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TMI Blog2001 (8) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... , it credited the aforesaid consideration to the accounts of the customers and the same was shown as liability in the balance sheet. On the other hand, the expenditure incurred on the development of land was shown as work-in-progress and the same was being carried over to the next year and so on. Hence, no profit on the sale of such plot was shown by the assessee. 3. The assessee was asked to explain as to Why the profits arising out of the sale proceeds of the plots should not 'be charged to tax in the year under consideration. In reply, vide letter dated1-5-1989, it was stated by the assessee that it was following single venture method of accounting and accordingly, the profits/losses, as the case may be, in respect of such venture would be determined only in the year in which the venture is completed. It was also stated that such method was being accepted in the past and, therefore, no addition could be made on this account. 4. However, the aforesaid contention of the assessee was rejected by Assessing Officer. According to him, the plots had already been sold and registration deeds had also been executed in favour of the customers. Further the expenditure incurred on the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, there was no justification to make any departure therefrom. Fourthly, it was submitted that estimate of profit as made by Assessing Officer was excessive. Lastly, it was submitted that decision of Delhi High Court in the case of Tirath Ram Ahuja (P.) Ltd. was distinguishable on the facts of the case in as much as that decision was rendered in the case of a contractor. Various details were also filed to establish that development work was still continuing and the venture was not complete. 6. The CIT(A) agreed with the contention of the assessee's counsel that the judgment of Delhi High Court in the case of Tirath Ram Ahuja (P.) Ltd. was not applicable to the case. However, he was of the view that true profits could not be deduced from the details furnished by the assessee and, therefore, provisions of section 145(1) could be invoked. However, he was of the view that profits determined by Assessing Officer was on higher side. Accordingly he applied the profit rate of 12 1/2% on the sale profits of the plots and determined the profits at Rs. 2,98,515. Still aggrieved, the assessee has preferred this appeal before the Tribunal. 7. TheId.counsel for the assessee has vehemently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been furnished before us showing an yearwise expenditure incurred by the assessee right from assessment years 1986-87 to assessment year 2000200 1. According to this chart, the total cost of the project is Rs. 3,77,89,194. Hence it has been prayed by him that this cost should be spread over to the saleable area. According to this chart, it's been worked out at Rs. 372 per sq. yard as against Rs. 164.26 worked out by. the Assessing Officer. 8. TheId.Sr. DR has vehemently opposed the contentions as raised by theId.counsel for the assessee. Firstly, it was contended by him that section 4 is a charging section, according to which the profits of each year are to be taxed in accordance with the rates specified by the Finance Act of each year. Accordingly it was submitted by him that once the profits are accrued in a particular year then tax has to be levied in respect of such profits and consequently, such profits cannot be deferred to future years. It was pointed out by him that if the method of accounting as employed by the assessee is accepted then it would amount of taxing the accumulated profits of various years in one year which is not the intention of the Act. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee in the year 2001. The plots were sold in assessment years 1987-88 to 2001-02 as is apparent from the statement furnished before us. TheId.counsel for the assessee has vehemently argued that assessee is entitled to adopt any method of accounting particularly when such method has been accepted by the courts inIndiaand by the Assessing Officer in the present case in assessment years 1986-87 and 1987-88. After giving our deep thought to the issue, we are unable to accept this contention of theId.counsel for the assessee. According to section 4 of the Income-tax Act, 1961, the income-tax is chargeable in respect of the total income of each previous year. As a necessary corollary, we are of the view, the income accruing in one year cannot be deferred to future years by adopting an incorrect method of accounting with a view to postpone the tax liability. Once an income has accrued to the assessee in a particular year then it has to be assessed in that very year irrespective of the method adopted by the assessee. It is now settled legal position that method of accounting cannot override the legal provisions as held by the Supreme Court in the case of Tuticorin Alkali Chemicals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are not discarding project completion method altogether. Whether true and correct profits can be determined from a particular method or not would depend upon the facts of each case. The correctness of such method in cases other than the land developer is left open and may be decided by the Tribunal in some other appropriate case. 11. The view taken by us is further fortified by the decision of the Supreme Court in the case of P.M. Mohd Meera Khan. In that case the assessee carried an adventure in the nature of trade by purchasing the land and selling the same after plotting. The assessee had sold 22 plots out of 23 plots and the 23rd plot was retained by the assessee. The contention of the assessee was that profits could not be ascertained unless all the plots were sold. This stand of the assessee was rejected by holding 'It was not correct to say that the profits of the adventure could be determined only at the time of completion of the sale of the entire Estate. Each year was a self contained unit and in the case of a trading adventure for computing the true profits of the year, the value of stock in trading at the beginning and at the end of the accounting year had to be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of CIT v. British Paints India Ltd [1991] 188 ITR44. Inthat case the assessee was consistently adopting the method of valuation of closing stock exclusively at cost of raw materials totally excluding overhead expenditure. This method of valuation was rejected by the tax authorities. Finally, the matter reached the Supreme Court. The contention of the assessee before the court was that method of valuation adopted by the assessee was being adopted consistently and, therefore, there could not be any departure from the same. This contention was rejected by the court by observing 'it is incorrect to say that the officer is bound to accept the system of accounting regularly employed by the assessee, the correctness of which had not been questioned in the past. There is no stoppel in these matters and the officer is not bound by the method followed in the earlier years.' These observations squarely applies to the facts of the present case. TheId.counsel for the assessee has heavily relied on the decision of Supreme Court in the case of Radhasoami Satsang for the following observations : 'Strictly speaking, res judicata does not apply to income-tax proceedings. Though, ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in invoking the provisions of section 145(1) proviso. 13. The next question to be considered is whether the CIT(A) was justified in applying the profit rate of 12.596 on the receipts of the assessee. In this connection, we are in agreement with theId.counsel for the assessee that there was no basis with the CIT(A) for coming to such conclusion. No comparable case has been brought on record to justify such conclusion. Accordingly, it is held that CIT(A) was not justified in applying the profit rate of 12.596. 14. Now the question arises as to how the profits should be computed in such case. The answer to this question is covered by the decision of Hon'ble Supreme Court in the case of Calcutta Co. Ltd., In that case the Supreme Court was considering a case of a land developer, who had undertaken to develop the land by laying out roads, providing of drainage system and installation of lights etc. Some of the plots were sold by the assessee against a consideration of Rs. 29,392. Following mercantile system of accounting, the assessee credited the entire sum of Rs. 43,692 being the full sale price of the land. At the same time, it also debited an estimated sum of Rs. 24,809 on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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