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Issues Involved:
1. Whether the deletion of the addition towards work-in-progress by the Commissioner of Income-tax (Appeals) was proper and correct. 2. Whether it is necessary to take the stock of work-in-progress for the ascertainment of profits in the case of a non-trading concern like the assessee. Detailed Analysis: Issue 1: Deletion of Addition Towards Work-in-Progress The primary question is whether the Commissioner of Income-tax (Appeals) was correct in deleting the addition towards work-in-progress. The assessee, a contractor operating under the name "Geo Tech Construction Corporation," maintained accounts on a cash basis for receipts and a mercantile basis for expenses. The assessee's business involved constructing multi-storeyed buildings, which inherently involves complexities in valuing work-in-progress. The court noted that the assessee has the freedom to maintain his accounts in a manner intelligible to him and others, provided there is internal consistency. The two known methods for valuing work-in-progress are the "direct cost method" and the "on cost method." However, the court emphasized that no single method should be considered superior, and the ultimate goal is to ascertain the value of work-in-progress accurately. The Commissioner of Income-tax (Appeals) observed that the assessee had consistently shown profits without accounting for work-in-progress and that the profit margins for subsequent years were reasonable (8.7% for 1982-83, 11.23% for 1983-84, and 13.84% for 1984-85). The appellate authority concluded that adding the value of work-in-progress would effectively reject the results shown by the books of account, which were otherwise consistent and accepted by the Department. Issue 2: Necessity of Taking Stock of Work-in-Progress The second question addresses whether it is necessary to account for work-in-progress to ascertain profits for a non-trading concern like the assessee. The Tribunal held that for contractors, it is not necessary to take the stock of work-in-progress to determine profits. The reasoning is that work-in-progress represents incomplete work, and profits can only be accurately determined upon the contract's completion. The Tribunal emphasized that unless the work reaches completion and is certified, the contractor cannot be certain about payments and profits. The Tribunal also noted that valuing work-in-progress on an ongoing contract basis is impractical due to inherent risks, such as the need for redoing work or rectifying defects, which necessitate provisions and retentions. The Tribunal found no justification for rejecting the books of account, as the profits disclosed by the assessee were reasonable. The Tribunal affirmed the appellate authority's decision, noting that the assessee's method of accounting, although hybrid, was consistent and provided a reasonable profit disclosure. Conclusion The court concluded that the issues raised were factual, and both the appellate authority and the Tribunal found no justification for rejecting the books of account. The court observed that the nature of the contractor's work involves peculiarities that make it difficult to justify estimating work-in-progress. The court also noted that no authority had questioned the correctness of the books of account or the system of accounting. The court dismissed the petitions, affirming that the assessee had the liberty to maintain his own system of accounting, provided it was consistent and understandable. The court also recognized the practical difficulties in estimating work-in-progress for ongoing contracts and found no basis for the Revenue's contentions.
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