee for rejecting its
accounts by invoking provisions of section
145(3) of the Act. He has not been able to
point out as to which of these payments in
respect of direct expenses could not be
verified by him nor the Assessing authority
is shown to have required the assessee to
get payment of any specific amount of
direct expenses verified. Merely for saying
it could not be taken a lacuna in the books
of account of the assessee and take the
same as a reason for rejecting the books of
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account that were maintained by assessee
in regular course of its business.
12.5. Thirdly, the Assessing Officer has
taken the reasoning that the search
proceedings revealed incriminating
documents which contained nothings of
receipt of cash "out of books" by the
members of Unique Group of which the
assessee is an important member. The Ld.
CIT (A) in paras 13.1 to 13.3 of the
impugned order has supported the findings
reached by assessing authority by stating
that the group is owned and controlled by
two brothers, namely, Shri Ajay Pal Singh
and Shri Ajit Singh and their sons. During
the search and seizure operation evidence
of "on money" received on sale of different
flats of this firm were found and were also
admitted by the partners of the firm Shri
Ravinder Singh/Shri Ajit Singh. Moreover,
the "on-money" so received was also
included as undisclosed income in the
return of income so filed by one of the
partners. We, therefore, required the Ld.
D/R to produce such material and evidence
so as to test the correctness of the veracity
of the authorities below as the appellant
has categorically denied of receipt of any
"on-money" in the joint business carried
with his separated brother Shri Ajit Singh
and his son. The separation had occasioned
in the year 2006 which is a date much
prior to the date of action taken under
section 132 of the Act on the appellant.
From the record produced, we find that it is
a correct fact that these two groups have
separated from joint business in the year
2006 and thereafter carried business with
no interest or involvement of the other
brother. This fact, the appellant also
disclosed by way of a foot note on the
computation of income filed along with
return of income. The statements given by
Shri Ajit Singh and Shri Ravinder Singh
during the course of search admittedly
were with regard to receipt of extra money
with respect to the flats sold by them.
These sales were not of the projects done
jointly with the appellant, its constituents
or family members. The "on-money" so
received by them has been disclosed and
applied to explain the transactions of their
independent business unrelated to the
appellant and its constituents. The
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statements so taken, therefore, did not
constitute a material or evidence for
rejecting the books of account maintained
by the assessee in saying that the monies
received as earnest money or advances
towards sale of its flats are not fully
accounted. The reason so taken by the
Assessing Officer for rejecting the accounts
is thus vitiated and unfounded.
----
----
----
12.8. The Hon'ble Kerala High Court in the
case of St. Teresa's Oil Mills vs. State of
Kerala, 76 ITR 365 (Ker.) has entertained a
view that the accounts regularly maintained
by the assessee in the course of business
have to be taken as correct unless there are
strong and sufficient reasons to indicate
that they are unreliable. The department
has to prove satisfactorily that the accounts
books are unreliable, incorrect or
incomplete before rejecting the accounts.
The rejection of books is not a matter to be
done light heartedly.
12.9. There is also a feeble observation in
the orders of the authorities below for
rejecting the accounts that in the trade of
real estates 'notorious trade practices' are
prevailing. The Ld. Counsel for the
assessee has placed reliance on the
judgment by Hon'ble Apex Court in the
case of Lalchand Bhagat Ambica Ram vs.
CIT,
MANU/SC/0081/1959MANU/SC/0081/1959
: 37 ITR 288 (SC) and also by Hon'ble
Delhi High Court in the case of CIT vs.
Discovery Estate Pvt. Ltd. 2013 TIOL 139
High Court DEL-IT in which the practice of
making additions in the assessment on
mere suspicions and surmises or by taking
note of the 'notorious trade practices'
prevailing in trade circles has been
disapproved. Having considered the
aforesaid view, the finding of "on-money
transactions" in the appellant's case by the
authorities below is found without any
basis and found perverse on facts. It,
therefore, could not be a reason for
rejecting the books of account maintained
by the assessee in regular course of
business.
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12.10. The last reasoning taken by the
assessing authority as also stood confirmed
by the Ld. CIT (A) is that the assessee has
not followed Accounting Standards 9 & 7
which tantamount to not following
Accounting Standard-1 as prescribed under
section 145(2) of the Act in view of the
exercise undertaken by the Assessing
Authority to apply percentage of project
method that gave a different and positive
results revealing more profits taxable in
the years under consideration. The
Assessing Officer, therefore, changed the
method to percentage completion method
as against the project completion method
regularly employed by the assessee. The
admitted position and also the fact is that
the appellant has regularly employed
project completion method from year to
year and the assessments prior to the date
of search were also made by accepting
project completion method. Both Project
Completion method and the Percentage
Completion method are recognized
methods for assessment of correct income
of the assessee under the IT Act, 1961.
The choice of method of accounting,
however, lies with the assessee. It is not
open to the Assessing Officer to change his
own opinion or change the method of
accounting because he finds another
method of accounting better than the one
adopted regularly by the assessee and by
rejecting his accounts substitute the same
with another method of accounting without
any just and reasonable cause. In the
present case the exercise so undertaken
being imaginary and rested on irrelevant
considerations could not constitute a just
or reasonable cause empowering the
authority to change the method of
accounting regularly adopted by the
appellant. The revenue has also not been
able to successfully demonstrate that the
method of accounting provided under sub-
section (1) or Accounting Standard notified
under sub section (2) of section 145 of the
Act have not been regularly followed by the
assessee. Even for the first year, the
method of accounting is deemed to have
been employed if the same is shown to
have been regularly employed in
subsequent years. The decision by Hon'ble
Delhi High Court in the case of CIT vs.
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Smt. V. Sikka & Another (1984) 149 ITR 73
(Del.) is relevant. The real estate
developer is not a pure contractor but is a
seller of flats/goods. The revenue
recognition in the case of sale of goods is
triggered on completion of performance as
provided in para 11 of AS-9 " revenue
recognition". It is not mandatory for a real
estate developer to follow percentage of
completion method as prescribed by the
Institute of Chartered Accountants of India
under AS-7. AS-7 issued by the Institute of
Chartered Accountants of India, recognizes
the position that in the case of construction
contracts the assessee can follow either
the project completion method or the
Percentage completion method. The
judgment by Hon'ble Delhi High Court in
the case of CIT vs. Manish Buildwell (P)
Ltd. in ITA No. 928/2011 dated 15.11.2011
is relevant. Neither the revised Guidance
Notes 2012 issued by Institute of
Chartered Accountants of India nor the
Exposure Draft for Guidance Note on
Recognition of Revenue issued by the
Institute of Chartered Accounts of India in
2011 are mandatory. The completed
contract method followed by the appellant,
therefore, could not be faulted with by the
revenue and the assumptions made by the
Assessing Officer that by not following AS-
9 & 7 the same tantamount to not
following prescribed AS-1 under section
145(2) of the Act are found misplaced,
unnecessary and uncalled for besides being
contrary to principles ofinterpretation of
the statutory provisions. The same,
therefore, could not be taken a valid basis
for change of method regularly employed
by the appellant. The Income-tax
Authority, therefore, has no option or
jurisdiction to meddle in the matter either
by directing the assessee to maintain its
account in a particular manner or adopting
a different method for valuing work-in-
progress. It also cannot recompute income
by adopting any method other than that
regularly employed by the assessee-
appellant in a case like this nor make the
same as basis to reject its accounts.
