TaxTMI 
TaxTMI 
2017 (11) TMI 1423
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....ed in law in rejecting the application of percentage completion method adopted by the Assessing Officer, when this rejection means acceptance of loss returns of the assessee engaged in construction and sale of residential/commercial project in contravention of accounting standard 7 and 9 issued by ICAI. 3. Whether in the facts and circumstances of the case the ITAT was justified in law in ignoring the fact that the two brothers who are partners either themselves or through their families were actively engaged jointly in the business of the assessee firm and therefore ignoring the acceptance of 'on money' and specific seized documents. 4. Whether in the facts and circumstances of the case the ITAT was justified in law in confirming the order of CIT(A) allowing the claim of assessee u/s. 80IB(10) despite of the facts that the assessee was not having certificate of approval in its name. 5. Whether in the facts and circumstances of the case the ITAT was justified in law in confirming the order of CIT(A) in relaxing the conditions u/s. 80IB(10) despite of the fact that the CIT(A) has no power to relax statutory conditions. 3. The facts of the case that the assessee is a partnersh....
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....s of account could not have been rejected. It is also an admitted fact that mustard seed is only single commodity used by the assessee for manufacturing of mustard oil and the Tribunal noticed that the assessee filed yield percentage for two months before the AO in which no discrepancy was found by the AO. The Tribunal has found that the production of mustard oil is a continuous process and the seeds are put into the milling for continuous oil production. The Tribunal has further found that 8096 of its mustard oil is by way of trading sale and neither discrepancies were noticed by the AO in either purchase or sale nor any sale or purchase, found unrecorded. The Tribunal also found that the books of account had been maintained in the same manner as in the past and the assessee cannot be expected to stop the plant as and when the new lot of mustard seed is subjected to crushing as manufacturing of mustard oil is a continuous process. The Tribunal has also found as a finding of fact that except quality, quantity wise stock details has been maintained but no other defect was noticed by the AO in the quantitative details and after noticing the above fact, has come to the conclusion that....
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....herein in para 8 to 10 it is observed as under: "8. It will not be out of place to mention here that the assessee is a manufacturing unit and it has to pay the excise duty. It is the specific contention of the assessee that the books of accounts maintained by it are tallying and the excise duty is paid on that basis. The stock register is not tallying with the other books of account only because some of the items were not deleted from the stock register. Taking into account the decision of this Court, not maintaining the day-today stock register is not a ground to reject the books of account. In Commissioner of Income-tax-IV v. Symphony Comfort Systems Ltd. (supra), it is observed as under:-- "Question No. 1 pertains to the addition made by the Assessing Officer on the basis of low gross profit. The Commissioner (Appeals) as well as the Tribunal, however, deleted such addition after examining the material on record. In particular, the Tribunal while upholding the order of the Commissioner (Appeals) in this respect, made following observations: "4. On consideration of the rival submissions, we do not find any justification to interfere with the order of the learned CIT(A) in d....
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....he expenditure were not admissible in law. In the absence of any pointing out inadmissible expenses, the AO cannot make addition merely by comparing the expenditure with the preceding year's expenditure. The learned CIT(A) on proper appreciation of the facts and material on record rightly deleted the addition. This ground of appeal of the revenue is accordingly dismissed." The entire issue is based on appreciation of evidence. No question of law arises. When the Commissioner (Appeals) as well as the Tribunal concurrently held that on the basis of the evidence, addition as made by the Assessing Officer was not justified, we are not inclined to interfere." 9. In Commissioner of Income-tax-XII v. Smt. Poonam Rani (supra), it is observed as under:-- "10. During the course of arguments before us, it was submitted by the learned counsel for the appellant that the assessee was not maintaining the Daily Stock Register. We, however, find no such finding in the assessment order. On the other hand, we note that the Assessee had submitted before the Commissioner of Income Tax (Appea ls) that Form 3CD containing all the quantitative details in respect of raw materials as well as the f....
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....ister is not a ground under Section 145(3) of the Act. 10. He has relied upon following decisions: Manjusha Estates Pvt. Ltd. vs. The Income Tax Officer Tax Appeal No.828/2007 [Gujrat High Court], decided on 12.08.2016: 4.1 Learned Counsel for the department has taken this Court to Section 145(3) of the IT Act which relates to rejection of the books of accounts and contended that the CIT(A) as well as the Tribunal has rightly come to the conclusion after considering the material placed before them. After making the aforesaid submissions he has contended that the appeal may be dismissed. 5. Having heard the learned Counsel for the parties and having gone through the order passed by the authorities below, as well as, considering the fact that the assessee has followed the method which is consistent considering the decision in case of Shivalik Buildwell (P.) Ltd. (supra) and Umang Hiralal Thakkar (supra) and therefore this Court is of the opinion that the view taken by the tribunal and CIT(A) is not correct. Since the issue involved in this appeal is identical to the decision cited by the learned Counsel for the assessee while adopting such reasons, we allow this appeal and acco....
