July 2019

Section 145 – The project completion method is one of the recognised methods of accounting and as the assessee has consistently been following such recognised method of accounting, in the absence of any prohibition or restriction under the Act for doing so, the CIT(A) is correct in holding that the AO’s assertion that the project completion method is not a legal method of computation of income is not supported by facts and judicial precedents

Jagdish D. Shah | Jagdish T. Punjabi
Chartered Accountants

9 ITO vs. Shanti Constructions (Agra) Members: Sudhanshu Srivastava (JM) and Dr. Mitha Lal Meena (AM) ITA No. 289/Agra/2017 A.Y.: 2012-13 Date of order: 16thMay, 2019 Counsel for Revenue / Assessee: Sunil Bajpai / Pradeep K. Sahgal and Utsav Sahgal

 

Section 145 – The project completion method is one of the recognised methods of accounting and as the assessee has consistently been following such recognised method of accounting, in the absence of any prohibition or restriction under the Act for doing so, the CIT(A) is correct in holding that the AO’s assertion that the project completion method is not a legal method of computation of income is not supported by facts and judicial precedents

 

FACTS

The assessee, a partnership firm engaged in the business of real estate and construction of buildings for the past several years, filed its return of income declaring therein a total income of Rs. 1,12,120. The AO completed the assessment u/s. 143(3) of the Act, assessing the total income of the assessee to be Rs. 3,94,62,580. While assessing the total income of the assessee, the AO rejected the books of accounts on the ground that the assessee did not produce bills / vouchers before him for ascertaining the accuracy and correctness of the books of accounts; that it did not furnish evidence regarding closing stock; and that the assessee is following the project completion method and not the percentage completion method. The AO observed that the project completion method has no existence since 1st April, 2003 and laid emphasis on revised AS-7 introduced by the ICAI in 2002.

 

Aggrieved, the assessee preferred an appeal to CIT(A) who noted that in the assessee’s own case in the assessment proceedings for AY 2014-15, the AO has accepted the project completion method. The CIT(A) allowed the appeal filed by the assessee.

 

But the Revenue preferred an appeal to the Tribunal where it placed reliance on the decision of the Supreme Court in the case of CIT vs. Realest Builders & Services Ltd. [(2008) 22 (I) ITCL 73 (SC)].

 

HELD

The Tribunal observed that the assessee’s business came into existence on 11th March, 2003 and since then it has been consistently following the project completion method of accounting. It is well settled that the project completion method is one of the recognised methods of accounting and as the assessee has consistently been following such recognised method of accounting, in the absence of any prohibition or restriction under the Act for doing so, it can’t be held that the decision of the CIT(A) was erroneous or illegal in any manner. The judgement in the case of CIT vs. Realest Builders & Services Ltd. (supra) relied on by the DR on the method of accounting is rather in favour of the assessee and against the Revenue in the peculiar facts of the case. As such, the appeal filed by the Revenue was dismissed.

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