2016 (8) TMI 1205 - HC - Income Tax

Rejecting the project Completion Method followed consistently by the assessee - ITAT applying workinprogress method and taxing 80% thereon as net profit - Held that - As gone through the order passed by the authorities below, as well as, considering the fact that the assessee has followed the method which is consistent considering the decision in case of Shivalik Buildwell (P.) Ltd. 2012 (10) TMI 1019 - GUJARAT HIGH COURT ) and Umang Hiralal Thakkar (2013 (4) TMI 259 - ITAT AHMEDABAD ) and therefore this Court is of the opinion that the view taken by the tribunal and CIT (A) is not correct. Since the issue involved in this appeal is identical to the decision cited by the learned Counsel for the assessee while adopting such reasons, we allow this appeal and accordingly answer the issue raised in this appeal in favour of the assessee

Summary

Issues involved:
1. Challenge to the order passed by the tribunal regarding the assessment year 2001-02.
2. Rejection of the Project Completion Method by the tribunal and taxing net profit based on work in progress.
3. Consistency in following the chosen method of accounting by the assessee.
4. Interpretation of Section 145(3) of the Income Tax Act.

Detailed Analysis:
1. The appellant challenged the tribunal's order for the assessment year 2001-02 where the appeal was dismissed, confirming the CIT (A)'s order. The main question raised was whether the tribunal was correct in rejecting the Project Completion Method followed by the assessee and instead taxing 80% of the net profit based on work in progress.

2. The appellant's counsel argued that the tribunal erred in rejecting the Project Completion Method, a well-known method for taxing income in building construction businesses. It was contended that consistency in applying the chosen method is crucial, and rejecting it in an intermediate year creates inconsistencies in the assessee's assessment files.

3. The counsel relied on previous judgments, including the case of Shivalik Buildwell (P.) Ltd., to support the contention that the chosen accounting method should be respected if consistently followed and accepted by the revenue in earlier years. The counsel emphasized the importance of the assessee's right to choose a method of accounting unless it does not provide a true picture of profit.

4. The department's counsel, on the other hand, argued that the tribunal's order was just and proper, citing Section 145(3) of the Income Tax Act, which allows for the rejection of books of accounts if the income cannot be properly deduced. The department contended that the AO correctly invoked this provision to determine the income at 10% of total gross receipts.

5. After considering the arguments and the consistency of the assessee in following the chosen method, the Court found in favor of the appellant. Citing precedents like Shivalik Buildwell (P.) Ltd. and Umang Hiralal Thakkar, the Court held that the tribunal and CIT (A) were incorrect in rejecting the Project Completion Method. The Court allowed the appeal, ruling in favor of the assessee and against the department.