Project completion accounting method cannot be rejected unless accounts are defective or true income is indeterminable.

A consistently followed and recognised project completion method of accounting in a construction business cannot be displaced merely because the revenue prefers a work-in-progress method. The Court noted that the method regularly employed by an assessee may be rejected only if the accounts are defective or the true income cannot be properly deduced. As the assessee's method had been accepted on the facts and no sufficient basis existed to reject the book results, the Tribunal's rejection of the project completion method was unjustified and the issue was decided in favour of the assessee.

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Issues: Whether the Tribunal was right in rejecting the project completion method consistently followed by the assessee and in applying the work-in-progress method for taxation.

Analysis: The assessee had consistently followed the project completion method in its construction business, and the authorities had accepted that method in the relevant factual matrix. The Court noted that the method of accounting regularly employed by an assessee cannot be rejected merely because the revenue prefers another method, unless the accounts are defective or the true income cannot be deduced therefrom. In the present case, the method followed was recognized and there was no sufficient basis to displace it by invoking the rejection of book results.

Conclusion: The rejection of the project completion method was held to be unjustified, and the issue was answered in favour of the assessee.

Ratio Decidendi: A consistently followed and recognized method of accounting cannot be rejected under section 145(3) of the Income-tax Act, 1961 unless it is shown that the accounts are defective or that the true income cannot be properly deduced.

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