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2015 (9) TMI 1304 - HC - Income TaxRevision u/s 263 - Tribunal held that the assumption of jurisdiction u/s. 263 by the CIT is not valid - whether the assessee has not committed any legal error by uniformly and consistently following Project Completion Method when he should have followed Percentage Completion Method as per Accounting Standard 9? - whether the Tribunal was justified in law in not appreciating that the order passed by the assessing officer in this case is prejudicial to the interest of the Revenue as the assessee has not recognized revenue as per Accounting Standard 9 from its Link Corner Project which was 88.78% complete in which case, the assessing officer should have recognized the revenue from this project? - Held that - The revenue has accepted the Project Completion Method in respect of Gym View Project of the respondent-assessee. Further as recorded by Commissioner in his order dated 27 March 2012, the respondent-assessee has offered to tax the income earned on Link Corner Project by following the Project Completion Method in respect of subsequent assessment year i.e. A.Y. 2008-09. It is a settled position of law that where the revenue has accepted a particular method of accounting over several years, the same is not to be lightly substituted unless the revenue is able to show that the same distorts the profit for a particular year. As held by the Apex Court in UCO Bank Vs. CIT 1999 (9) TMI 4 - SUPREME COURT , the choice of method of accounting is of the assessee. The respondent-assessee has chosen/adopted the Project Completion Method of accounting and has been consistently following it over the years. It is not open to the revenue to reject a method because according to the Assessing Officer another method is prefereable. In view of the above settled position, no fault can be found with the impugned order of the Tribunal. Moreover, the most appropriate method of accounting to correctly reflect the true financial statement is a matter of opinion and debate. Issues of debate are not amenable to Revisional jurisdiction under Section 264 of the Act. So far as the alternative submission viz. the Link View Project should have also been brought to tax under the Project Completion Method is concerned, the same does not arise for our consideration as Commissioner in his order dated 27 March 2012 has specifically directed adoption of Percentage Completion Method of accounting to subject the income arising on Link Corner Project to tax. In any view of the matter, the profits on Link Corner Project has been offered to tax and accepted in the subsequent Assessment Year i.e. A.Y. 2008-09. See CIT Vs. Nagri Mills Co. Ltd. 1957 (9) TMI 30 - Bombay High Court - No substantial question of law - Decided in favour of assessee.
Issues:
1. Jurisdiction of CIT under Section 263 of the Income Tax Act, 1961 2. Method of accounting - Project Completion Method vs. Percentage Completion Method Analysis: Issue 1: Jurisdiction of CIT under Section 263 of the Income Tax Act, 1961 The appeal challenges the order of the Income Tax Appellate Tribunal (Tribunal) dated 6 February 2013, concerning the Assessment Year 2007-08. The Commissioner of Income Tax (CIT) exercised revision powers under Section 263, setting aside the Assessing Officer's order and directing a recomputation of income for the respondent-assessee. The CIT specifically targeted the adoption of Percentage Completion Method for the Link Corner Project, while not disturbing the Project Completion Method used for the Gym View Project. The Tribunal, in its impugned order, emphasized that the method of accounting chosen by the assessee cannot be arbitrarily replaced by the revenue authorities. It held that the issue of the appropriate method of accounting is debatable and falls within the domain of the assessee's choice. Therefore, the Tribunal set aside the CIT's order, asserting that the CIT lacked jurisdiction to dictate a specific accounting method under Section 263. Issue 2: Method of accounting - Project Completion Method vs. Percentage Completion Method The respondent-assessee, engaged in construction projects, consistently followed the Project Completion Method for both the Link Corner Project and Gym View Project. The Assessing Officer completed the assessment for A.Y. 2007-08 under Section 143(3) of the Act, accepting the Project Completion Method. However, the CIT, through revision powers, sought to impose the Percentage Completion Method for the Link Corner Project only. The Tribunal upheld the respondent's consistent use of the Project Completion Method, highlighting that the revenue's acceptance of this method over the years signifies its appropriateness. The Tribunal emphasized that the choice of accounting method lies with the assessee, and the revenue cannot arbitrarily substitute a preferred method. Citing legal precedent, the Tribunal concluded that the CIT's attempt to change the accounting method lacked merit and fell outside the scope of Section 263. The Tribunal's decision to dismiss the appeal was based on the settled principle that issues of accounting method preference are not suitable for revisional jurisdiction under the Income Tax Act. In conclusion, the High Court of Bombay upheld the Tribunal's decision, dismissing the appeal and emphasizing that the revenue authorities cannot impose a different accounting method on an assessee who has consistently followed a particular method. The judgment reaffirms the principle that the choice of accounting method is within the assessee's discretion, and revenue authorities must demonstrate distortion of profits to justify changing the method.
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