AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 523
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.... in confirming the addition of Rs. 14,13,745/- being 8% of the contract value in respect of contract with GTEC when the appellant following the project completion method had disclosed the entire profit of the project for the A.Y. 2003-04, after applying the proviso to Section 44AD of the Income Tax Act 1961?" 4. Brief facts of the case are as under :- 4.1. The appellant assessee was engaged in the business of civil construction on contractual basis for the Assessment Year 1998-99. The appellant filed return of income declaring income of Rs. 5,98,413/- for Assessment Year 1998-99 on 29.05.2002 which is beyond time limit prescribed under the Act and therefore the same is treated as not filed. During the year under consideration, the appellant carried out contract works for Essar Steel Limited and Gujarat Torrent Energy Corporation Ltd., (For Short "GTEC"). In respect of the contract receipts from the Essar Steel Limited, the appellant followed percentage completion method of accounting and income is shown year to year basis. However, the appellant followed the project completion method in respect of the contract receipts from GTEC. 4.2. The case of the petitioner was reopene....
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....nue is not recognized until the contract activity is substantially completed. The choice for following a particular method depends upon accrual or revenue recognition. The principles to determine as to when the income is said to have been accrued or arisen are already well-settled by a catena of decisions of the Supreme Court and need no reiteration. It is well settled that the income is held to accrue only when the assessee acquires a right to receive that income. In other words, or to say it difierently, income can be said to accrue on a date when the debt becomes due. As observed by the Supreme Court in CIT v. Ashokbhai Chimanbhai (1965) 56 ITR 42. 9. In the case under consideration admitted facts are that contract receipts received to the assessee on the basis of R.A. Bills Rs.71,63,010/- is received in financial year related to Asst. Year 1997-98. Rs.13,14,187/- in Asst. Year 1999-2000 and Rs.55,81,493/- in Asst. Year 2003-04. Asst. Year 2003-04 said to be year of completion of contract works. The details of RA bills noticed from reasons recorded at the time of reopening of assessment are as under :- GTEC Ltd. 1997-98 i.e. 1998-99 Date ....
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....ses where turnover of 40 lakh why not same is applicable to where turnover is more than 40 lakh. 7. Learned advocate Ms. Varsha Brahmbhatt for the appellant submitted that it is not in dispute that the appellant was having composite contract of storm water drainage from GTEC which was completed in the Financial Year 2002-03 (Assessment Year 2003-04). It was submitted that the project had proceeded for some time but had to be kept pending as the appellant was not receiving funds and the amount was shown as work in progress by the appellant and finally on completion of the contract, the entire income was offered to tax in the Assessment Year 2003-04. 7.1. It was submitted that the appellant had followed two different methods. The percentage method for the contract of construction of residential houses of Essar Steel Limited and project completion method for the composite contract of storm water drainage in case of contract of GTEC. It was pointed out by learned advocate Ms. Brahmbhatt that the appellant did not offer to tax the amount received from GTEC from the Assessment Year 1997-98 to 2003-04 and the entire amount of Rs.2,60,38,029 was offered to tax in Assessment Year 2003....
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....s in consonance with the standard accounting practice, in such cases on the basis of accepted commercial principle, it cannot be held that the receipt which was required to be charged to income tax for the year under consideration has to be on different accounting method. 8. On the other hand, learned Senior Standing Counsel Mr. Karan Sanghani for the respondent relied upon the orders passed by the Tribunal and submitted that the substantial work has been completed for the year under consideration and therefore, the Tribunal has rightly upheld the findings of the CIT (Appeals) to hold that the project completion method is rightly not applied by the Assessing Officer and as the appellant has received the payment and the TDS is also deducted for the year under consideration from RA bills and deduction on account of security and sales tax etc. are also made and therefore, the receipts are in accordance with agreement between the parties and resulting into approval of the receipts and therefore, the Assessing Officer was justified in applying profit @ 8% in consonance with the provisions of Section 44AD of the Act to tax the income for the year under consideration. 10. Having hea....
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....s or Profession' shall be computed in accordance with the method of accounting regularly employed by the assessee. The only exception is : where the method employed is such that in the opinion of the assessing officer income cannot be properly deduced therefrom the assessing officer shall then compute the income upon such basis and in such manner as he may determine. The provision therefore specifically provides that the choice of method of accounting lies with the assessee, the only caveat being that it has to show that the chosen method has been regularly followed. The section is couched in mandatory terms and the department is bound to accept the assessee's choice of method regularly employed, except for the situation, wherein the assessing officer is permitted to intervene, in case it is found that true income, profits and gains cannot be arrived at by the method employed by the assessee. The position of law is further well settled that a regular method adopted by an assessee cannot be rejected merely because it gives benefit to an assessee in certain years. 15. In the present case, the Tribunal has categorically found that "the assessee has followed the standa....