Recognised accounting method and industrial company status protected the assessee from revision and current-year taxation.

A regularly followed recognised accounting method under section 145 must be accepted unless it fails to disclose true income, and revision under section 263 is not justified unless the assessment is both erroneous and prejudicial to the Revenue. Applying those principles, the assessee-company was treated as an industrial company because the record supported manufacture or production for the relevant tax purpose, and the Revenue's contrary challenge failed. The provision for contingencies booked under the percentage completion method was also not taxable in the year in question, since the amount was consistently carried to tax in later years as the contract progressed and the method did not distort income. The revisional order was therefore unsustainable.

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Issues: (i) Whether the assessee-company was entitled to be treated as an industrial company for the purpose of concessional tax treatment. (ii) Whether the sum of Rs. 11,78,950, treated by the assessee as provision for contingencies under its accounting method, was liable to be included as taxable income, and whether the revisional order under section 263 was sustainable.

Issue (i): Whether the assessee-company was entitled to be treated as an industrial company for the purpose of concessional tax treatment.

Analysis: The revisional authority proceeded on the basis that the assessee was engaged in construction activity and therefore was not an industrial company. The assessment record, however, showed that investment allowance had been granted in respect of plant and machinery used in the same business and that allowance had not been disturbed. On the facts recorded, the assessee's activity was accepted as involving manufacture or production for the relevant statutory purpose, and the revisional interference on this point could not be sustained.

Conclusion: The assessee-company was rightly treated as an industrial company, and the Revenue's challenge on this issue failed.

Issue (ii): Whether the sum of Rs. 11,78,950, treated by the assessee as provision for contingencies under its accounting method, was liable to be included as taxable income, and whether the revisional order under section 263 was sustainable.

Analysis: The assessee had regularly followed the percentage completion method, a recognised accounting method under section 145, and the amount reduced in the year under consideration was later brought to tax in subsequent years when the contract progressed and was completed. The method adopted was consistent, reflected commercial accounting practice, and did not distort true income. In such circumstances, the assessment order could not be characterised as erroneous and prejudicial to the interests of the Revenue, so as to justify revision under section 263.

Conclusion: The amount was not liable to be treated as taxable income in the year in question, and the revisional order under section 263 was invalid.

Final Conclusion: The reference was answered wholly against the Revenue, with all questions decided in favour of the assessee and the Tribunal's order upheld.

Ratio Decidendi: Revision under section 263 cannot be sustained unless the assessment order is both erroneous and prejudicial to the interests of the Revenue, and a regularly followed recognised accounting method under section 145 must be accepted unless it fails to disclose true income.

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