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2021 (11) TMI 713 - HC - Income TaxRejecting the method of accounting adopted by the Appellant-Assessee for the AYs - Assessee s method of accounting for the immediate two succeeding AYs i.e. 1990-91 and 1991-92 was accepted - Assessee adopted the completed contract method - HELD THAT - In the present case, with the Revenue having accepted the Assessee s method of accounting for AYs 1990-91 and 1991-92, there is no reason for it to reject it for the earlier three AYs particularly considering that it is the same contract spread over the five AYs. The impugned order of the ITAT on the above issue is unsustainable in law and is hereby set aside. The corresponding orders of the CIT (A) and the AO on the same issue are set aside as well. The question framed is answered in favour of the Assessee and against the Department by holding that the Department is not right in rejecting the accounting method followed by the Assessee for the AYs in question.
Issues Involved:
1. Rejection of accounting method by the Department for certain assessment years while accepting it for others. Analysis: The judgment involved a series of appeals arising from a common set of facts and legal questions, all of which were addressed collectively. The appeals were related to the rejection of the accounting method adopted by the Assessee for certain assessment years while accepting it for others. The key question framed for consideration was whether the Department was correct in rejecting the accounting method for the specific assessment years in question. The background of the case involved a contract spread over five assessment years, starting from 1987-88 and concluding in 1991-92, related to the establishment of a Charge Chrome Plant and a Captive Power Plant. The Assessee had adopted the "completed contract method" for accounting, treating the entire contract period as one unit of assessment and apportioning it over the relevant years. However, the Department rejected this method for the assessment years 1987-88 to 1989-90, estimating the profit at 10% using the percentage completion method. This led to a series of assessments, appeals, and orders, including interventions by the Commissioner of Income Tax (CIT) and the Income Tax Appellate Tribunal (ITAT). The ITAT upheld the Department's rejection of the Assessee's accounting method, citing concerns about the inability to deduce the true profit from the accounts maintained by the Assessee. Despite the Assessee's argument for consistency in applying the accounting method and the acceptance of the method for subsequent assessment years, the ITAT justified the 10% profit estimation based on industry standards. In the final judgment, the High Court set aside the ITAT's order, along with the orders of the CIT (A) and the Assessing Officer (AO), ruling in favor of the Assessee. The Court emphasized the principle of consistency in accounting methods, citing relevant legal precedents, and concluded that the Department's rejection of the Assessee's method for the specific assessment years was unjustified. Therefore, the appeals were allowed with no order as to costs. In summary, the judgment addressed the issue of rejecting the Assessee's accounting method for certain assessment years while accepting it for others, emphasizing the importance of consistency and fairness in applying accounting principles across related assessment periods.
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