12.11. The Apex Court in the case of CIT
vs. McMillan & Co. 33 ITR 182 (SC) at page
188 has also entertained this opinion which
is evident from the following passage:-
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The section enacts that for the purposes of
section 10 (profits of business, profession
or vocation) and section 12 (income from
other sources) income, profits and gains
must be computed in accordance with the
method of accounting regularly employed
by the assessee. The choice of the method
of accounting lies with the assessee; but
the assessee must show that he has
followed the method regularly for his own
purposes. The section and the proviso read
together clearly make such a method of
accounting regularly employed by the
assessee a compulsory basis of computation
unless, in the opinion of the Income-tax
Officer, the income, profits and gains cannot
properly be deduced therefrom. If the true
income, profits and gains cannot be
ascertained on the basis of the assessee's
method, or where no method of accounting
has been regularly employed, the income
must be computed upon such basis and in
such manner as the Income-tax Officer may
determine.
12.12. Again the Apex Court in the case of
Investment Ltd. vs. CIT
MANU/SC/0265/1970MANU/SC/0265/1970
: 77 ITR 533 (SC) at page 537 and 538
has taken a view that the tax payer is free
to employ any method of accounting but
the same should be consistently and
regularly followed by him. This is so
evident from the following passage:-
In the balance-sheet, it is true, the
securities and shares are valued at cost, but
no firm conclusion can be drawn from the
method of keeping accounts. A taxpayer is
free to employ, for the purpose of his trade,
his own method of keeping accounts, and
for that purpose to value his stock-in-trade
either at cost or market price. A method of
accounting adopted by the trader
consistently and regularly cannot be
discarded by the departmental authorities
on the view that he should have adopted a
different method of keeping account or of
valuation. The method of accounting
regularly employed may be discarded only
if, in the opinion of the taxing authorities,
income of the trade cannot be properly
deduced therefrom. Valuation of stock at
cost is one of the recognized methods.
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12.13. The Apex Court in the case of United
Commercial Bank vs. CIT
MANU/SC/0623/1999MANU/SC/0623/1999
: 1999 240 ITR 355 (SC) after considering
the judgment in the case of British Paints
India Ltd.
MANU/SC/0729/1990MANU/SC/0729/1990
: 188 ITR 44 (SC) which is also relied upon
by the authorities below against the
appellant before us is found to have
entertained a view that a method of
accounting adopted by the tax payer
consistently and regularly cannot be
discarded by the departmental authorities
on the view that he should have adopted a
different method of keeping of accounts or
of valuation. The Revenue's reliance upon
the decision in CIT vs. British Paints India
Ltd. (supra) in no way advanced the case of
the revenue. The Apex court while dealing
with the contention of the assessee in that
case for valuation of the raw material
without taking into account any portion of
the cost of manufacture, held that:- the
question of fact which the Assessing Officer
must necessarily decide is whether or not
the method of accounting followed by the
assessee discloses the true income and
observed thus (page 51):
It is a well-recognised principle of
commercial accounting to enter in the profit
and loss account the value of the stock-in-
trade at the beginning and at the end of the
accounting year at cost or market price,
which-ever is the lower.
The court further considered section 145 of
the Act and observed that what is to be
determined by the officer in exercise of the
power is a question of fact, that is, whether
or not income chargeable Under the Act can
be properly deduced from the books of
account and the question must be decided
with reference to the relevant material and
in accordance with the correct principles.
The court also observed (page 52):
Where the market value has fallen before
the date of valuation and, on that date, the
market value of the article is less than its
actual cost, the assessee is entitled to value
the articles at market value and thus
anticipate the loss which he will probably
incur at the time of the sale of the goods.
Valuation of the stock-in-trade at cost or
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market value, whichever is the lower, is a
matter entirely within the discretion of the
assessee. But which-ever method he
adopts, it should disclose a true picture of
his profits and gains. If, on the other hand,
he adopts a system which does not disclose
the true state of affairs for the
determination of tax, even if it is ideally
suited for other purposes of his business,
such as the creation of a reserve,
declaration of dividends, planning and the
like, it is the duty of the Assessing Officer to
adopt any such computation as he deems
appropriate for the proper determination of
the true income of the assessee. This is not
only a right but a duty that is placed on the
officer, in terms of the first proviso to
section 145, which concerns a correct and
complete account but which, in the opinion
of the officer, does not disclose the true and
proper income.
Hence, for the purpose of income-tax
whichever method is adopted by the
assessee, a true picture of the profits and
gains, that is to say, the real income is to
be disclosed. For determining the real
income, the entries in a balance-sheet
require to be maintained in the statutory
form, may not be decisive or conclusive. In
such cases, it is open to the Income-tax
Officer as well as the assessee to point out
the true and proper income while
submitting the income-tax return.
12.14. The Hon'ble Andhra Pradesh High
Court in the case of CIT vs. Margadarshi
Chit Funds (P) Ltd., 155 ITR 442 (AP) did
not find any justification in the
entertainment of the view by the Assessing
Officer that there could be a better system
of accounting. This is no reason to the
application of the provisions of section 145
of the Act. The relevant passage as
contained at page 447 of the report is
reproduced as under:-
The ITO's view that there could be a better
system of accounting is no reason to the
application of the provisions of s. 145 of the
I.T. Act, especially in view of the fact that
this system of accounting is followed by the
assessee uniformly and regularly for the
past several years, and was accepted by the
Department without quarrel. It is not open
to the ITO to intervene and substitute a
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system of accounting different from the one
which is followed by the assessee, on the
ground that the system which commends to
the ITO is better.
Attention may be invited to the decisions
in:
(i) CIT & EPT v. Chari and Rant
MANU/TN/0427/1948MANU/TN/0427/1948
: [1949] 17 ITR 1 (Mad);
(ii) CIT v. Srimati Singari Bai
MANU/UP/0354/1954MANU/UP/0354/1954
: [1945] 13 ITR 224 (All);
(iii) CIT v. K. Doddabasappa
MANU/KA/0021/1963MANU/KA/0021/1963
: [1964] 54 ITR 221 (Mys); and
(iv) Juggilal Kamlapat, Bankers v. CIT
MANU/UP/0226/1973MANU/UP/0226/1973
: [1975] 101 ITR 40 (All).
These are all decisions which lend support
to the proposition that the Department is
bound by the assessee's choice of
accounting regularly employed unless it can
be said that the method of accounting
followed by the assessee does not reflect
the true income. The AAC, as well as the
Income-tax Appellate Tribunal, after a
careful scrutiny, came to the conclusion that
the system of accounting employed by the
assessee is consistent and regular and the
ITO, therefore, is not entitled to interfere
with the system of accounting followed by
the assessee, unless it is possible for him to
make out and bring the case within the
terms of s. 145 of the I.T. Act. On this basic
issue itself, the Department's contention
that the dividend should be assessed in the
hands of the assessee as and when it is
received, in substitution of the method of
accounting followed by the assessee, should
fail. Even otherwise, we are not persuaded
to accept the view that the system of
accounting followed by the assessee is in
any way defective.
12.15. The Apex Court had also an occasion
to consider the Percentage of completion
method and Completed Project Method in
the case of CIT vs. Bilahari Investment Pvt.
Ltd., 299 ITR 1 (SC). In this judgment it
has taken a view that
recognition/identification of income under
the 1961 Act is attainable by several
methods of accounting. It may be noted
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that the same result could be attained by
any one of the accounting methods. The
Completion Contract method is one of such
methods. Under the Completed contract
method, the revenue is not recognized until
the contract is completed. Under the said
method, costs are accumulated during the
course of the contract. The Profit and Loss
is established in the last accounting period
and transferred to the profit and loss
account. The said method determines
results only when the contract is completed.
