By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi Chartered Accountants
fiogf49gjkf0d
Section 145 of the Income-tax Act, 1961 — Assessee following percentage completion method consistently which was accepted in earlier and subsequent years — valuation of closing WIP at historical cost was correct particularly when the categorical findings of the CIT(A) highlighting that the assessee has not deviated from the guidelines issued by the ICAI under AS-7 was not challenged by the Revenue.
The assessee, a partnership firm, was engaged in the business of construction. For the relevant assessment years, the assessee valued its closing WIP at historical cost as per its past policy. Such historical cost was the average rate realised for all the years including current year. The Assessing Officer valued the WIP at the current year’s rate of realisation and made addition to the profit. The CIT(A) held that the Assessing Officer was not justified in making the additions.
Since there was a difference of opinion between the Members of the Tribunal the matter was referred to the Third Member u/s.255(4).
The Third Member, holding in favour of the assessee, noted as under:
(1) It is not in dispute that the assessee has followed percentage completion method consistently since inception and has been declaring income/loss from year to year and the same was accepted in earlier years.
(2) Despite the AO’s stand for the A.Ys. 1998-99 and 1999-2000, with regard to correctness of the method of accounting followed by the assessee, in the year 2000-01, when the assessee declared profit of more than Rs.5 crores on completion of the project, the AO appears to have accepted the same method to accept the income declared therein, which in itself is an indication that the method of accounting followed by the assessee is an approved method of accounting.
(3) Categorical finding of the learned CIT(A) to highlight that assessee has not deviated from guidelines issued by the ICAI (under AS-7), was not challenged before the Tribunal by learned Departmental Representative by producing any evidence thereof. The learned CIT(A) has discussed the issue elaborately and met each point of dispute raised by the Assessing Officer to highlight that there is no merit in the conclusion reached by the Assessing Officer.
