2010 (9) TMI 803 - HC - Income Tax

Completed Contract Method of Accounting - claim of the assesses to allow him to continues with the Completed Contract Method of Accounting and the amendment to section 145 of the Act held that the assessee has to follow one of the method contemplated under section 145 of the Act and not any other method of his choice Held that - Tribunal was not justified in concluding that the assessee was entitled was follow the method of Completed Contract Method of Accounting which he followed in the previous years despite the amendment to section 145 of the Act. The Tribunal apparently did not take note of the fact that the judgments relied upon by it were prior to the amendment and not subsequent to the amendment. Therefore the appeal deserve to be allowed and accordingly. The matter is remanded to the Tribunal for consideration in the light of the amendment to section 145 of the Act with effect from 1-4-1997

Summary

Issues:
1. Whether the assessee can follow the "Completed Contract Method of Accounting" in the construction business despite the amendment to section 145 of the Income-tax Act, 1961?
2. Whether the judgments relied upon by the Tribunal were applicable post the amendment to section 145 of the Act?

Issue 1:
The case involves the question of whether the assessee can continue using the "Completed Contract Method of Accounting" for the assessment year 1998-99, despite the amendment to section 145 of the Income-tax Act, 1961, which now only contemplates cash or mercantile system of accounting. The assessee argues that since he consistently used this method in previous years with department approval, he should be allowed to continue with it. The appellant-revenue contends that the assessee must adhere to the methods specified under section 145 and cannot choose his own method. The Tribunal's reliance on pre-amendment judgments like H.M. Constructions v. Joint CIT and Khoday Distilleries Ltd. is criticized as these judgments are not applicable post the amendment. The High Court remanded the matter to the Tribunal for reconsideration in light of the amended section 145.

Issue 2:
The second issue pertains to the validity of the Tribunal's decision based on pre-amendment judgments post the substitution of section 145 of the Income-tax Act. The Tribunal's reliance on judgments like Khoday Distilleries Ltd. and H.M. Constructions v. Joint CIT, which were decided before the amendment to section 145, is deemed inappropriate. The High Court notes that the Tribunal overlooked the fact that these judgments were rendered prior to the amendment and, therefore, were not applicable to the current scenario post the amendment. Consequently, the High Court remanded the case to the Tribunal for reconsideration in light of the amended provisions of section 145.

This judgment primarily deals with the conflict arising from the assessee's desire to continue using the "Completed Contract Method of Accounting" despite the amendment to section 145 of the Income-tax Act, 1961. The High Court emphasized the importance of adhering to the methods prescribed under section 145 post the amendment, rather than relying on pre-amendment judgments. The decision underscores the need for consistency in applying legal provisions and the significance of considering the current legal framework while making determinations in tax matters. The case highlights the judicial approach of ensuring alignment with the prevailing statutory provisions to maintain legal coherence and consistency in tax assessments.