Court affirms Tribunal ruling in tax case appeal, upholding assessee's choice of accounting method

The court upheld the Tribunal's decision and dismissed the tax case appeal, ruling in favor of the respondent-company engaged in civil construction contracts. The assessing officer's estimation of additional income based on incomplete project method was challenged by the assessee, with both the Tribunal and Commissioner of Income Tax (Appeals) finding no fault in the assessee's consistent use of the completed contract method of accounting. The court emphasized the assessee's freedom to choose accounting methods and rejected the revenue's attempt to enforce a specific method, citing precedent that as long as the chosen method is consistent and regular, the revenue cannot compel a change.

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Issues involved:
Appeal against order of Income Tax Appellate Tribunal for assessment year 2003-2004 - Whether Assessing Officer justified in computing profits from construction contracts including profits accrued on incomplete projectsRs.

Analysis:
The appeal in question was filed by the revenue against an order related to the assessment year 2003-2004. The respondent-company, engaged in civil construction contracts, had its assessment completed under Section 143(3) of the Income Tax Act. The assessing officer estimated additional income based on incomplete project method of accounting for the assessee's work-in-progress project. The assessee challenged this order before the Commissioner of Income Tax (Appeals), which ruled in favor of the assessee. Subsequently, the revenue appealed to the Tribunal, which also rejected their claim, leading to the current tax case appeal.

Both the Tribunal and the Commissioner of Income Tax (Appeals) concurred that the revenue did not dispute the fact that the assessee had consistently followed the completed contract method of accounting since 1996-97. The revenue had accepted the returns filed by the assessee using this method until the assessment year in question. No defects or inconsistencies were found in the assessee's accounting method. The incomplete project, shown as work-in-progress, was added to the income by the assessing officer, but the Tribunal and the Commissioner found no fault with the assessee's accounting approach.

The court emphasized that the assessee has the freedom to choose different accounting methods for various income sources, and the taxing authorities cannot enforce a specific method. Referring to the Supreme Court's decision in CIT v. McMillan & Co., it was established that as long as the chosen method is consistent and regular, the revenue cannot compel a change. The revenue's argument citing a previous case was dismissed as the circumstances were different. In this case, the assessee had consistently followed the completed contract method, and there were no issues with their accounting practices. Given the nature of civil construction business where profits are challenging to ascertain using incomplete accounting methods, the court upheld the Tribunal's decision and dismissed the tax case appeal.

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