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TMI Blog2013 (4) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... able to the petitioner in circumstances where there is an infringement of fundamental right, a violation of principles of natural justice or when there is anything ultra vires the law. In this case, in the absence of any of the above elements, it is not proper for the petitioner to avoid the effective alternative appeal remedy. Therefore, the contention of the learned counsel for the petitioner cannot be sustained. - writ petition dismissed - Decided against the assessee. - W.P.No.1638 of 2012 - - - Dated:- 10-4-2013 - V. Dhanapalan,J. For the Petitioner : Dr.Anitha Sumanth For the Respondent : Mr. T. Pramod Kumar Chopda ORDER Seeking to quash the order of assessment dated 30.12.2011 in PAN No.AAACK2567P, relating to the assessment year 2008-09, on the file of the respondent herein, the petitioner has come up with the present Writ Petition. 2. Facts leading to the filing of the case would run thus: 2.1. The petitioner is a Company registered under the provisions of the Indian Companies Act. It is engaged in the business of manufacture, supply, installation and commissioning of new elevators, supply, installation of escalators and maintenance, servicing and mod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived in full. 2.4. The contract between the parties specifies that the material supplied by the petitioner shall remain the property of the petitioner till such time the payment is received in full. It protects specifically the right of the petitioner to remove any equipment supplied by the petitioner at the cost of the customer, in event of any default in payment. The income from such contracts thus accrues to the petitioner only on the execution of the contract and when the title passes to the customer. The petitioner accordingly treats every part payment made by the customer in the course of the installation of contract as an advance towards execution of the same and offers the entire income to taxation on completion of the contract and handing over of the equipment to the customer, which is referred to as the 'completed contract method' and is a recognized method of accounting in terms of Accounting Standard 9 issued by the ICAI. The accrual of income and the recognition of the same is thus in accordance with the Accounting Standard 9 and is a mandatory method that has been consistently followed by the petitioner in respect of the income offered by it for taxation, ever si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completed in respect of various assessment years till date. According to the petitioner, the method adopted by them for recognition of revenue is in order and has been consistently accepted by the Income Tax Department till date. While so, in respect of Assessment Year 2008-2009, the petitioner filed a return of income dated 28.09.2008 declaring income of Rs.52,95,14,660/- under the normal provisions and book profit of Rs.74,36,76,800/- u/s 115 JB of the Act. An intimation under Section 143(1), dated 03.03.2010 was issued. Notice u/s 143(2) of the Act calling upon the petitioner to produce various details in connection with its return of income was served on 13.08.2008 (wrongly mentioned as 09.10.2007) and the petitioner duly complied with the same and appeared before the respondent and furnished all the required particulars. In accordance with the practice followed in respect of earlier assessments, the petitioner had, in respect of the income earned for the financial year 01.04.2007 to 31.03.2008, returned income on the basis of Accounting Standard 9 following the 'completed contract' method. The disclosure in the notes on accounts for the relevant year is identical to the disclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the advances received in the current financial year amounts only to Rs.96 crores, being the difference between the advances relating to the earlier years (Rs.316 crores) and advances relating to the current financial year (Rs.410 crores). In fact, the amount of Rs.316 crores relates to advances pertaining to assessment years prior to financial year 2007-08 and cannot in any event brought to tax as income in respect of Assessment Year 2008-09 insofar as there is no concept of taxation of 'prior period' income under the provisions of the Act. 2.10. The assessments in relation to the earlier years have been completed and the present stand of the Revenue would disturb a position that has been accepted consistently and in respect of which, there is no justification or necessity for a change. According to the petitioner, all the details as required by the respondent were furnished to him and the petitioner was given to understand that its stand would be accepted. While so, the petitioner was shocked to receive an order of assessment dated 30.12.2011 bringing to tax the entire amount of advances received as on 31.03.2008 corresponding to Rs.410,96,81,202/- as income of the petitioner. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand has changed from 'Works contract' to 'Contract of Sales' and in that case, the application of Accounting Standard 7 becomes more relevant as it is squarely covered under the percentage of completion method. Even if it is a contract of sale, then AS 9 would not be applicable as it extends beyond one financial year and only AS 7 would be applicable. 3.4. With regard to the petitioner's reference to the dictum of the Hon'ble Supreme Court in the case of Wood Ward Governor, wherein the Bench has held that where the assessee or department are deviating from the stand consistently adopted over the years, there should be a justification in that regard, the respondent has stated that there is no deviation on the part of the department in considering the petitioner's case and in fact, it is the petitioner who has deviated from its method of accounting for long term contracts. 