TaxTMI 
TaxTMI 
2003 (11) TMI 311
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....lowing completed-project method for the purpose of contracts. The AO, while framing assessment, computed the income by making individual sale and added the amount as and when each flat was ready and possession handed over with sale deed for the sale even though the project had not been completed. In other words, the AO assessed the income on sale of flats during the relevant assessment year; the assessee, on the other hand, had done his accounting on completed-project method. In the result, the AO was of the opinion that the method of accounting followed by the assessee, i.e., completed-project method did not reflect the true profit derived by the assessee. As per the AO, since the assessee was completing the contract as entered into in the different agreements for sale of flats, with different buyers, the profit and loss should be accounted for, as and when the flat was sold. 4. Before the learned CIT(A), it was argued that right from the beginning, i.e., from the asst. yr. 1979-80, the assessee had been consistently maintaining its accounts on the basis of completed-project method and the Department had also accepted this method upto the asst. yr. 1985-86. However, for the asst.....
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....he method of accounting consistently followed by the assessee and imposing another method on the assessee. 5. Before us, the learned Departmental Representative relied on the orders of the AO and the grounds of appeals. He argued that the system adopted by the assessee did not reflect the true and correct profit and, therefore, the real profit arising each year from the sale of flats was not properly arrived at and brought to tax. On the other hand, the learned counsel for the assessee argued that the respondent-assessee had adopted a method which was one of the recognised methods and it was based on the accounting standards prescribed by the ICAI and also the accounting body set up by the International Accounting Standards, and that the assessee had been following this method consistently from asst. yr. 1979-80 and the AO had not pointed out any defects either in the books of account or in the method of accounting. He also relied on the orders of the learned CIT(A) and argued that it was a well reasoned order where every aspect had been considered. He also argued that for the asst. yrs. 1984-85 and 1985-86, the Department tried to unsettle the method of accounting followed by the....
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....rse of business, they have to be taken as correct unless there are strong and sufficient reasons to indicate that they were unreliable. The Department had to prove satisfactorily that the method or the accounts were unreliable, incorrect or incomplete before the accounts were rejected. We find that the Hon'ble Supreme Court in the case of CIT vs. Indo Nippon Chemicals Co. Ltd. (2003) 182 CTR (SC) 291 : (2003) 261 ITR 275 (SC) has affirmed the decision of the Hon'ble Bombay High Court in the case of very assessee [CIT vs. Indo Nippon Chemical Co. Ltd. (2000) 164 CTR (Bom) 78 : (2000) 245 ITR 384 (Bom)] as under: "The High Court took the view that unless the AO acted under circumstances indicated in s. 145 of the Act, the AO is bound to adopt the method of computation of income regularly employed by the assessee. However, if he comes to the conclusion that the method of accounting employed by the assessee makes it impossible to correctly compute the income, then the AO is entitled to adopt any other suitable accounting method. We may add that whatever method the AO adopts, the method has to be consistent with the accepted principles of accountancy. It is not open to the AO to treat ....
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....followed. In the case of Malad Shopping Centre (P) Ltd. vs. ITO (1983) 17 TTJ (Bom) 125, the assessee was engaged in the business of constructing shops and flats and the method of accounting adopted was to bring the profits into account when the entire project was completed. It was accepted by the AO for the first two assessment years. However, for the third year, profits were ascertained by the AO in respect of three wings of the project which had been completed and sold out by the assessee. The Tribunal held that it was not justified. The Tribunal pointed out that in order to invoke the proviso to s. 145(1), the Department must show that although the method of accounting followed is incorrect, there is income accrued during the year and that income cannot be ascertained from the method, i.e., the Department must show that some income had accrued which cannot be ascertained. The Tribunal considered the decision of the Supreme Court in the case of P.M. Mohammed Meerakhan vs. CIT (1969) 73 ITR 735 (SC) but held that the decision has no application. It relied on the decision of the Gujarat High Court in the case of Balapur Vibhag Jungle Kamdar Mandali Ltd. vs. CIT (1981) 22 CTR (Guj)....