AI Drafter 
TaxTMI 
TaxTMI 
2017 (5) TMI 1505
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....peal of the Department. 3. This court while admitting the appeals framed the following substantial questions of law:- 3.1 ITA NO. 23/2013, 18/2013, 20/2013, 22/2013, 26/2013, 36/2013, 37/2013 "(i) Whether the Tribunal was justified in holding that the Assessing Officer as well as CIT (A) have erred in rejecting the books of accounts of the assessee u/s 145(3) of the Act and thereby reversing the findings given by the Assessing Officer as well as CIT(A), ignoring the undisputed fact that the assessee has failed to maintain quantitative and qualitative stock registers and vouch the expenses incurred by it and 'on-money' received by it has not been disclosed. (ii) Whether the Tribunal was justified inrejecting application of 'Percentage completion method' adopted by the AO and confirmed by CIT(A)(C), Jaipur, in contravention of the Accounting Standard7 and Accounting Standard-9 issued by the ICAI, resulting in acceptance of loss return of the assessee engaged in construction and sale of residential/commercial projects. (iii) Whether the Tribunal was justified inignoring that the two brothers were partners either themselves or through their sons and the....
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....eptance of 'on-money' and specific seized documents cannot be ignored for intervention." 3.4 ITA No. 197/2016, 202/2016, 207/2016, "(i) Whether on the facts and in the circumstances of the case and in law the ITAT was justified law in rejecting the books of accounts of assessee under Section 145(3) of the IT Act, and thereby reversing the findings given by the Assessing Officer ignoring the undisputed facts that the assessee failed to maintain quantities and qualitative stock registers and vouch the expenses incurred by its and on money received by it has not been disclosed. (ii) Whether on the facts and in the circumstances of the case and in law the ITAT was justified 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 projects in contravention of Accounting Standard-7 and Accounting Standard-9 issued by ICAI. 3.5 ITA 250/2016, 254/2016, "(i) Whether the Tribunal was justified rejecting the revenue's appeal without any application of mind and thereby holding that the Assessing Officer has erre....
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.... and the 'Percentage Completion Method' adopted by the assessee was proper, ignoring that the said method of assessee for computation of income was in contravention of Accounting Standards 7 (Construction Contracts) and 9 (Revenue Recognition) issued by ICAI? 4. Mr. Mehta counsel for the appellant has contended that the Tribunal has seriously committed an error in ignoring the reasoning adopted by the Assessing Officer in para 8 of its order. Para 8 reads as under: "8. Rejection of books of accounts:- During the course of assessment proceedings, the assessee was asked to furnish stock register, basis of valuation of closing stock as well as details/information including original vouchers for the payments made in respect of direct expenses. However, the Assessee could not produce such a stock register and argued that the basis of closing stock is 'lower of cost or net realizable value'. Further, some voucher relating to payment in respect of direct expenses could not be verified. In adition during the course of search proceedings, incriminating documents were found which contain nothing of receipt of cash 'out-ofbooks' by the members of Unique....
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....an Malpani 32 Tax world 122 and the Hob'ble ITAT, Jodhpur in the case of ACIT vs. Shri Sindhuja Foods Pvt. Ltd. 35 Tax world 67. 5. Application of Percentage Completion method Background 1. the assessee is engaged in the businessof real estate including the development and construction of residential/commercial buildings. During the period of last six preceding years from the years in which search was conducted i.e. AY 2003-04 to AY 2009-10 which is the scope of Assessment u/s 153A/143(3) in the instant group which was searched on 28.01.2009. it is noticed that the Assessee group had launched a number of projects under the aegis of Unique Group (Ajit/Ajay sub-groups). 2. The Assessee has launched numerous realestate projects from AY 2003-04 to 2009-10 (limited to scope of assessment) and soem projects out of which are complete and some of them are in the process of completion. The current status as on the date of completion of assessment in respect of commencement, completion, stage of completion, the profits shown in the return of income is tabulated as below: From the above chart, we have a bird's eye view of the income offered by the gr....
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....wing relationship: Cost Incurres to Date x Contract price = Cumulative Revenue Total estimated Costs Any revenue that had been recognized ina prior period is subtracted from the cumulative total in arriving at the current period's income. Method of reporting income from long-term contracts based on the percentage of a contract completed during the tax year. Costs allocated to the contract and incurred before the close of the tax year are compared to total estimated costs of the completed contract. That percentage of completion is applied to gross revenue from the contract to determine the amount to be included in taxable income for that tax year. Taxpayers using the percentage of completion method are also subject to the look-back rule for re-computing prior year tax liability. IT was seen from the return of income that the Assessee group is invariably following the completion method in order to work out the profits of the firms. As it is seen from the above chart, the Assessee group has declared loss or marginal profits in each of its real estate projects over the years. Not satisfied with the working of the profits, ....