The method leads to objective assessment
of the results of the contract. On the other
hand the Percentage of Completion method
tries to attain periodic recognition of income
in order to reflect current performance. The
amount of revenue recognized under this
method is determined by reference to the
stage of completion and can be looked at
under this method by taking into
consideration the proportion that costs
incurred to date bears to the estimated
total costs of contract. The Apex Court
again in the case of CIT vs. Hyundai Heavy
Industries Co. Ltd., 291 ITR 482 (SC) took
the similar view and held at page 495 as
under:-
Lastly, there is a concept in accounts which
called the concept of contract accounts.
Under that concept, two methods exist for
ascertaining profit for contracts, namely,
"completed contract method" and
"percentage of completion method". To
know the results of his operations, the
contractor prepares what is called a
contract account which is debited with
various costs and which is credited with
revenue associated with a particular
contract. However, the rules of recognition
of cost and revenue depend on the method
of accounting. Two methods are prescribed
in Accounting Standard No. 7. They are
"completed contract method" and
"percentage of completion method". Thus,
as both the methods of accounting are
recognized methods of accounting, the
assessee is at liberty to choose any of the
above and if any one of the method of
accounting is consistently followed by the
assessee, the assessing officer cannot
change the method of accounting to the
"percentage of completion method.
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12.16. The Hon'ble Delhi High Court while
dealing with the similar situation in the case
of CIT vs. Manish Buildwell Pvt. Ltd. in ITA
No. 928/2011 dated 15.11.2011 held that
'after the above judgment of Supreme
Court in CIT vs. Bilahari Investment Pvt.
Ltd., 299 ITR 1, it cannot be said that the
project completion method followed by the
assessee would result in deferment of the
payment of taxes which are to be assessed
annually under the Income-tax Act.
Accounting Standard AS-7 issued by the
Institute of Chartered Accountants of India
also recognize the position that in the case
of construction contracts, the assessee can
follow either the project completion method
or the percentage completion method. In
view of the judgments of the Supreme
Court (supra), the findings of CIT (A),
upheld by the Tribunal does not give rise to
any substantial question of law. Further, the
Tribunal has also found that there was no
justification on the part of the assessing
officer to adopt the percentage
completionmethod for one year on selective
basis. This will distort the true profits and
gains of business."
12.17. The judgment rendered by Apex
Court in the case of Kachwala Gems vs.
JCIT,
MANU/SC/8797/2006MANU/SC/8797/2006
: 288 ITR 10 (SC) the Hon'ble Apex Court
has observed that several cogent reasons
have been given on facts by Income-tax
authorities for rejecting the books of
account and that is the reason no different
view could be taken on this issue. This case
as well as other case laws brought on
record by revenue are distinguishable on
the peculiar facts of this case in hand and
the same do not advance revenue's case.
13. Considering entire conspectus of the
case in the light of the peculiar facts and
findings reached herein before in this case,
it is neither proper nor justified to hold that
the books of account maintained by the
assessee did not present true and complete
picture of its accounts and financial
transactions. It is a case where accounts of
the assessee are correct and complete.
Method of accounting and accounting
standard has been regularly followed. True
and correct profits of the business of the
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assessee could be deduced from such books
of accounts. In this view of the matter the
assessing authority could not change the
method regularly adopted by the assessee
from Project Completion Method to
Percentage Completion Method on
irrelevant considerations. We are, therefore,
satisfied that provisions of section 145(3)
are not attracted in this case. The Ld. CIT
(A), is found to have erred in upholding the
decision of Ld. Assessing Authority to
invoke section 145(3) of the Act and
making assessment in the manner provided
under section 144 of the Act. We, therefore,
set aside the decision in this regard and
allow ground nos. 2 & 3 raised in appeal by
the assessee in assessment year 2003-04."
6. He has contended that all the issues
are required to be answered in favour of the
Department and against the assessee.
7.Counsel for the respondent Mr. Jhanwar
has contended that the first issue is
squarely covered by the decision of this
Court in the case of Pr. Commissioner of
Income-tax Vs. Bhawani Silicate Industries,
(2016) 65 taxmann.com 106 (Rajasthan)
wherein the Division Bench of this Court in
para 9 & 10 has observed as under:
"8. We have heard and considered the
arguments advanced by counsel for the
Revenue and in our view, the Tribunal,
which is the ultimate final fact finding
authority, after analyzing the material again
placed before it and having gone into the
issue once again has come to the
conclusion that merely because qualitative
record was not maintained and on this
premise, the books of account could not
have been rejected. It is also an admitted
fact that mustard seed is only single
commodity used by the assessee for
manufacturing of mustard oil and the
Tribunal noticed that the assessee filed yield
percentage for two months before the AO in
which no discrepancy was found by the AO.
The Tribunal has found that the production
of mustard oil is a continuous process and
the seeds are put into the milling for
continuous oil production. The Tribunal has
further found that 8096 of its mustard oil is
by way of trading sale and neither
discrepancies were noticed by the AO in
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either purchase or sale nor any sale or
purchase, found unrecorded. The Tribunal
also found that the books of account had
been maintained in the same manner as in
the past and the assessee cannot be
expected to stop the plant as and when the
new lot of mustard seed is subjected to
crushing as manufacturing of mustard oil is
a continuous process. The Tribunal has also
found as a finding of fact that except
quality, quantity wise stock details has been
maintained but no other defect was noticed
by the AO in the quantitative details and
after noticing the above fact, has come to
the conclusion that the books of account
ought not to have been rejected. In our
view, such a finding of fact which has been
reached by the Tribunal is after appreciating
the material and evidence on record and
such a finding has been arrived at by the
Tribunal after analyzing the material and in
our view, no substantial question of law can
be said to arise out of the order of the
Tribunal. Once the stock register has been
held to be properly maintained and has
been held to be proper, no trading addition
could have been made and rightly so, even
otherwise, minor discrepancies cannot
result into rejection of books of account.
9. Leave apart the above, in our view, what
conclusions are to be reached is
independent of the results shown in the
books of account if any maintained by the
assessee. Section 145 only provides the
basis on which computation of income is to
be made for the purpose of determining the
amount of tax payable by an assessee. The
provision by itself does not deal with the
addition or deletion in the income. Best
judgment is also based on the material
available on record and therefore, while
making an addition something more is to be
collected by the AO who makes assessment
of an assessee. As pointed out above,
merely because there is some deficiency of
quality wise record in the books of account,
or merely because of rejection of the books
of account, it does not mean that it must
necessarily lead to addition in the return of
income of the assessee. As noticed earlier,
even the AO estimated the income by
making estimated addition by applying a
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particular GP Rate so also the CIT(A)
reduced it further. Therefore, these two
authorities even while resorting to best
judgment had no basis for coming to the
conclusion reached and even in a case of
estimated/ad hoc addition, prima-facie,
some material is required to be brought on
record. The revenue has ample powers
under the Act, if an assessee avoids or
evades to unearth of tax evasion, this
observation is on the contention of counsel
for the Revenue that except resorting to
rejection of books of account, Revenue
possibly has no other alternative and come
to make estimated addition after resorting
to provisions of Sec. 145(3)."8. He has
also relied upon the decision of Gujarat
High Court in the case of Jaytick
Intermediates (P.) Ltd. Vs. Assistant
Commissioner of Income Tax, (2016) 73
Taxmann.com 195 (Gujarat) wherein in
para 8 to 10 it is observed as under:
"8. It will not be out of place to mention
here that the assessee is a manufacturing
unit and it has to pay the excise duty. It is
the specific contention of the assessee that
the books of accounts maintained by it are
tallying and the excise duty is paid on that
basis. The stock register is not tallying with
the other books of account only because
some of the items were not deleted from the
stock register. Taking into account the
decision of this Court, not maintaining the
day-today stock register is not a ground to
reject the books of account.
In Commissioner of Income-tax-IV v.