3.5. Further, an income corresponding to Rs.40 crores was not offered to tax voluntarily by the petitioner in its returns of income for A.Y.2008-09. The respondent seeks to bring the income of the petitioner corresponding to the advances received to tax as opposed to the petitioner's stand of offering income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advances are received prior to the sales booking makes AS 9 inept in the petitioner's case. 3.9. AS 9 recognises revenue both from the sale of products and rendering of services. However, in the case of services, it reckons the applicability of percentage of completion method but not so in the case of sale of goods. Therefore, what is explicitly stated as applicable to rendering of services will be equally applicable for sale of goods. Further, as per the petitioner's case, in the case of goods having long production cycle time, as long as there is a valid contract and the parties to the contract agree regarding billing details, contractual obligations and payment terms, there is no need to apply the rule of explicit statement in the Standard. 3.10. Considering the nature of business, the type of product and the long production cycle time involved, the method adopted by the Company is not in order. With regard to long production cycle items taking more than a year to complete, the 'Objective' paragraph, definition of the term 'construction contract' and paragraph 3 of the Accounting Standard (AS) 7 (revised 2002), 'Construction Contracts', issued by the Institute of Chartered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of over 200 elevators and escalators, wherein the Delhi Metro Rail Corporation (DMRC) contracted with the petitioner to hand over possession of equipment in each corridor, thus, in effect treating each corridor of the Metro as a separate contract. Income as well as expenditure, in this case alone, is reckoned on stage wise completion of the contract. In any event, in the financial year relevant to AY 2008-09, there were no long term contracts that were ongoing and the petitioner was executing only short term contracts in respect of which, admittedly, the petitioner and the Department were following only the completed contract method. Though the respondent states that he does not seek to change the method adopted by the appellant and accepted consistently by him, this is exactly what the impugned order does. Opportunity to the petitioner was not granted to clarify these aspects and this renders the impugned order liable to be cancelled. 4.3. With regard to the admission of the respondent that the taxability of the part payments received by the customers is the subject matter of the impugned order of assessment, the petitioner submits that the contract between the parties specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. I.T.O., Rajkot) "It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realising that price should familiarise themselves with the relevant provisions and become well-versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. So far as the income-tax assessment orders are concerned, they cannot be reopened on the score of income escaping assessment under Section 147 of the Act of 1961 after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. As already mentioned, this cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, the assessee is entitled to adjust the actual cost of imported assets acquired in foreign currency? Having carefully perused the decision of this court in Woodward's case (2009) 312 ITR 254, we are of the opinion that both the issues stand concluded by the said decision. Dealing with the said issues extensively, speaking for the Bench, S.H.Kapadia,J., summarised the following factors which should be taken into account in order to find out if an expenditure on account of fluctuation in the foreign currency rates, when the assessee is following mercantile system of accounting, is deductible (page 267): "(i) whether the system of accounting followed by the assessee is the mercantile system, which brings in the debits of the amount of expenditure for which a legal liability has been incurred even before it is actually disbursed and brings into credits, what is due, immediately it becomes due and before it is actually received; (ii) whether the same system is followed by the assessee from the very beginning and if there was a change in the system, whether the change was bona fide? (iii) whether the assessee has given the same treatment to losses claimed to have accrued an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue as well. However, in the projected scenario of this case, after taking stock of the entire situation, we are of the opinion that it is not necessary to conclusively answer the aforesaid questions formulated. It is because of the reason that we find that the entire exercise is revenue neutral. It may be pointed out that it is a matter of record that against the provision of Rs.139 lakhs, the assessee had to actually incur expenditure of Rs.218.03 lakhs, i.e. more than the provision made. It is undisputed that the expenditure incurred by the assessee on the project is admissible deduction. The only dispute that the Revenue seeks to raise is regarding the year of allowability of expenditure. Considering that the assessee is a company assessed at uniform rate of tax, the entire exercise of seeking to disturb the year of allowability of expenditure is, in any case, revenue neutral." (v) 1999 AIR (SC) 022 (Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai) "15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a Writ Petition. But the High Court has imposed upon itself certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diction of the case, normally the High Court should not interfere if there is an adequate efficacious alternative remedy. If somebody approaches the High Court without availing the alternative remedy provided the High Court should ensure that he has made out a strong case or that there exist good grounds to invoke the extraordinary jurisdiction. 