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TMI Blog2015 (2) TMI 439X X X X Extracts X X X X X X X X Extracts X X X X ..... unting Standard (AS)-7, issued by the Institute of Chartered Accountants of India (ICAI), is applicable to all construction contracts. The apex court had in Challapalli Sugars Ltd. vs. CIT [1975] 98 ITR 67 (SC), clarified that for the purpose of computing the profits and gains of business, the principles of commercial accounting shall prevail, so that where not in conflict or inconsistent with the provisions of law, shall obtain. As explained by it, the views of the ICAI as the premier regulatory body for the profession of the accountancy had to be accorded respect. The assessee's profit on different construction projects under progress (as on 31.03.2007) was, thus, taken at 8% of the incremental work-in-progress (WIP), i.e., during the relevant year, being Rs. 121.57 lacs. 3. The assessee has before us, on the basis of the view of the Expert Advisory Committee of the ICAI, which issues opinions in respect of the various queries raised by the members of the Institute on various accounting issues, clarified that as per the Institute itself, the revised AS-7, titled 'Accounting for construction contracts', applicable for contracts entered into during accounting periods commencing on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs prior to the accounting period commencing from 01.04.2003, whereupon only AS-9, as itself argued by the assessee, shall hold, i.e., in the case of builders, as the assessee. 4.2 The only aspect, therefore, that is relevant and is to be examined is if the assessee had followed or that its accounts are consistent with AS-9. Toward this, the assessee claims that both the project completion and the percentage completion methods are consistent with AS-9. It seeks to support its argument with the decision by the tribunal in the case of Awadhesh Builders vs. ITO [2010] 37 SOT 122 (Mum). The tribunal in that case opined that AS-9 favours project completion method. Firstly, therefore, the assessee's contention that the AS-9 does not draw any distinction between the two methods, so that it admits both, is itself contrary to that by the tribunal, which it cites in support. Secondly, neither could the same be said to have universal application, i.e., given the two fundamental principles of taxation noted supra, which would have to be observed, nor can the same said to represent the uniform view of the tribunal, and for which we may cite the decisions by it in the case of Champion Construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed on the conspectus of the facts and circumstances of the case, i.e., on the basis of the best available information. Finally, is the question of the stage of completion of a project. This assumes relevance in determining the extent to which income can be said to have accrued, i.e., its quantification. Reference in this regard may be usefully made to the decision, inter alia, in the case of Suresh G. Wadhwa (supra). Conclusion 5. We may summarize our findings. The income arising to the assessee during a particular period has to be brought to tax for that period, and that period alone; each year being an independent unit of assessment. It is trite law that profit is to be understood in the commercial sense and, subject to the provisions of the Act, computed accordingly (refer: Calcutta Co. Ltd. vs. CIT [1959] 37 ITR 1 (SC); Poona Electric Supply Co. Ltd. vs. CIT [1965] 57 ITR 521 (SC)). The issue is not as to which of the two methods, i.e., the percentage completion or the project completion, is the correct method in-as-much as each could be valid in a particular set of facts. What is relevant is which of the two methods results in the correct reporting of the operating pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reading of the clause/s of an agreement by the ld. AR was only an attempt toward clarifying that no income had in fact accrued. AS-9 therefore applies to both the methods. The distinction between the two methods does not impinge upon or is in any manner related to the accrual or otherwise of income, which, as of expenditure, is principally a matter of fact, and has under the given facts and circumstances, either inured or not so. Seeking, therefore, to draw a distinction between the two methods on the basis that the income has not accrued under one of them, while may have under another, is thus fundamentally incorrect. In fact, the said two methods of accounting are only loosely termed as such, and are, strictly speaking, not methods of accounting, but only different basis for valuation of assets and liabilities. As explained in Chunni Lal Mehta & Sons (P.) Ltd. (supra), there is a difference between the method of accounting and the actual entries in the accounts maintained by the assessee. Even earlier, in CIT v. A. Krishnaswami Mudaliar [1964] 53 ITR 122 (SC), the apex court clarified of the distinction between the method of accounting and the method adopted to value inventory. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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