Symphony Comfort Systems Ltd. (supra), it
is observed as under:--
"Question No. 1 pertains to the addition
made by the Assessing Officer on the basis
of low gross profit.
The Commissioner (Appeals) as well as
the Tribunal, however, deleted such addition
after examining the material on record. In
particular, the Tribunal while upholding the
order of the Commissioner (Appeals) in
this respect, made following observations:
"4. On consideration of the rival
submissions, we do not find any
justification to interfere with the order of
the learned CIT(A) in deleting the addition.
The AO merely gone by the fact that there
was a fall in the gross profit rate as
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compared to the preceding assessment year
which itself is no ground to reject the books
of accounts of the assessee. No specific
defect in the maintenance of the books of
accounts by the assessee has been pointed
out AO. The AO further noted that day to
day stock and inward and outward registers
are maintained on computer. Perhaps, this
was the sale reason which swayed the AO
to reject the books of accounts and make
the addition. Now-a-days it is common
knowledge that all the records are
maintained on computer including by the
government and semi government
organizations. Even if, records are
maintained on computer is not ground to
reject the explanation of the assessee. The
AO should have verified the entries from
the computerized records also to point out
any defect thereon. In the absence of any
specific defect pointed out in the books of
accounts and the records maintained on
computer, the AO was not justified in
rejecting the books results, or to enhance
the gross profit rate. Accordingly, there is
no merit in this ground of appeal of the
revenue. The same is accordingly,
dismissed."
From the above, it can be seen that the entire
issue is based on appreciation of evidence on
record. No question of law, therefore, arises
particularly when
the Commissioner (Appeals) as well as the
Tribunal concurrently held in favour of the
assessee.
Issue No. 2 pertains to the additions made by
the Assessing Officer on account of excessive
expenses. The Commissioner (Appeals) as
well as the Tribunal, however were of the
opinion that such additions were not justified.
The Tribunal while upholding the view of
the Commissioner (Appeals), made
following observations:
"6. On consideration of the rival
submissions, we do not find any merit in
this ground of appeal of the revenue. The
AO merely made comparative study of the
expenses for the year under consideration
with the preceding assessment year and
found that expenses incurred in the
preceding assessment year were 2.89% on
turnover but in the assessment year under
appeal it was 4.78% on the turnover. The
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expenses were, therefore, found excessive
without pointing out as to which of the
expenses incurred by the assessee was not
connected with the business activity of the
assessee. The AO has not pointed out which
of the expenditure were not admissible in
law. In the absence of any pointing out
inadmissible expenses, the AO cannot make
addition merely by comparing the
expenditure with the preceding year's
expenditure. The learned CIT(A) on proper
appreciation of the facts and material on
record rightly deleted the addition. This
ground of appeal of the revenue is
accordingly dismissed."
The entire issue is based on appreciation of
evidence. No question of law arises. When
the Commissioner (Appeals) as well as the
Tribunal concurrently held that on the basis of the
evidence, addition as made by the Assessing
Officer was not justified, we are not inclined to
interfere."
9. In Commissioner of Income-tax-XII v.
Smt. Poonam Rani (supra), it is observed as
under:--
"10. During the course of arguments before
us, it was submitted by the learned counsel
for the appellant that the assessee was not
maintaining the Daily Stock Register. We,
however, find no such finding in the
assessment order. On the other hand, we
note that the Assessee had submitted
before
the Commissioner of Income Tax (Appea
ls) that Form 3CD containing all the
quantitative details in respect of raw
materials as well as the finished goods, duly
audited by the Certified Accountant had
been placed on record, but, the Assessing
Officer ignored those actual figures
enclosed with the return. In any case, no
statutory provision under
the Income Taxregime requiring the
assessee to maintain the Daily Stock
Register has been brought to our notice.
Hence, even if no such register was being
maintained by the assessee as is contended
by the learned counsel for the appellant,
that by itself does not lead to inference that
it was not possible to deduce the
true income of the assessee from the
accounts maintained by her, nor the
accounts can be said to be defective or
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incomplete for this reason alone. If stock
register is not maintained by the assessee
that may put the Assessing Officer on guard
against the falsity of the return made by
the assessee and persuade him to carefully
scrutinize the account books of the
assessee. But the absence of one register
alone does not amount to such a material
as would lead to the conclusion that the
account books were incomplete or
inaccurate. Similarly, if the rate of gross
profit declared by the assessee in a
particular period is lower as compared to
the gross profit declared by him in the
preceding year, that may alert the
Assessing Officer and serve as a warning to
him, to look into the accounts more
carefully and to look for some material
which could lead to the conclusion that the
accounts maintained by the assessee were
not correct. But, a low rate of gross profit,
in the absence of any material pointing
towards falsehood of the accounts books,
cannot by itself be a ground to reject the
account books under Section 145(3) of the
Act."
10. In view of above observations and
considering the facts of the case, we are of the
opinion that the view taken by CIT (Appeals) is
required to be accepted by setting aside the
impugned order of the Tribunal. Accordingly,
the question posed for our consideration is
answered in favour of the assessee and it is
held that the Tribunal has erred in upholding
the action of the Respondent in rejecting the
books of accounts of the Assessee under
Section 145 (2) of the Act and further erred in
confirming the part of the addition on
estimated basis against the revenue.
Accordingly, Tax Appeal No. 1196 of 2007 is
allowed."
9.Therefore, he has contended that the
rejection of books of accounts for non
maintenance of stock register is not a ground
under Section 145(3) of the Act.
10. He has relied upon following decisions:
Manjusha Estates Pvt. Ltd. vs. The Income
Tax Officer Tax Appeal No.828/2007
[Gujrat High Court], decided on
12.08.2016:
4.1 Learned Counsel for the department has
taken this Court to Section 145(3) of the IT
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Act which relates to rejection of the books
of accounts and contended that the CIT(A)
as well as the Tribunal has rightly come to
the conclusion after considering the
material placed before them. After making
the aforesaid submissions he has contended
that the appeal may be dismissed.
5. Having heard the learned Counsel for the
parties and having gone through the order
passed by the authorities below, as well as,
considering the fact that the assessee has
followed the method which is consistent
considering the decision in case of Shivalik
Buildwell (P.) Ltd. (supra) and Umang Hiralal
Thakkar (supra) and therefore this Court is
of the opinion that the view taken by the
tribunal and CIT(A) is not correct. Since the
issue involved in this appeal is identical to
the decision cited by the learned Counsel for
the assessee while adopting such reasons,
we allow this appeal and accordingly answer
the issue raised in this appeal in favour of
the assessee and against the department.
CIT-IV vs. Shivalik Buildwell (P.) Ltd.
[2013] 40 Taxman.com 219 (Guj.):
3. On the revenue's appeal, the Tribunal
confirmed the view of CIT (Appeals),
however, on slightly different ground,
namely, that the assessee being a developer
of the project, profit in his case, will arise on
transfer of title of the property and receipt of
any advances or booking amount cannot be
treated as trading receipt of the year under
consideration. The tribunal further noted that
such method of accounting followed by the
assessee had been accepted by the revenue
in earlier years. The Tribunal was, therefore,
of the opinion that the Assessing Officer's
decision to reject the book results during the
year under consideration was not justified.
4. WE are of the opinion that the Tribunal
committed no error. If as per the accounting
standard available, the assessee was entitled
to claim the entire income on completion of
the project and if such accounting standard
was accepted by the revenue in the earlier
years, in the present year, the Assessing
Officer could not have taken a different stand
and that too, without hearing the assessee.
