Protective assessment and builder profit estimation can be appealable and taxed under the regular accounting method.

An appeal against a protective assessment was treated as maintainable where it raised a real dispute on assessability and the amount of income under the Income-tax Act, rather than a merely collateral issue. The note also states that, in a flat-building business, profit may be estimated on advances and instalments under the regularly employed method of accounting, especially where that method had been accepted in earlier years and in comparable cases. The absence of registered sale deeds did not prevent such computation, and the protective label could not override the substance of a final assessment on returned income.

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Issues: (i) whether an assessee could maintain an appeal against a protective assessment under the Income-tax Act, 1961; (ii) whether, in the business of building and sale of flats, profit could be estimated and brought to tax before execution of registered sale deeds, and whether the so-called protective assessment could be treated as a regular assessment.

Issue (i): whether an assessee could maintain an appeal against a protective assessment under the Income-tax Act, 1961.

Analysis: The right of appeal under section 246(1)(c) was held to extend not merely to a total denial of liability, but also to denial of liability in particular circumstances and to disputes concerning the amount of income assessed. On the facts, the controversy was whether the returned income was assessable in the present year or in a later year. The assessment therefore involved a real dispute as to liability and quantum, and not a purely collateral or non-appealable matter.

Conclusion: The appeal was maintainable and the Commissioner (Appeals) had jurisdiction to entertain it.

Issue (ii): whether, in the business of building and sale of flats, profit could be estimated and brought to tax before execution of registered sale deeds, and whether the so-called protective assessment could be treated as a regular assessment.

Analysis: The assessee regularly followed a method of accounting by recognising advances and instalment receipts and estimating profit on receipts. Such method had been accepted by the department in earlier years and in comparable builder cases. Under section 145(1), income has to be computed in accordance with the method regularly employed unless the Income-tax Officer is of the opinion that income cannot properly be deduced therefrom. The absence of completed sale deeds did not, by itself, preclude estimation of business profit on the advances received, and there was no statutory compulsion to frame only a protective assessment. The protective label could not defeat the substance of a final assessment on the returned income.

Conclusion: The method of estimating profit on advances was valid, and the protective assessment was rightly directed to be treated as a regular assessment.

Final Conclusion: The departmental appeal failed in its entirety, and the relief granted by the Commissioner (Appeals) was left undisturbed.

Ratio Decidendi: A protective assessment, where it determines the assessee's liability and amount of income in substance, is appealable if it raises a real dispute as to assessability, and profit may be computed under the regularly employed accounting method even before formal completion of sale where the method reliably reflects business income.

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