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....ceful enough to state that even till today family members of both the brothers are partners in these two aforesaid concerns as well as in the case of appellant firm also. The A.R. has further argued that both the sub groups are running separate projects, putting up separate hoardings and cut outs in the city etc. firstly, this practical position may be true after the search and seizure operation was carried out on January, 2009 but cannot be said to be true before the search. Secondly, the facts available on record by way of partnership deed duly executed and registered clearly speaks that both the families are effectively equal partner in all the various firms namely M/s United Builders & Developers, M/s United Builders & Developer (Krishna), M/s Rama Ajit Builders & Developers, M/s Unique Builder and Developer (Reality) and M/s Uniqe Builder & Developer (Ajit), which are under appeal before the undersigned. It may be further added that in various firms of the appellant group there had been change in the constitution of the partnership firm form time to time in as much as that some member of other outside family has retired, but even at the time of those changes, the members of bo....
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.... that particular case, not a very serious defect because the account books had been found and accepted as correct and disclosed a true state of affairs. It cannot therefore be said that that case laid down as a proposition of law that the want of a stock register by which a proper check could be made was not such a serious defect as to make the proviso to s. 13 inapplicable." 4.4 He has also relied on the decision in the case of Commissioner Of Income Tax, vs. M/S Bilahari Investment (P) Ltd. 2008 (4) SCC 232 wherein it is held as under: "11. The limited controversy is whether the completed contract method of accounting adopted by the assessees as method of accounting for chit discount is required to be substituted by percentage of completion method. 12. In this connection, it is the case of the assessees that, profits (loss) accrued to the assessees only when the dividends exceeded the discount paid and that difference could be known only on the termination of the chit when the total figure of dividend received and discount paid would be available. That, it would be possible for the assessees to make profits only when the sum total of the dividend received exc....
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....e neutral." 5. Counsel for the appellant has contended that the observations which have been made by the Tribunal in para 12 & 13 are contrary to law, which reads as under: We have heard parties with reference to material on record. The rival submissions as well as case laws brought to our notice have duly been considered. The assessee is engaged in the business of construction as a builder/real estate developer. The appellant has maintained complete books of account which are duly audited by a qualified Chartered Accountant. The assessee maintains its accounts on mercantile basis by regularly employing Project Completion Method. The closing stock has been valued consistently at lower of cost or net realizable value. The auditors have reported no change in method adopted by the assessee. The revenue has accepted this method in regular assessments made from year to year. An action under section 132 of the IT Act ("Act" for short) was taken on its business premises on 28.01.2009. On the same very day the members of the appellant group as well as of the separated group and their business/residential premises were also searched by the department. The assesseeappellant....
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....tock register and failed to get the valuation of its closing stock verified with the detailed day-wise qualitative cum quantitative stock register. The appellant's case before the authorities below has, however, been that the assessee had kept both quantitative and qualitative details of material purchased by it as is evident from various ledger accounts related to construction material that were forming part of the seized material available with the assessing authority. All the expenses relating to the project including material purchased were charged to project/work-in-progress and directly taken to the balance sheet. In other words, the materials purchased for the project are issued to site immediately after its purchase and transferred to project in progress for determining profit at the time of completion of the project. No expenditure is charged to Profit & Loss account. The quantity so issued to the sites/projects is recorded in separate records maintained for each item of building material used therein. There was thus no need to maintain a detailed qualitywise quantitative register by the appellant. The lower authorities have not pointed out any defect in the valuation ....
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....ck register, the accounts book must be false. The Hon'ble Supreme Court took note of this judgment in the case of S.N. Namasivayam Chettiar vs. CIT, 38 ITR 570 (SC) and held that it is for the Incometax authorities to consider the material which is placed before him and if after taking into account in any case the absence of stock register coupled with other material, are of the opinion that correct profits and gains could not be deduced then they would be justified in applying the proviso to section 13 of the IT Act, 1922. On the peculiar facts in the present case in appeal before us, merely because of nonmaintenance of a detailed qualitative and quantitative register alone, the same could not be a valid reason to reach a finding that books of account do not present true and complete picture of accounts and financial transactions. The finding by the assessing authority being perverse is, therefore, set aside. 12.4. The second issue raised by theassessing authority for invoking provisions of section 145 of the Act is about non verification of some of the vouchers relating to payment in respect of direct expenses. The perusal of the impugned order reveals that this was ....