Paras Buildtech India Private Limited &
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[ITA-3/2018]
anr. vs. CIT & Anr. [2016] 382 ITR 630
(Delhi):
18. Section 145(1) of the Act states that the
income chargeable under the heads 'Profits
and gains of business or profession' shall be
computed in accordance with either cash or
mercantile system of accounting "regularly
employed by the Assessee". It is only with
effect from 1st April 2015 that a change has
been brought about in Section 145(2) which
permits the central government to notify in
the Official Gazette from time to time the
income computation and disclosure standards
to be followed by any class of Assesses or in
respect of any class of income. That change is
prospective and in any event does not apply
to the case on hand.
19. The settled legal position as far as
Section 145 of the Act is concerned is that it
is not open to an AO to reject the accounts of
an Assessee unless he comes to a
determination that notified accounting
standards have not been regularly followed by
the Assessee. As pointed out by the CIT (A)
in the order dated 2nd July, 2010, the AS of
the ICAI did not have any statutory
recognition under the Act although it was
binding under the Companies Act, 1956. The
method of accounting followed by the
Assessee in the present case i.e. project
completion method was certainly one of the
recognized methods and has been
consistently followed by it.
Lunar Electricals vs. Assistant
Commissioner of Income Tax [2012]
2010 Taxman 69 (Delhi):
The next aspect relates to rejection of books
of accounts because the assessee was
following completed contract method. We do
not think completed contract method is
contrary and cannot be adopted and applied
when an assessee follows mercantile system
of accounting. This issue was examined by
the Madras High Court
in Commissioner of Income Tax versus
SAS Hotels and Enterprises
Limited, MANU/TN/3098/2010 : (2011)334
ITR 194 (Mad.) and it has been held that the
said method confirms and can be adopted by
an assessee. In fact, we find that there is a
contradiction in the orders of both the
CIT(Appeals) and the tribunal on the said
aspect. With regard to NBCC contract, both
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of them have held that the receivables and
expenses should be excluded as the contract
was incomplete. But, at the same time they
have held that completed contract method
cannot be adopted for the purpose of
accounts/computing taxable income as the
assessee is following mercantile system of
accounting. We may notice here that while
examining the question of rejection of books
of accounts, the CIT(Appeals) in his finding,
which have been quoted above, was
ambivalent and did not deal with the real
issue and question whether or not the
completed contract method is permitted and
can be adopted by the assessee following
mercantile system of accounting. The
tribunal also went on certain other aspects
relating to service of notice in the first
proviso to Section 145 and did not deal with
the issue and question accordingly. On the
second question, therefore, we hold and
observe that completed contract method can
be adopted under Section 145 of the Act
when an assessee follows mercantile system
of accounting. However, we remand the
matter to the tribunal to examine the other
aspects relating to computation of
taxable income on the basis of completed
contract method. Question No. 2 is
accordingly answered partly affirmative and
partly in negative.
Commissioner of Income Tax vs. Bilahari
Investment (P) Ltd [2008] 299 ITR 1
SC:
15.Recognition/ identification of income
under the 1961 Act is attainable by several
methods of accounting. It may be noted that
the same result could be attained by any one
of the accounting methods. Completed
contract method is one such method.
Similarly, percentage of completion method
is another such method.
19. In the judgment of the Bombay High
Court in Taparia Tools Ltd. (supra) it has
been held that in every case of substitution
of one method by another method, the
burden is on the Department to prove that
the method in vogue is not correct and it
distorts the profits of a particular year. Under
the mercantile system of accounting based
on the concept of accrual, the method of
accounting followed by the assessees is
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relevant. In the present case, there is no
finding recorded by the AO that the
completed contract method distorts the
profits of a particular year. Moreover, as held
in various judgments, the Chit Scheme is one
integrated scheme spread over a period of
time, sometimes exceeding 12 months. We
have examined computation of tax effect in
these cases and we find that the entire
exercise is revenue neutral, particularly when
the scheme is read as one integrated scheme
spread over a period of time.
20. As stated above, we are concerned with
assessment years 1991-1992 to 1997-1998.
In the past, the Department had accepted
the completed contract method and because
of such acceptance, the assessees, in these
cases, have followed the same method of
accounting, particularly in the context of chit
discount. Every assessee is entitled to
arrange its affairs and follow the method of
accounting, which the Department has earlier
accepted. It is only in those cases where the
Department records a finding that the
method adopted by the assessee results in
distortion of profits, the Department can
insist on substitution of the existing method.
Further, in the present cases, we find from
the various statements produced before us,
that the entire exercise, arising out of change
of method from completed contract method
to deferred revenue expenditure, is revenue
neutral. Therefore, we do not wish to
interfere with the impugned judgment of the
High Court.
CIT vs. Manish Build Well (P) Ltd.
[2011] 63 DTR 369(Delhi):
6. Questions Nos. 2 and 3 are connected.
They assail the decision of the Tribunal
rendered in paragraph 20 of its order. An
addition of Rs.28,21,000/was made by the
assessing officer on the footing that the
assessee was adopting the project completion
method or the completed contract method,
which was not proper and the profits of the
business should be computed on the basis of
the percentage completion method under
which the profits of the development and
construction business of the assessee get
assessed over a period of years, keeping pace
with the progress in the
construction/development of the project.
(31 of 46)
[ITA-3/2018]
The CIT (A) however held that the assessee
had no reason to withhold the handing over of
possession of the space to the purchaser in
respect of a project which is completed and
that wherever possession was not handed
over to the purchaser, it was for the reason
that the project was not completed. He
further found that a buyer who has paid the
entire sale consideration would immediately
demand possession and the entire sale
consideration could be received by the
assessee only on completion of the project.
On these facts it was noted by the CIT (A)
that unless the buyer makes full payment the
assessee could not hand over possession nor
get the sale transaction registered. A further
finding recorded by the CIT (A) was that the
impugned project was completed only in the
accounting period relevant to the assessment
year 2008-09 and in support of this finding,
he noted that a copy of the
completion/occupancy certificate was placed
on the record of the Assessing Officer. He
further recorded a finding that after the issue
of the occupancy certificate and till the date
of the assessment order, possession of almost
75% of the developed area was handed over
to the buyers who made full payment and the
sale deeds were also executed. Thereafter,
possession of 20% of the remaining area was
handed over to the buyers. The possession of
the balance 5% of the developed area could
not be handed over to the remaining
buyersbecause they could not make full
payment and take possession. On these
findings the CIT (A) held that the allegation
of the assessing officer that the assessee was
adopting a method of accounting namely the
project completion method, to suit its
convenience to book income was baseless. A
further finding recorded by the CIT (A) is that
there was no manipulation in the books of
accounts. So far as the method of accounting
is concerned, the CIT (A) held that the
project completion method is
a wellrecognized and accepted method of
accounting and was the only method suitable
for any developer who has to deliver a
completed product to the buyer. Ultimately
the CIT (A) held as under:
Thus on overall perusal of the assessment
order it is seen that neither any defect has
been pointed out by the assessing officer in
(32 of 46)
[ITA-3/2018]
the method of accounting followed by the
appellant nor any finding has been given that
true and fair profits cannot be deduced
following the said method of accounting. No
evidence was found during the course of
search to show that the books of account are
not properly maintained by the appellant. The
main thrust of the assessing officer in making
the addition is that the assessee is deferring
the payment of taxes. But this allegation of
the assessing officer cannot be accepted as
the assessee is consistently following a
method of accounting which
is well recognized in development business
and has been accepted by the assessing
officer also in the other group cases. Thus the
addition is here by deleted.
7. The aforesaid finding of the CIT (A) was
approved by the Tribunal with the observation
that the department has accepted the
assessee's method of accounting namely, the
project completion method and therefore
there was no justification for adopting the
percentage completion method for one year
on selective basis.