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....binding under the Companies Act, 1956. The method of accounting followed by the Assessee in the present case i.e. project completion method was certainly one of the recognized methods and has been consistently followed by it. Lunar Electricals vs. Assistant Commissioner of Income Tax [2012] 2010 Taxman 69 (Delhi): The next aspect relates to rejection of books of accounts because the assessee was following completed contract method. We do not think completed contract method is contrary and cannot be adopted and applied when an assessee follows mercantile system of accounting. This issue was examined by the Madras High Court in Commissioner of Income Tax versus SAS Hotels and Enterprises Limited, MANU/TN/3098/2010 : (2011) 334 ITR 194 (Mad.) and it has been held that the said method confirms and can be adopted by an assessee. In fact, we find that there is a contradiction in the orders of both the CIT(Appeals) and the tribunal on the said aspect. With regard to NBCC contract, both of them have held that the receivables and expenses should be excluded as the contract was incomplete. But, at the same time they have held that completed contract method cannot be adopted for the purpo....
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.... are concerned with assessment years 1991-1992 to 1997-1998. In the past, the Department had accepted the completed contract method and because of such acceptance, the assessees, in these cases, have followed the same method of accounting, particularly in the context of chit discount. Every assessee is entitled to arrange its affairs and follow the method of accounting, which the Department has earlier accepted. It is only in those cases where the Department records a finding that the method adopted by the assessee results in distortion of profits, the Department can insist on substitution of the existing method. Further, in the present cases, we find from the various statements produced before us, that the entire exercise, arising out of change of method from completed contract method to deferred revenue expenditure, is revenue neutral. Therefore, we do not wish to interfere with the impugned judgment of the High Court. CIT vs. Manish Build Well (P) Ltd. [2011] 63 DTR 369(Delhi): 6. Questions Nos. 2 and 3 are connected. They assail the decision of the Tribunal rendered in paragraph 20 of its order. An addition of Rs. 28,21,000/was made by the assessing officer on the footing t....
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....ly method suitable for any developer who has to deliver a completed product to the buyer. Ultimately the CIT (A) held as under: Thus on overall perusal of the assessment order it is seen that neither any defect has been pointed out by the assessing officer in the method of accounting followed by the appellant nor any finding has been given that true and fair profits cannot be deduced following the said method of accounting. No evidence was found during the course of search to show that the books of account are not properly maintained by the appellant. The main thrust of the assessing officer in making the addition is that the assessee is deferring the payment of taxes. But this allegation of the assessing officer cannot be accepted as the assessee is consistently following a method of accounting which is well recognized in development business and has been accepted by the assessing officer also in the other group cases. Thus the addition is here by deleted. 7. The aforesaid finding of the CIT (A) was approved by the Tribunal with the observation that the department has accepted the assessee's method of accounting namely, the project completion method and therefore there was....
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....costs of contract. The above indicates the difference between the completed contract method and the percentage of completion method." (underlining ours) 9. After the above judgments of the Supreme Court it cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the Income Tax Act. Accounting Standards 7 (AS7) issued by the Institute of Chartered Accountants of India also recognize the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method. In view of the judgments of the Supreme Court (Supra), the finding of the CIT (A), upheld by the Tribunal, does not give rise to any substantial question of law. Further, the Tribunal has also found that there was no justification on the part of the assessing officer to adopt the percentage completion method for one year (the year under appeal) on selective basis. This will distort the computation of the true profits and gains of the business. For these reasons, we are of the view that no substantial question of law arises. We, therefore,....
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....recting the assessee to maintain the account in a particular manner or adopt a different method for valuing the work in progress. We reiterate the decision in Doom Dooma India Ltd. (supra) and hold that an assessee has as the option/liberty to adopt any recognized method of account for his business and the income shall be computed in accordance with such regularly maintained accounting system. CIT vs. V.S. Dempo & CO. Pvt. Ltd. [1996] 131 CTR 203 (Mum): 4. We have carefully considered the rival submissions. We find that the controversy in this case is basically a finding of fact which has to be decided by the authorities concerned on the facts and circumstances of each case. In the instant case, the Tribunal has come to a conclusion that the method of accounting followed by the assessee was correct and resort to s. 145(1) was not called for. We do not find any infirmity in the said finding. We, therefore, refuse to interfere with the same. ST. Teresa's Oil Mills vs. State of Kerala [1970] 76 ITR 0365 (Ker): 4. The learned counsel for the petitioner brought to our notice the decision of the Ahdhra Pradesh High Court in N. Raja Pullaiah v. Deputy Commercial Tax Officer, [1969....
