[CIT v. Realset Builders & Services Ltd., (2008) 307
ITR 202 (SC)]
The short point arising in the case before the Supreme
Court was : Whether income accrued to the assessee on registration of the sale
deed in favour of the third party (plot purchaser) or whether it accrued at
the time of execution of the tripartite agreement ? According to the
Department, income accrued on the date of execution of the tripartite
agreement when the assessee received full consideration of the plot and not in
the year in which the sale deed stood executed.
According to the assessee, since there was no transfer of
right, title and interest up to the date of execution of conveyance, income
did not accrue to the assessee till the date of conveyance and therefore,
there was no accrual of income at the time of execution of the tripartite
agreement(s) which took place during the A.Y. 1994-95.
The basic controversy is in which year the liability arose
— whether it arose during A.Y. 1994-95 or whether it accrued in the year when
conveyance stood executed.
Though the Supreme Court did not agree with the reasons
given by the High Court for dismissing the appeal in its impugned judgment,
(namely, that the Revenue had accepted two primary orders in the earlier
years), but since the Department had not gone into the method of accounting
followed by the assessee, it found no reason to interfere with the impugned
judgment.
The Supreme Court observed that in cases where the
Department wants to tax an assessee on the ground of the liability arising in
a particular year, it should always ascertain the method of accounting
followed by the assessee in the past and whether change in method of
accounting was warranted on the ground that profit is being underestimated
under the impugned method of accounting. If the Assessing Officer comes to the
conclusion that there is under-estimation of profits, he must give facts and
figures in that regard and demonstrate to the Court that the impugned method
of accounting adopted by the assessee results in underestimation of profits
and is therefore rejected. Otherwise, the presumption would be that the entire
exercise is revenue-neutral. In this case, that exercise had never been
undertaken. The Assessing Officer was required to demonstrate both the
methods, one adopted by the assessee and the other by the Department. In the
circumstance, there was no reason to interfere with the conclusion given by
the High Court and the Tribunal.