8. It is well settled that the project
completion method is one of the recognized
methods of accounting. In Commissioner
Income-Tax And Another v. Hyundai Heavy
Industries Co. Ltd. MANU/SC/7731/2007 :
(2007) 291 ITR 482 (SC) the Supreme Court
held as follows:
Lastly, there is a concept in accounts which is
called the concept of contract accounts. Under
that concept, two methods exist for
ascertaining profit for contracts, namely,
completed contract method" and "percentage
of completion method". To know the results of
his operations, the contractor prepares what
is called a contract account which is debited
with various costs and which is credited with
revenue associated with a particular contract.
However, the rules of recognition of cost and
revenue depend on the method of accounting.
Two methods are prescribed in Accounting
Standard No.7. They are "completed contract
method" and "percentage of completion
method.
This view was reiterated by the Supreme
Court in Commissioner of Income-Tax v.
Balearic
Investment P. Ltd. MANU/IG/5001/2007 :
(33 of 46)
[ITA-3/2018]
(2008) 299 ITR 1 (SC) with the following
observations:
Recognition/identification of income under the
1961 Act is attainable by several methods of
accounting. It may be noted that the same
result could be attained by any one of the
accounting methods. The completed contract
method is one such method. Similarly, the
percentage of completion method is another
such method.
Under the completed contract method, the
revenue is not recognized until the contract is
complete. Under the said method, costs are
accumulated during the course of the
contract. The profit and loss is established in
the last accounting period and transferred to
the profit and loss account. The said method
determines results only when the contract is
completed. This method leads to objective
assessment of the results of the contract.
On the other hand, the percentage of
completion method tries to attain periodic
recognition of income in order to reflect
current performance. The amount of revenue
recognized under this method is determined
by reference to the stage of completion of the
contract. The stage of completion can be
looked at under this method by taking into
consideration the proportion that costs
incurred to date bears to the estimated total
costs of contract.
The above indicates the difference between
the completed contract method and the
percentage of completion method."
(underlining ours)
9. After the above judgments of the Supreme
Court it cannot be said that the project
completion method followed by the assessee
would result in deferment of the payment of
the taxes which are to be assessed annually
under the Income Tax Act. Accounting
Standards 7 (AS7) issued by the Institute of
Chartered Accountants of India also recognize
the position that in the case of construction
contracts, the assessee can follow either the
project completion method or the percentage
completion method. In view of the judgments
of the Supreme Court (Supra), the finding of
the CIT (A), upheld by the Tribunal, does not
give rise to any substantial question of law.
Further, the Tribunal has also found that there
was no justification on the part of the
(34 of 46)
[ITA-3/2018]
assessing officer to adopt the percentage
completion method for one year (the year
under appeal) on selective basis. This will
distort the computation of the true profits and
gains of the business. For these reasons, we
are of the view that no substantial question of
law arises. We, therefore, decline to admit
question Nos. 2 and 3.
CIT vs. SAS Hotels & Enterprises Ltd.
[2011] 334 ITR 194 (Madras):
7. In this context, when we apply
Section 145(3) of the Income Tax Act, it
specifically stipulates that where the
Assessing Authority is not satisfied about the
correctness or completeness of the accounts
of the Assessee, or where the method of
accounting provided in Sub-section (1) or
accounting standards as notified under Sub-
section (2), have not been regularly followed
by the Assessee, the Assessing Authority may
make an assessment in the manner provided
in Section 144. Therefore, in order to invoke
Section 145(3) of the Act and disturb the
existing system of accounting, the Assessing
Officer must necessarily express his
dissatisfaction about the correctness or
completeness of the accounts of the Assessee
and also note that such system of accounting
was not regularly followed by the Assessee, in
which event alone, the Assessing Officer can
exercise his jurisdiction and make an
assessment as provided under Section 144 of
the Act.
9. We fully concur with the conclusion of the
Tribunal in having interfered with the orders
of the Assessing Authority as well as that of
the Commissioner of Income-tax (Appeals).
We are, therefore, not inclined to entertain
the substantial question of law, as we do not
find any need for the same. The appeal fails
and the same is dismissed. No costs.
MKB (Asia) (P) Ltd. vs. CIT [2007] 294
ITR 655 (Gau HC):
11. As stated above, the accounting system
AS 7 is an approved system of accounting
by the Institute of Chartered Accountants
and as such the authenticity of the said
accounting system is not under challenge.
The assessing firm/appellant being a Private
(35 of 46)
[ITA-3/2018]
Limited Company was maintaining the
account following the said system and the
account were duly audited by qualified
Chartered Accountant, maintenance of the
accounts as well as the valuation of works
in progress will not prejudice either side.
Admittedly, the particular work control were
not completed and it comes under the
category of work in progress. There is also
no dispute that the ultimate liability of the
Assessee as regards tax will be dependant
upon in total (fixed) amount received by the
Assessee against the particular work
control.
12. We, therefore, hold that the Income tax
authority has no option/ jurisdiction to
muddle in the matter either by directing the
assessee to maintain the account in a
particular manner or adopt a different method
for valuing the work in progress. We reiterate
the decision in Doom Dooma India Ltd.
(supra) and hold that an assessee has as the
option/liberty to adopt any recognized
method of account for his business and the
income shall be computed in accordance with
such regularly maintained accounting system.
CIT vs. V.S. Dempo & CO. Pvt. Ltd.
[1996] 131 CTR 203 (Mum):
4. We have carefully considered the rival
submissions. We find that the controversy in
this case is basically a finding of fact which
has to be decided by the authorities
concerned on the facts and circumstances of
each case. In the instant case, the Tribunal
has come to a conclusion that the method of
accounting followed by the assessee was
correct and resort to s. 145(1) was not called
for. We do not find any infirmity in the said
finding. We, therefore, refuse to interfere
with the same.
ST. Teresa's Oil Mills vs. State of Kerala
[1970] 76 ITR 0365 (Ker):
4. The learned counsel for the petitioner
brought to our notice the decision of the Ahdhra Pradesh High Court in N. Raja Pullaiah v. Deputy Commercial Tax Officer, [1969] MANU/AP/0166/1969 : 73 I.T.R. 224 and contended that the consumption of electricity by itself cannot form a reliable test for determining the yield of oil, that the yield depends upon various factors like the condition of the machine, the quality of (36 of 46) [ITA-3/2018] copra--whether it was dried or moist--the nature of the electric supply and other similar factors and that the consumption of electricity is affected by these and various other factors. It was also contended that no test-crushing had been done in this case and the department itself had accepted in other cases figures varying from 10 to 12 units per quintal of copra. In the petitioner's case, the average works out to 12 units per quintal. On behalf ofthe revenue it was urged that the rejection of the accounts was justified since there was very wide divergence in the consumption of electricity and that it was indicative of the unreliability of the petitioner's accounts. The proposition is well-settled that accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. The department has to prove satisfactorily that the account books are unreliable, incorrect or incomplete before it can reject the accounts. The rejection of accounts is not a matter to be done light- heartedly, though it may not be possible to lay down in general terms the exact circumstances in which the accounts should be considered as unreliable or incorrect. The accounts could be rejected as unreliable if important transactions are omitted therefrom or if proper particulars and vouchers are not forthcoming or if they do not include entries relating to one particular class of business. In this connection, it has to be pointed out that the rejection of accounts and assessment to the best of judgment are two distinct and separate processes and should not be confused as one, although there will be no overlapping in the materials used for applying both processes. The initial step of rejecting the accounts will be justified when the account books are found for valid reasons unreliable, incorrect or incomplete. The assessee at this stage has to be given reasonable opportunity for offering explanations regarding the defects in the accounts and on his failure to satisfactorily explain the defects, the department will be justified in rejecting the accounts. The subsequent step of assessment to the best of judgment, as has been uniformly recognised by the courts, involves some guess-work and necessarily has to be done on the materials available in each case. The Privy Council had (37 of 46) [ITA-3/2018] occasion to consider the exact import of the expression "to the best of his judgment"
occurring in Section 23(4) of the Indian Income Tax Act, 1922 (see Commissioner of Income Tax v. Laxminarain Badridas [1937] 5 I.T.R. 170, 180 (P.C.)). The Privy Council made the following observation in that judgment:
"He (the assessing authority) must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work."
