2020 (5) TMI 720 - AT - Income Tax

Changing the method of accounting of the company from Project Completion Method to Percentage Completion Method Project - Scope of Accounting Standard - Whether the method of accounting followed consistently and regularly and accepted by the Revenue in earlier year can be disturbed by the A.O? - HELD THAT - No infirmity in these findings of the ld. CIT(A) - Completion Method is a well recognised and accepted method of accounting. This method is consistently and regularly followed by the assessee since this project was undertaken and the method has been accepted by the department for the Assessment Year 2014-15 in an assessment order passed u/s 143 of the Act. The principle of consistency has to be applied. Nothing needs to be added to the detailed finding of the ld. CIT(A). The case law discussed is appropriate. Thus we uphold the finding of the ld. CIT(A) and dismiss this appeal of the revenue.

Summary

Issues:
1. Dispute over changing accounting method from Project Completion Method to Percentage Completion Method for income computation.

Analysis:
The appeal involved a dispute regarding the change in the method of accounting from Project Completion Method to Percentage Completion Method for income computation by the Assessing Officer. The main issue was whether the Assessing Officer was justified in changing the accounting method of the company. The Appellate Tribunal considered the arguments presented by both parties and analyzed the provisions of the Income Tax Act, specifically Section 145, which governs the computation of income under the head "profit and gain of business or profession." The Tribunal examined whether the Assessing Officer had the authority to modify the accounting method chosen by the assessee and whether the method followed was consistent and regularly employed by the assessee.

The Learned Commissioner of Income Tax (Appeals) framed specific questions related to the dispute, including whether the method of accounting followed consistently and accepted by the Revenue in earlier years could be disturbed by the Assessing Officer, and whether the Assessing Officer had the right to re-compute the profit of the assessee without rejecting the books of accounts. The Tribunal analyzed these questions in detail and referred to relevant legal provisions and precedents to arrive at a decision.

The Tribunal emphasized that the method of accounting followed by the appellant, i.e., the Project Completion Method, was a recognized method and had been consistently followed by the assessee. It was noted that the Revenue had accepted this method in the preceding assessment year. The Tribunal also highlighted that the Assessing Officer did not reject the books of accounts of the assessee, and therefore, the attempt to invoke the Percentage Completion Method under Accounting Standard 7 was deemed unjustified.

Furthermore, the Tribunal referred to various judicial precedents and case laws to support its decision. It cited cases where the courts had upheld the Project Completion Method for income computation in real estate businesses and emphasized the principle of consistency in accounting methods. The Tribunal concluded that there was no infirmity in the findings of the Learned Commissioner of Income Tax (Appeals) and upheld the decision to dismiss the appeal of the revenue. The cross-objections raised by the assessee were also dismissed, and the judgment favored the assessee in this dispute over the accounting method for income computation.