Tribunal upholds completed-project accounting method for construction business

The Tribunal upheld the completed-project method of accounting adopted by the assessee for its construction business, emphasizing its consistency and acceptance by the Department in previous years. The Tribunal dismissed the Revenue's appeals, affirming that the project-completion method was the correct and recognized accounting method, and the Assessing Officer's rejection was unjustified. The Tribunal also highlighted the importance of following the method of computation regularly employed by the assessee unless proven unreliable, citing relevant judicial precedents.

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Issues Involved:
1. Rejection of the method of accounting adopted by the assessee in its construction business.
2. Validity of the completed-project method for accounting of construction contracts.
3. Consistency and acceptance of the accounting method by the Department in previous assessment years.
4. Applicability of section 263 of the IT Act for revising completed assessments.
5. Determination of true profit and income derived by the assessee.

Detailed Analysis:

1. Rejection of the Method of Accounting Adopted by the Assessee:
The primary issue in these appeals is the rejection of the completed-project method of accounting adopted by the assessee for its construction business. The assessee, a private limited company engaged in construction, sale, lease, and letting out of buildings, had consistently followed the completed-project method from the beginning of its business in the assessment year 1979-80. The Assessing Officer (AO) assessed the income on the sale of flats during the relevant assessment year as and when each flat was ready and possession handed over, rather than waiting for the completion of the entire project. The AO believed that the completed-project method did not reflect the true profit derived by the assessee.

2. Validity of the Completed-Project Method for Accounting of Construction Contracts:
The learned CIT(A) upheld the completed-project method, citing the accounting standards prescribed by the Institute of Chartered Accountants of India (ICAI). The CIT(A) noted that this method is based on results determined upon project completion, minimizing the risk of recognizing unearned profits. The Tribunal also referred to the ICAI's standards, which allow combining contracts for accounting purposes if negotiated as a package or for a single project.

3. Consistency and Acceptance of the Accounting Method by the Department:
The assessee argued that the completed-project method had been accepted by the Department up to the assessment year 1985-86. The CIT(A) and the Tribunal noted that the Department had accepted this method for several years, and any change without valid reason was unjustified. The Tribunal emphasized that once accounts are regularly maintained, they should be accepted unless proven unreliable.

4. Applicability of Section 263 of the IT Act for Revising Completed Assessments:
The Department attempted to unsettle the completed assessments for the assessment years 1984-85 and 1985-86 by invoking section 263 of the IT Act. However, the Tribunal had previously settled this issue, holding that the project-completion method was correct and recognized. The Tribunal reiterated that the assumption of jurisdiction under section 263 was not in accordance with the law, and the revisional orders were canceled.

5. Determination of True Profit and Income Derived by the Assessee:
The Tribunal concluded that the AO did not point out any defects in the books of account or the method of accounting followed by the assessee. The Tribunal cited several judicial precedents, including the Supreme Court's decision in CIT vs. Indo Nippon Chemicals Co. Ltd., which affirmed that the AO must adopt the method of computation of income regularly employed by the assessee unless it is impossible to correctly compute the income. The Tribunal also referred to other High Court decisions supporting the consistent application of the chosen method of accounting.

Conclusion:
Considering the facts, judicial precedents, and the consistent application of the completed-project method by the assessee, the Tribunal upheld the order of the learned CIT(A) and dismissed the appeals filed by the Revenue. The Tribunal affirmed that the project-completion method of accounting in respect of civil construction projects adopted by the assessee was the correct and recognized method of accounting, and the AO's rejection of this method was not justified.

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