5. In the case on hand, the only circumstance relied on by the authorities below for the rejection of the accounts is that there was wide disparity in the consumption of electricity. In our opinion, this factor by itself without any other supporting circumstance does not justify the rejection of the accounts. Such variation in the consumption of electricity can be due the various factors outside the control of the assessee. It is unsafe to categorically say that because there is variation in the consumption of electricity the accounts are incorrect or unreliable. It sometimes happens that current supply falls far below the usual voltage and on such occasions the output will necessarily be much lower than the normal rate. The efficiency of the crushing machine as also the moisture content in the copra would also be relevant factors to be taken into account in arriving at the output. It is, therefore, unsafe to uphold the rejection of the accounts purely on the ground that there has been divergence in the consumption of electricity. In this case, there is also the additional circumstance that the department itself has admitted variations ranging from 10 to 12 units per quintal; and the petitioner's consumption of electricity is 12 units per quintal, which cannot be said to be wide off the accepted consumption. We are of (38 of 46) [ITA-3/2018] the opinion that in these circumstances the rejection of the accounts is not legally justified.
6. We accordingly set aside the order of the Tribunal and direct that the assessment be modified accepting the assessee's accounts. In the circumstances, however, there will be no order as to costs.
United Commercial Bank vs. CIT [1999] 240 ITR 355 (SC):
11. From the aforesaid form of the prescribed balance sheet, it is evident that Scheduled Nationalised Banks were directed to put the value of shares and securities at cost and if the market value is lower, it was to be shown separately in brackets. Now, the question would be when such a Bank is submitting its statutory return of income, whether it can disclose in its return its real profit and/or loss on the basis of market value of securities and shares? It has been pointed out that the balance sheet or the audited accounts maintained on the basis of the investment in shares at cost would not disclose the real profit or loss of the Bankin view of the fact that depreciation in the value of the shares or fall in the market value of the shares and securities is not provided in the audited accounts. Learned Counsel for the appellant submitted that even though in the balance sheet maintained by the assessee, market price of the shares and securities is not mentioned, yet for determining the real income of the assessee Bank, the said price is required to be taken into account. And, for that purpose since years, the assessee Bank was submitting income tax returns after taking into account the market price of such shares and securities which has been accepted by the Department without any objection. He also submitted that not making of proper entries in the balance sheet could hardly be a ground for not assessing the real income.
12. For the reasons, the Central Government had issued Notification dated 12th May, 1982 permitting the assessee bank not to disclose in brackets the market value of the investment under the sub-heads in inner column against any of the sub-heads (ii), (iii), (iv) and (v) of Item 4 of the assets side of the prescribed form. It is also undisputed that:
(39 of 46) [ITA-3/2018]
(a) the appellant is a Nationalised Bank and therefore is governed by the Banking Regulation Act, 1949.
(b) The appellant follows mercantile systems of accounting both for Book keeping purpose as well as for tax purposes.
(c) The appellant consistently and for over 30 years prior to the assessment year in dispute (1982-83) has been valuing its stock- in-trade (investments) 'at cost' in the balance sheet whereas for the same period of time the appellant has been valuing the very same investment 'at cost or market value whichever is lower' for income tax purposes.
13. In the background of the aforesaid facts, we would state that it is an established rule of commercial practice and accountancy that closing stock can be valued at cost or market price whichever is lower. In Chainrup Sampatram v. Commissioner of Income Tax, West Bengal MANU/SC/0046/1953 :
[1953]24ITR481(SC) , this Court explained the underlying reasons for the said practice thus:
'It is wrong to assume that the valuation of the closing stock at market rate has, for its object, the bringing into charge any appreciation in the value of such stock. The true purpose of crediting the value of unsold stock is to balance the cost of those goods entered on the other side of the account at the time of their purchase, so that the cancelling out of the entries relating to the same stock from both sides of the account would leave only the transactions on which there have been actual sales in the course of the year showing the profit or loss actually realised on the year's trading. As pointed out in paragraph 8 of the Report of the Committee on Financial Risks attaching to the holding of Trading Stocks, 1919, As the entry for stock which appears in a trading account is merely intended to cancel the charge for the goods purchased which have not been sold, it should necessarily represent the cost of the goods. If it is more or less than the cost, then the effect is to state the profit on the goods which actually have been sold at the incorrect figure.... From this rigid doctrine one exception is very generally recognised on prudential grounds (40 of 46) [ITA-3/2018] and is now fully sanctioned by custom, viz., the adoption of market value at the date of making up accounts, if that value is less than cost. It is of course an anticipation of the loss that may be made on those goods in the following year, and may even have the effect, if prices rise again, of attributing to the following year's results a greater amount of profit than the difference between the actual sale price and the actual cost price of the goods in question." (extracted in paragraph 281 of the Report of the Committee on the Taxation of Trading Profits presented to British Parliament in April, 1951).
While anticipated loss is thus taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increased profit before its actual realisation. This is the theory underlying the rule that the closing stock is to be valued at cost or market price whichever is the lower, and it is now generally accepted as an established rule of commercial practice and accountancy. As profits for income tax purposes are to be computed in conformity with the ordinary principles of commercial accounting, unless, of course, such principles have been superseded or modified by legislative enactments, unrealised profits in the shape of appreciated value of goods remaining unsold at the end of an accounting year and carried over to the following year's in a business that is continuing are not brought into the charge as a matter of practice, though as already stated, loss due to a fall in price below cost is allowed even if such loss has not been actually realised. As truly observed by one of the learned Judges in Whimster & Co. v. Commissioner of Inland Revenue 12 Tax Cas. 813, Under this law (Revenue Law) the profits are the profits realised in the course of the year. What seems an exception is recognised where a trader purchased and still holds goods or stocks which have fallen in value. No loss has been realised. Loss may not occur. Nevertheless, at the close of the year he is permitted to treat these goods or stocks as of their market value.
18. Even applying the aforesaid tests laid down by this Court, what is taxable under the (41 of 46) [ITA-3/2018] Act is the really accrued or arisen income. On the basis of the method of accountancy regularly employed by the assessee, the real income is pointed out in the income-tax return submitted by the assessee. This cannot be ignored by holding that in a balance sheet which is required to be statutorily maintained in a particular form, market value of the shares and securities is not mentioned or is mentioned in brackets. The decision in the case of State Bank of Travancore does not lay down any rule that whatever is not mentioned in the prescribed statutory balance sheet is not to be taken into account for deciding real taxable income.
21. The learned Counsel for the Revenue further relied upon the decision in Commissioner of Income-Tax v. British Paints India Ltd. : [1991]188ITR44(SC) . In our view, the said decision would not in a way advance the contention raised by the respondent. The Court while dealing with the contention of the assessee for valuation of the raw material without taking into account any portion of the cost of manufacture, held that the question of fact which the Assessing Officer must necessarily decide is whether or not the method of accounting followed by the assessee discloses true income and observed thus:
It is a well recognised principle of commercial accounting to enter in the profit and loss account the value of the stock- in-trade at the beginning and at the end of the accounting year at cost or market price, whichever is the lower.
