2008 (1) TMI 422 - AT - Income Tax

Summary

Issues Involved:
1. Rejection of accounting policy for completed contract method.
2. Non-speaking order on losses of earlier years.
3. Denial of depreciation on construction cost.
4. Charging of interest u/s 234B and 234C.
5. Initiation of penalty proceedings u/s 271(1)(c).

Summary:

Issue 1: Rejection of Accounting Policy for Completed Contract Method
The assessee contested the CIT(A)'s decision to uphold the Assessing Officer's (AO) rejection of the completed contract method for an infrastructure project under the BOT scheme with toll rights. The AO treated the BOT contract as a building contract and did not follow any prescribed accounting standard u/s 145. The assessee argued that the revenue should be adjusted against the expenditure and profits assessed only after full cost recovery. The AO computed a profit of Rs. 1,32,19,906 by allowing amortization of construction costs over 16 years. The ITAT held that the AO should have followed the same method as in the previous year (AY 2000-01) due to the rule of consistency, referencing the Supreme Court judgment in Radhasoami Satsang v. CIT. The ITAT directed the AO to accept the assessee's method for the current year, noting that it would not prejudice the revenue.

Issue 2: Non-Speaking Order on Losses of Earlier Years
The CIT(A) did not pass a speaking order regarding the calculation of losses from earlier years based on the accounting policy adopted by the AO. The ITAT did not specifically address this issue in detail but implied that the AO should follow a consistent method across years.

Issue 3: Denial of Depreciation on Construction Cost
The assessee argued that the CIT(A) erred in not allowing depreciation on the cost of construction of the bridge. The ITAT's decision to accept the assessee's accounting method implicitly addressed this issue, as the method included amortization of construction costs.

Issue 4: Charging of Interest u/s 234B and 234C
The assessee contended that the AO erred in charging interest u/s 234B and 234C. The ITAT's decision to accept the assessee's accounting method and adjust the profits accordingly would affect the calculation of interest, although this issue was not explicitly detailed in the judgment.

Issue 5: Initiation of Penalty Proceedings u/s 271(1)(c)
The assessee argued that the AO erred in initiating penalty proceedings u/s 271(1)(c). The ITAT's acceptance of the assessee's accounting method and the resulting adjustments would likely impact the basis for any penalty, though this issue was not explicitly resolved in the judgment.

Conclusion:
The ITAT allowed the appeal, directing the AO to accept the assessee's accounting method for the current year and adjust the amortization of expenses accordingly. The ITAT emphasized the importance of consistency and referenced the Supreme Court's judgment in Radhasoami Satsang v. CIT. The decision implicitly addressed issues related to depreciation, interest, and penalties by accepting the assessee's method.