11.... The Court, in extraordinary circumstances, may exercise the power if it comes to the conclusion that there has been a breach of principles of natural justice or procedure required for decision has not been adopted." (vii) AIR 1978 SC 851 (Mohinder Singh Gill and another vs. The Chief Election Commissioner, New Delhi and others) "8. The second equally relevant matter is that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out. We may here draw attention to the observations of Bose J. in Gor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognised under this method is determined by reference to the stage of completion of the contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. The above indicates the difference between the completed contract method and the percentage of completion method. In the judgment of the Bombay High Court in Taparia Tools Ltd., it has been held that in every case of substitution of one method by another method, the burden is on the Department to prove that the method in vogue is not correct and it distorts the profits of a particular year. Under the mercantile system of accounting based on the concept of accrual, the method of accounting followed by the assessees is relevant. In the present case, there is no finding recorded by the Assessing Officer that the completed contract method distorts the profits of a particular year. Moreover, as held in various judgments, the chit scheme is one integrated scheme spr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide sales and inter-State sales returning the gross turnovers and claiming deductions of sales to registered dealers in the case of both the turnovers and also deduction in respect of sales to departments of Government in the case of the turnover of inter-State sales. During the proceedings for assessment the assessee sought adjournments on one ground or another. Eventually, the Sales Tax Officer refused to grant any further adjournments holding that the assesee had sufficient opportunity and made assessments to the best of his judgment under Rule 15 of the Central Sales Tax (Orissa) Rules, 1957, and Section 12(4) of the Orissa Sales Tax Act, 1947, treating the gross turnovers returned to be their taxable turnovers. In the case of inter-State sales, he disallowed the assessee's claim for deduction representing sales to registered dealers and departments of Government as well as the amount claimed as deduction on account of tax collected from the purchasers, as the requisite declarations in Form C were not forthcoming. He also disallowed the concessional rate of tax at 4 per cent. Similarly, while making an assessment under Section 12(4) of the Act, he treated the gross turnover of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been following a consistent method of providing for and returning the income from the supply and installation of elevators and escalators on the basis of 'completed contract method'; accordingly, it treats every part payment made by the customer in the course of the installation of contract as an advance towards execution of the same and offers the entire income to taxation on completion of the contract and handing over of the equipment to the customer, which is referred to as the 'completed contract method' and is a recognized method of accounting in terms of Accounting Standard 9 issued by the ICAI, which is a method that has been consistently followed by the petitioner in respect of the income offered by it for taxation for more than 20 years and its income was assessed on completed contract method, while so, the respondent, vide the order of assessment dated 30.12.2011, brought to tax the entire amount of advances received as on 31.03.2008, corresponding to Rs.410,96,81,202/- as income of the petitioner and a total demand of Rs.20,63,60,929/- has been raised, thereby changing the method of accounting to percentage completion method, which is contrary to the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advances are received, the company uses the amount for the purpose of purchase of materials and store it for usage for the jobs. Thus, the advances are already committed to the jobs and moneys incurred for the same. From the above, it is re-ascertained that expenditure is incurred against the advance received as shown in the books. However, the revenue has not been recognized. Hence, following the percentage completion method of contract, the tax due has been arrived at. 13. It is the cardinal principle under Section 145(1) of the Income Tax Act that under one system of accounting, what is due is brought into credit before it is actually received and it brings into debit an expenditure for which a legal liability has been incurred before it is actually disbursed. Therefore, the accounting method followed by an assesee continuously for a given period of time needs to be presumed to be correct till the Assessing Officer comes to the conclusion for reasons to be given that the system does not reflect the true and correct profits. The petitioner has construed that the decision of the original authority in going for reopening of assessment without giving reasons is contrary to law. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violation of principles of natural justice or when there is anything ultra vires the law. In this case, in the absence of any of the above elements, it is not proper for the petitioner to avoid the effective alternative appeal remedy. Therefore, the contention of the learned counsel for the petitioner cannot be sustained. 17. Under the circumstances, it is quite unnecessary for this Court to go deep into the matter, as this is not the proper forum to deal with the same, at this stage. Accordingly, this Writ Petition is dismissed, as not maintainable. The parties to the proceedings are at liberty to agitate all the contentions raised before this Court before the appellate authority, dealing with the appeal. It is made clear that while computing the period of limitation, if any, for filing the appeal, the period of pendency of this Writ Petition, shall be excluded. The appellate authority shall dispose of the appeal uninfluenced by any of the observations made in this order on merits and in accordance with law. No costs. Consequently, the connected M.P.No.1 of 2012 is also dismissed. After the pronouncement of the order, learned counsel for the petitioner made a request to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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