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....e course of search admittedly were with regard to receipt of extra money with respect to the flats sold by them. These sales were not of the projects done jointly with the appellant, its constituents or family members. The "on-money" so received by them has been disclosed and applied to explain the transactions of their independent business unrelated to the appellant and its constituents. The statements so taken, therefore, did not constitute a material or evidence for rejecting the books of account maintained by the assessee in saying that the monies received as earnest money or advances towards sale of its flats are not fully accounted. The reason so taken by the Assessing Officer for rejecting the accounts is thus vitiated and unfounded. ---- ---- ---- 12.8. The Hon'ble Kerala High Court in thecase of St. Teresa's Oil Mills vs. State of Kerala, 76 ITR 365 (Ker.) has entertained a view that the accounts regularly maintained by the assessee in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. The department has to prove satisfactorily that the accounts books are unreliable, in....
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....counting better than the one adopted regularly by the assessee and by rejecting his accounts substitute the same with another method of accounting without any just and reasonable cause. In the present case the exercise so undertaken being imaginary and rested on irrelevant considerations could not constitute a just or reasonable cause empowering the authority to change the method of accounting regularly adopted by the appellant. The revenue has also not been able to successfully demonstrate that the method of accounting provided under sub-section (1) or Accounting Standard notified under sub section (2) of section 145 of the Act have not been regularly followed by the assessee. Even for the first year, the method of accounting is deemed to have been employed if the same is shown to have been regularly employed in subsequent years. The decision by Hon'ble Delhi High Court in the case of CIT vs. Smt. V. Sikka & Another (1984) 149 ITR 73 (Del.) is relevant. The real estate developer is not a pure contractor but is a seller of flats/goods. The revenue recognition in the case of sale of goods is triggered on completion of performance as provided in para 11 of AS-9 " revenue recognit....
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....regularly employed by the assessee a compulsory basis of computation unless, in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced therefrom. If the true income, profits and gains cannot be ascertained on the basis of the assessee's method, or where no method of accounting has been regularly employed, the income must be computed upon such basis and in such manner as the Income-tax Officer may determine. 12.12. Again the Apex Court in the case of Investment Ltd. vs. CIT MANU/SC/0265/1970MANU/SC/0265/1970 : 77 ITR 533 (SC) at page 537 and 538 has taken a view that the tax payer is free to employ any method of accounting but the same should be consistently and regularly followed by him. This is so evident from the following passage:- In the balance-sheet, it is true, the securities and shares are valued at cost, but no firm conclusion can be drawn from the method of keeping accounts. A taxpayer is free to employ, for the purpose of his trade, his own method of keeping accounts, and for that purpose to value his stock-in-trade either at cost or market price. A method of a....
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.... 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 which-ever 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 assessee. This is not only a right but a duty that is placed on the officer, in terms of the first proviso to section 145, which concerns a correct and complete account but which, in the opinion of the officer, does not disclose the true and proper income. Hence, for the purpose of income-tax whichever method is adopted by the assessee, a true picture....
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.... for him to make out and bring the case within the terms of s. 145 of the I.T. Act. On this basic issue itself, the Department's contention that the dividend should be assessed in the hands of the assessee as and when it is received, in substitution of the method of accounting followed by the assessee, should fail. Even otherwise, we are not persuaded to accept the view that the system of accounting followed by the assessee is in any way defective. 12.15. The Apex Court had also an occasionto consider the Percentage of completion method and Completed Project Method in the case of CIT vs. Bilahari Investment Pvt. Ltd., 299 ITR 1 (SC). In this judgment it has taken a view that recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. The Completion Contract method is one of such methods. Under the Completed contract method, the revenue is not recognized until the contract is completed. Under the said method, costs are accumulated during the course of the contract. The Profit and Loss is established in the last accounting period and transfer....
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....project completion method or the percentage completion method. In view of the judgments of the Supreme Court (supra), the findings of 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 on selective basis. This will distort the true profits and gains of business." 12.17. The judgment rendered by ApexCourt in the case of Kachwala Gems vs. JCIT, MANU/SC/8797/2006MANU/SC/8797/2006 : 288 ITR 10 (SC) the Hon'ble Apex Court has observed that several cogent reasons have been given on facts by Income-tax authorities for rejecting the books of account and that is the reason no different view could be taken on this issue. This case as well as other case laws brought on record by revenue are distinguishable on the peculiar facts of this case in hand and the same do not advance revenue's case. 13. Considering entire conspectus of the case in the light of the peculiar facts and findings reached herein before in this case, it is neither proper nor justified to hold that the books of accoun....
