TaxTMI 
TaxTMI 
2018 (10) TMI 1401
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....on 21.06.2006. The project involved construction and development of Tourism Village popularly known as Riverdane Kinley spread on approximately 300 acres of land with individual Villas, Club House, Boutique Hall, Movie Theatre, Jogging Track, Swimming Pool, Lake etc., situated close to the beach . 2.1 The assessee followed a method of accounting in which the sale proceeds were credited to the Profit & Loss account only in the year in which the registered sale deed was executed. As a result, in many cases, although the assessee had received full sale consideration, the corresponding sales were not credited in the Profit & Loss account and the amount was carried forward as liability till the registered sale deed was executed. In the year of execution of registered sale deed, the corresponding cost of the plot was reduced from the closing stock and sale proceeds were credited. For the purpose of computing the cost of plot, the average value of plots was taken after duly taking into account the development cost also. The average stock value worked out in this manner was then multiplied by the area of plots for which registered sale deeds were executed during the year and the corresp....
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....ction of tax liability and also increased the average cost of land pushing up the cost of closing stock. 2.4 Now, the assessee is in appeal before the ITAT and has raised the following grounds of appeal:- "1. That on facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) [hereinafter referred to as 'the Ld. CIT(A)'] has grossly erred in arbitrarily enhancing the income of the Appellant by wrongly invoking section 251(1)(a) of the Income tax Act, 1961 by Rs. 1,27,07,336. 1.1 That in doing so, the Ld. CIT (A) has exceeded his authority by travelling to the assessment years beyond the Assessment year in question. 2 That the Ld. CIT (A) has erred in facts and circumstances of the case and in law in rejecting the books of accounts of the Appellant u/s 145(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). 2.1 That in doing so, the Ld. CIT (A) has failed to appreciate that it is not open to reject the books of accounts unless the adjudicatory authority comes to a determination that the notified accounting standards have not been regularly followed. 2.2 That in doing so, the Ld. C....
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.... submitted that the assessee has been following the same accounting method over the years since the year 2005 when the company was incorporated and further that the department has been accepting the method of accounting followed by the assessee and had not disturbed the financial results in earlier assessment years. It was submitted that the Ld. CIT (A) had erred in enhancing the assessee's income by including the advances received from customers while deleting addition made u/s 68 of the Act by the Assessing Officer. The Ld. AR further submitted that the method of accounting being followed by the assessee was correct inasmuch as section 53A of the Transfer of Property Act, 1882 was amended with the effect that now the transfer of immoveable property is complete only when the sale deed stands executed. It was submitted that in all these eight cases when the sale deeds had been executed, the assessee had duly taken the corresponding receipts/advances as income in the profit & loss account. The Ld. AR also drew attention to the amendment made to the Registration Act, 1908 wherein clause 1(a) has been inserted w.e.f. 2001 to section 17 and wherein it has been specified that unregister....
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....g adopted by the assessee. The main thrust of the Ld. CIT (A) seems to be that the assessee is deferring the payment of taxes. But this inference of the Ld. CIT (A) cannot be accepted as the assessee has been consistently following one method of accounting which has been accepted by the Department in earlier assessment years. On the facts of the case it is our concerned opinion that since the assesseee has been following a certain system of accounting consistently which has even been accepted by the Department in earlier assessments and, moreover, in the instant appeal the department has not been able to demonstrate as to how the accounting system being followed was giving distorted figures of profit, it would be patently wrong to disturb the method of accounting being followed. At this juncture, any change in the method will result in the income for many assessment years to be recomputed which would be contrary to the judgment of the Hon'ble Supreme Court in the case of Excel Industries Ltd. reported in 358 ITR 295 (SC) wherein it has been held that an exercise which only results in change in income in various years but is overall tax neutral need not be pursued. Here also, th....
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....sums received till then for the construction project are treated as advances and shown as liability." 18. Section 145 (1) of the Act states that the income chargeable under the heads 'Profits and gains of business or profession' shall be computed in accordance with either cash or mercantile system of accounting "regularly employed by the Assessee". It is only with effect from 1st April 2015 that a change has been brought about in Section 145 (2) which permits the central government to notify in the Official Gazette from time to time the income computation and disclosure standards to be followed by any class of Assesses or in respect of any class of income. That change is prospective and in any event does not apply to the case on hand. 19. The settled legal position as far as Section 145 of the Act is concerned is that it is not open to an AO to reject the accounts of an Assessee unless he comes to a determination that notified accounting standards have not been regularly followed by the Assessee. As pointed out by the CIT (A) in the order dated 2nd July, 2010, the AS of the ICAI did not have any statutory recognition under the Act although it was binding under the Com....