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Issues: Whether the Commissioner (Appeals) was justified in enhancing the assessed income by taxing advances received against sale of plots and in disturbing the assessee's consistently followed method of accounting for recognition of revenue.
Analysis: The assessee had consistently treated customer advances as liabilities and recognised sale proceeds only on execution of the registered sale deed. No defect in the accounting method was demonstrated, nor was there any finding that the method distorted profits or prevented proper computation of income. The Department had accepted the same method in earlier years. The impugned enhancement would merely shift income between assessment years without altering the overall taxable profit, making the exercise revenue neutral. The principles governing recognition of income and the effect of registration requirements under the Transfer of Property Act, 1882 and the Registration Act, 1908 supported the assessee's approach.
Conclusion: The enhancement was unjustified and was set aside. The assessee's returned income was directed to be adopted for tax computation.
Final Conclusion: The appeal succeeded, and the addition made by enhancement did not survive.
Ratio Decidendi: A regularly employed and consistently accepted method of accounting cannot be displaced unless it is shown to distort profits or prevent proper computation of income, and a merely tax-neutral timing difference does not justify enhancement of income.
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