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....r 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 the books of account ought not to have been rejected. In our view, such a finding of fact which has been reached by the Tribunal is after appreciating the material and evidence on record and such a finding has been arrived at by the Tribunal after analyzing the material and in our view, no substantial question of law can be said to arise out of the order of the Tribunal. Once the stock register has been held to be properly maintained and has been held to be proper, no trading addition could have been made and rightly so, even otherwise, minor discre....
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....gister 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 deleting the addition. The AO merely gone by the fact that there was a fall in the gross profit rate as compared to the preceding assessment year which itself is no ground to reject the books of accounts of the assessee. No specific defect in the maintenance of the books of accounts by the assessee has been pointed out AO. The AO further noted that day to day stock and inward and outward registers are maintained on computer. Perhaps, this was the sale reason which swayed the AO to reject the books of accounts and mak....
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....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 (Appeals) that Form 3CD containing all the quantitative details in respect of raw materials as well as the finished goods, duly audited by the Certified Accountant had been placed on record, but, the Assessing Officer ignored those actual figures enclosed with the return. In any case, no statutory provision under the Income Taxregime requiring the assessee to maintain the Daily Stock Register has been brought to our notice. Hence, even if no such register was being maintained by the assessee as is contended by the learned counsel for the appellant, that by itself ....
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....clusion 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 accordingly answer the issue raised in this appeal in favour of the assessee and against the department. CIT-IV vs. Shivalik Buildwell (P.) Ltd. [2013] 40 Taxman.com 219 (Guj.): 3. On the revenue's appeal, the Tribunalconfirmed the view of CIT (Appeals), however, on slightly different ground, namely, that the assessee being a developer of the project, profit in his case, will arise on transfer of title of the property and receipt of any....
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....d. 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 purpose of accounts/computing taxable income as the assessee is following mercantile system of accounting. We may notice here that while examining the question of rejection of books of accounts, the CIT(Appeals) in his finding, which have been quoted above, was ambivalent and did not deal with the real issue and question whether or not the completed contract method is permitted and can be ad....
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....he 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 that the assessee was adopting the project completion method or the completed contract method, which was not proper and the profits of the business should be computed on the basis of the percentage completion method under which the profits of the development and construction business of the assessee get assessed over a period of years, keeping pace with the progress in the cons....
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.... 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 no justification for adopting the percentage completion method for one year on selective basis. 8. It is well settled that the project completion method is one of the recognized methods of accounting. In Commissioner Income-Tax And Another v. Hyundai Heavy Industries Co. Ltd. MANU/SC/7731/2007 : (2007) 291 ITR 482 (SC) the Supreme Court held as follows: Lastly,....
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....ich 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, decline to admit question Nos. 2 and 3. CIT vs. SAS Hotels & Enterprises Ltd. [2011] 334 ITR 194 (Madras): 7. In this context, when we apply Section 145(3) of the Income Tax Act, it specifically stipulates that where the Assessing Authority is not satisfied about the correctness or completeness of the accounts of the Assessee,....
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....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 petitionerbrought to our notice the decision of the Ahdhra Pradesh High Court in N. Raja Pullaiah v. Deputy Commercial Tax Officer, [1969] MANU/AP/0166/1969 : 73 I.T.R. 224 and contended that the consumption of electricity by itself cannot form a reliable test for determining the yield of oil, that the yield depends upon various factors like the condition of the machine, the quality of copra--whether it was dried or moist--t....
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....ssion "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 guess-work." 5. In the case on hand, the only circumstancerelied on by the authorities below for the rejection of the accounts is that there was wide disparity in the consumption of electricity. In our opinion, this factor by itself without any other supporting circumstance d....
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....hares 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 Governmenthad 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 Banking Regulation Act, 1949. (b) The appellant follows mercantile systemsof accounting both for Book keeping purpose as well as for tax purposes. (c) The appellant consistently and for over 30 years prior to the assessme....
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.... 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 charge as a matter of practice, though as already stated, loss due to a fall in price below cost is allowed even if such loss has not been actually realised. As truly observed by on....
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....ference 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 assessee. This is not only a right but a duty that is placed on the officer, in terms of the first proviso to Section 145, which co....
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....or 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 thetax 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 certainlyapplicable 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 orarisen 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-trade at cost for the purpose of statutory balance sheet, ....
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....in the appeal before 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 ev....