22. The Court further considered Section 145 of the Act and observed that what is to be determined by the officer in exercise of the power is a question of fact, that is, whether or not income chargeable under the Act can be properly deduced from the books of accounts and the question must be decided with reference to the relevant material and in accordance with the correct principles. The Court also observed:
Where the market value has fallen before the date of valuation and, on that date, the market value of the article is less than its actual cost, the assessee is entitled to value the articles at market value and thus anticipate the loss which he will probably incur at the time of the sale of the goods.
(42 of 46) [ITA-3/2018] Valuation of the stock-in-trade at cost or market value, whichever is the lower, is a matter entirely within the discretion of the assessee. But whichever method he adopts, it should disclose a true picture of his profits and gains. If, on the other hand he adopts a system which does not disclose the true state of affairs for the determination of tax, even if it is ideally suited for other purposes of his business, such as the creation of a reserve, declaration of dividends, planning and the like, it is the duty of the Assessing Officer to adopt any such computation as he deems appropriate for the proper determination of the true income of the assessee. This is not only a right but a duty that is placed on the officer, in terms of the first proviso to Section 145, which concerns a correct and complete account but which in the opinion of the officer, does not disclose the true and proper income.
23. Hence, for the purpose of income tax whichever method is adopted by the assessee a true picture of the profits and gains, that is to say, the real income is to be disclosed. For determining the real income, the entries in a balance sheet required to be maintained in the statutory form, may not be decisive or conclusive. In such cases, it is open to the Income Tax Officer as well as the assessee to point out the true and proper income while submitting the income tax return. In Kedamath Jute Mfg. Co. Ltd. v. Commissioner of Income Tax (Central), Calcutta MANU/SC/0438/1971 :
[1971]82ITR363(SC) , this Court has negatived the contention that "if an assessee under misapprehension or mistake fails to make an entry into the books of account and although, under the law, a deduction must be allowed by the Income-Tax Officer, assessee will loss the right of claiming or will be debarred from being allowed that deduction." The Court held that whether the assessee is entitled to the particular deduction or not will depend upon the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. In the present case, the question is slightly different. For reasons, Central Government, in exercise of the powers (43 of 46) [ITA-3/2018] conferred by Section 53 of the Banking Regulation Act, and on the recommendation of the Reserve Bank of India, permitted the assessee not to disclose the market value of its investment in the balance sheet required to be maintained as per the statutory form. But as the assessee was maintaining its accounts on mercantile system, he was entitled to show his real income by taking into account market value of such investments in arriving at real taxable income. On that basis, therefore, Assessing Officer has taxed the assessee.
24. From the decisions discussed above, it can be held:
(1) That for valuing the closing stock, it is open to the assessee to value it at the cost or market value, whichever is lower; (2) In the balance sheet, if the securities and shares are valued at cost but from that no firm conclusion can be drawn. A taxpayer is free to employ for the purpose of his trade, his own method of keeping accounts, and for that purpose, to value stock-in-trade either at cost or market price;
(3) A method of accounting adopted by the tax payer consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping accounts or of valuation;
(4) The concept of real income is certainly applicable in judging whether there has income or not, but in every case, it must be applied with care and within their recognised limits;
(5) Whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation; and (6) Under Section 145 of the Act, in a case where accounts are correct and complete but the method employed is such that in the opinion of the Income Tax Officer, the income cannot be properly deduced therefrom, the computation shall be made in such manner and on such basis as the Income-Tax Officer may determine.
26. In our view, as stated above consistently for 30 years, the assessee was valuing the stock-in-trade at cost for the purpose of statutory balance sheet, and for the income tax return, valuation was at cost or market value whichever was lower. That practice was (44 of 46) [ITA-3/2018] accepted by the Department and there was no justifiable reason for not accepting the same. Preparation of the balance sheet in accordance with the statutory provision would not disentitle the assessee in submitting income tax return on the real taxable income in accordance with a method of account adopted by the assessee consistently and regularly. That cannot be discarded by the departmental authorities on the ground that assessee was maintaining balance sheet in the statutory form on the basis of the cost of the investments. In such cases, there is no question of following two different methods for valuing its stock-in-trade (investments) because the Bank was required to prepare balance sheet in the prescribed form and it had no option to charge it. For the purpose of income tax as stated earlier, what is to be taxed is the real income which is to be deduced on the basis of the accounting system regularly maintained by the assessee and that was done by the assessee in the present case."
11. Counsel for the respondent has contended that even the second issue is covered by the aforesaid decisions.
12. So far as issue No.(iii) is concerned, where it has been relied upon the decision of Gujarat High Court reported in Tax appeal No.1250/2011 wherein the Division Bench on the question of own money, in para 9 has observed as under:
"9. So far as second question is concerned, we find that the same is covered by decision of this Court in case of CIT v. Amar Corporation (supra). This Court while considering the same issue held and observed as under:
"5. It could be seen from the facts that the housing projects were developed during the years prior to Assessment Year 2004-05. The search was conducted on 18.06.2003 wherein the loose papers or the documents were seized. The material seized in form of loosepaper was qua one flat No. A/204 only in respect of which taking of 'on-money' could be alleged. It was on the basis of such loose papers, the addition on On-money account was sought to be made. That material could not have been used for the subsequent years for making addition on the same count. The (45 of 46) [ITA-3/2018] addition in the Assessment Year 2004-05 was not sustained by the Tribunal in the appeal before it on the ground that the Assessing Officer ought to have confined himself in respect of sale transaction of one particular flat and he could not have on that basis calculated the addition for all flats. Accordingly, in respect of previous Assessment Year 2004-05, it was held by the Tribunal that the addition for On-money, made in the said year was not proper inasmuch as such addition could have been made only in respect of the flat in respect of which the evidence of On-money was found at the time of search. The said decision dated 31.03.2011 of ITAT, Ahmedabad was relied on, on behalf of the assessee.
5.1 Even as for the year 2004-05 also, the addition on account of on-money was held to be on the basis of guess work and extrapolation, again in the next year 2005-06 being year under consideration the addition of Rs. 1,52,53,128/- was made repeating the same story. When in respect of previous Assessment Year 2004-05 also the Tribunal had dismissed the HC-NIC Department's appeal on the ground that the addition in that year also was based on extrapolation, it emerged beyond pale of doubt that for the addition made for the year 2005-06 there was no evidence whatsoever and the same was presumptive in nature.
6. In above view, the findings recorded by the Tribunal were proper and legal flowing logically from the facts on record. The Tribunal has not committed any error in passing the impugned order. The appeal is devoid of merit, and raises no substantial question of law required to be considered.
7. Accordingly, the appeal is dismissed."
13. In that view of the matter, he has contended that the issue No.(iii) is required to be answered in favour of the assessee and against the department.
14. We have heard counsel for the parties.
15. In view of the observations made in para 12, 12.1 onwards and 13, by the Tribunal, we are of the opinion that the Tribunal while considering the case has gone in detail and after considering the facts on (46 of 46) [ITA-3/2018] record has given a finding. In our considered opinion the Tribunal being a fact finding authority, it will not be appropriate for us to re appreciate the evidence which has already been appreciated by the Tribunal.
16. Therefore, in view of the decision of this Court and the Gujarat High Court, referred to by Mr. Jhanwar, the first issue is answered in favour of the assessee.
17. In view of the decision of Supreme Court referred hereinabove, the second issue is also required to be answered in favour of the assessee.
18. In view of the decision of Gujarat High Court in the case of S.A. Builders (supra), the issue No.(iii) is answered in favour of the assessee and against the department."
6. In that view of the matter, no substantial question of law arises.
7. The appeals stand dismissed.
(VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Brijesh 18-19.