2006 (2) TMI 651 - HC - Income Tax

Summary

Issues:
1. Computation of work-in-progress for assessing true income.
2. Applicability of different methods of accounting in determining true profits.
3. Judicial precedents on the inclusion of work-in-progress in income computation.

Issue 1: Computation of work-in-progress for assessing true income:
The case involved an assessee firm engaged in civil contracts, which disclosed a net loss for a specific assessment year. The Assessing Officer estimated the closing and opening work-in-progress, adding the difference to the total income. The Commissioner of Income-tax (Appeals) and the Tribunal had differing views on the matter, with the Tribunal holding that the addition made was moderate. The appellant contended that the method of computation adopted by the Assessing Officer was not legal, citing previous decisions in their favor.

Issue 2: Applicability of different methods of accounting in determining true profits:
The appellant argued that a previous decision by the Court accepted the accounting system followed by the assessee for certain years, hence there was no reason for adding work-in-progress. However, the revenue's senior counsel emphasized that irrespective of the accounting method, work-in-progress must be considered for computing true profits, citing Supreme Court decisions to support this stance.

Issue 3: Judicial precedents on the inclusion of work-in-progress in income computation:
The High Court discussed various judicial precedents to determine the correct approach. It highlighted that the Assessing Officer has the authority to adopt a method to ascertain the true income if the assessee's accounting method does not reflect it accurately. The Court referenced Supreme Court decisions emphasizing the duty of the Assessing Officer to ensure the correct income is deduced, even if it involves deviating from the assessee's regular accounting method. The Court dismissed the appeal, affirming the Tribunal's decision to include work-in-progress for computing the true income.

In conclusion, the High Court upheld the inclusion of work-in-progress in income computation, emphasizing the duty of the Assessing Officer to adopt suitable methods for determining the true income of the assessee, even if it differs from the assessee's chosen accounting method. The judgment provided a comprehensive analysis of the issues involved, considering relevant legal precedents and statutory provisions to arrive at a decision.