High Court rules on hotel contract profits, upholding yearly assessment over project completion method.

The High Court of Madras ruled in favor of the Revenue in a case concerning the determination of profits in a hotel contract using the project completion method. The court upheld the appellate authority's decision to assess profits yearly for the hotel contract due to the lack of maintained accounts, emphasizing the necessity of proper accounting for justifying the project completion method. The Tribunal's decision in favor of assessing profits only upon completion of the project was overturned, supporting the Revenue's argument for yearly assessment in the absence of proper accounts.

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Issues involved: Determination of profits in respect of a hotel contract using the project completion method.

Summary:
The High Court of Madras addressed the issue of computing profits in a hotel contract using the project completion method. The assessee, a construction firm, had incomplete and improper accounts during the assessment year 1984-85. The assessing authority estimated profits due to lack of proper accounts. The Commissioner of Income-tax disagreed with the assessee's method of accounting, especially for a big hotel construction contract worth Rs. 30 lakhs. The appellate authority directed the assessment of profits on an ad hoc basis for the hotel contract. The Tribunal allowed the assessee's appeal, stating that profits should be assessed only upon completion of the project. The Revenue challenged this decision, arguing that without proper accounts, yearly assessment was appropriate. The High Court referred to previous case law supporting yearly accounting for incomplete contracts. It emphasized the necessity of proper accounts for justifying the project completion method. The court upheld the appellate authority's decision to assess profits yearly for the hotel contract due to the lack of maintained accounts, ruling in favor of the Revenue.

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