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.... the accounts. The subsequent step of assessment to the best of judgment, as has been uniformly recognised by the courts, involves some guess-work and necessarily has to be done on the materials available in each case. The Privy Council had occasion to consider the exact import of the expression "to the best of his judgment" occurring in Section 23(4) of the Indian Income Tax Act, 1922 (see Commissioner of Income Tax v. Laxminarain Badridas [1937] 5 I.T.R. 170, 180 (P.C.)). The Privy Council made the following observation in that judgment: "He (the assessing authority) must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest g....
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....on in the value of the shares or fall in the market value of the shares and securities is not provided in the audited accounts. Learned Counsel for the appellant submitted that even though in the balance sheet maintained by the assessee, market price of the shares and securities is not mentioned, yet for determining the real income of the assessee Bank, the said price is required to be taken into account. And, for that purpose since years, the assessee Bank was submitting income tax returns after taking into account the market price of such shares and securities which has been accepted by the Department without any objection. He also submitted that not making of proper entries in the balance sheet could hardly be a ground for not assessing the real income. 12. For the reasons, the Central Government had issued Notification dated 12th May, 1982 permitting the assessee bank not to disclose in brackets the market value of the investment under the sub-heads in inner column against any of the sub-heads (ii), (iii), (iv) and (v) of Item 4 of the assets side of the prescribed form. It is also undisputed that: (a) the appellant is a Nationalised Bank and therefore is governed by the Ba....
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....ollowing year's results a greater amount of profit than the difference between the actual sale price and the actual cost price of the goods in question." (extracted in paragraph 281 of the Report of the Committee on the Taxation of Trading Profits presented to British Parliament in April, 1951). While anticipated loss is thus taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increased profit before its actual realisation. This is the theory underlying the rule that the closing stock is to be valued at cost or market price whichever is the lower, and it is now generally accepted as an established rule of commercial practice and accountancy. As profits for income tax purposes are to be computed in conformity with the ordinary principles of commercial accounting, unless, of course, such principles have been superseded or modified by legislative enactments, unrealised profits in the shape of appreciated value of goods remaining unsold at the end of an accounting year and carried over to the following year's in a business that is continuing are not brought into the ....
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....whether or not income chargeable under the Act can be properly deduced from the books of accounts and the question must be decided with reference to the relevant material and in accordance with the correct principles. The Court also observed: Where the market value has fallen before the date of valuation and, on that date, the market value of the article is less than its actual cost, the assessee is entitled to value the articles at market value and thus anticipate the loss which he will probably incur at the time of the sale of the goods. Valuation of the stock-in-trade at cost or market value, whichever is the lower, is a matter entirely within the discretion of the assessee. But whichever method he adopts, it should disclose a true picture of his profits and gains. If, on the other hand he adopts a system which does not disclose the true state of affairs for the determination of tax, even if it is ideally suited for other purposes of his business, such as the creation of a reserve, declaration of dividends, planning and the like, it is the duty of the Assessing Officer to adopt any such computation as he deems appropriate for the proper determination of the true income of the ....
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....ued at cost but from that no firm conclusion can be drawn. A taxpayer is free to employ for the purpose of his trade, his own method of keeping accounts, and for that purpose, to value stock-in-trade either at cost or market price; (3) A method of accounting adopted by the tax payer consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping accounts or of valuation; (4) The concept of real income is certainly applicable in judging whether there has income or not, but in every case, it must be applied with care and within their recognised limits; (5) Whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation; and (6) Under Section 145 of the Act, in a case where accounts are correct and complete but the method employed is such that in the opinion of the Income Tax Officer, the income cannot be properly deduced therefrom, the computation shall be made in such manner and on such basis as the Income-Tax Officer may determine. 26. In our view, as stated above consistently for 30 years, the assessee was valuing the stock-in-t....
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....ore it on the ground that the Assessing Officer ought to have confined himself in respect of sale transaction of one particular flat and he could not have on that basis calculated the addition for all flats. Accordingly, in respect of previous Assessment Year 2004-05, it was held by the Tribunal that the addition for On-money, made in the said year was not proper inasmuch as such addition could have been made only in respect of the flat in respect of which the evidence of On-money was found at the time of search. The said decision dated 31.03.2011 of ITAT, Ahmedabad was relied on, on behalf of the assessee. 5.1 Even as for the year 2004-05 also, the addition on account of on-money was held to be on the basis of guess work and extrapolation, again in the next year 2005-06 being year under consideration the addition of Rs. 1,52,53,128/- was made repeating the same story. When in respect of previous Assessment Year 2004-05 also the Tribunal had dismissed the HC-NIC Department's appeal on the ground that the addition in that year also was based on extrapolation, it emerged beyond pale of doubt that for the addition made for the year 2005-06 there was no evidence whatsoever and th....