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TMI Blog1986 (8) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... also undertook work of affluent channel project for CIDC. It is the claim of the assessee that it has prepared the accounts on the basis of standard accounting practices and has followed the recognised method of accounting in respect of the contract work. After going into the details in respect of various accounting practices that should be followed in respect of the contract job undertaken by the assessee, it was submitted, the ITO completed the assessment. 3.1 The CIT invoked jurisdiction under s. 263 of the IT Act on following two grounds mentioned in the notice issued by him: 1. The assessee company was engaged mainly in construction work. It is not engaged in the manufacturing activities, and so it was not an Industrial Company but the ITO erroneously treated the same as Industrial Company. 2. From the P L A/c, and the material available on record it is seen that receipt of Rs. 11,78,950 were not included in the certified work A/c as per R.A. Bills on the ground that the same were provision for contingencies. The provisions for contingencies are not permissible deduction. The assessee-company represented that work of construction of buildings, roads, dams, etc. i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the terms of contract by either of the parties, it will stand on a different footing. Then the loss or profit accruing or arising on such foreign exchange contracts will come into the computation of profits for that year. But where the contract has not yet been settled whether the contracts actually resulted in a profit or loss can not be known during the assessment year. We do not see how the assessee could claim the said amount as a loss actually arisen during the accounting year. The above observations of the Hon'ble Madras High Court have decided the issue that a loss which is not known during the year of account cannot be allowed as a deduction." 3.2. Before us, the ld. counsel for the assessee after submitting paper book containing 59 pages reiterated the submissions made before the authorities below and in respect of rate of tax required to be adopted it was fairly conceded that certain factual aspects of the nature of the business of the assessee company were not properly brought to the notice of the authority below and unnecessarily the assessee took the stand that construction of the building etc. could be said to be a manufacturing activity etc. Highlighting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts it was submitted that some tenements were completed and the profit in respect of which was not included either in the work in progress or in the accounts. 5. We have gone through the materials placed before us to which our attention was drawn. In our opinion, there is no error in the order passed by the ITO and therefore, the jurisdiction under s. 263 was not legally invoked. The reasons are as follows: "From the copy of the assessment order placed before us we notice that ITO has not given any finding with regard to method of accounting. Therefore, initially while perusing the records of assessment an inquiry should have been made as to why such finding is not given. Had it been done so probably the sand taken by the Commissioner in respect of the receipts would not have been the basis for invoking the jurisdiction under s. 263". 5.1 In respect of ground No. 1 we find from the assessment order passed by the ITO that he has allowed investment allowance of Rs. 87,803 while computing the income of the assessee. No grievance is raised by the CIT in respect of this particular aspect of the deduction claimed by the assessee and granted by the ITO. Sub-cl. (iii) of cl. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment of Construction Contract Costs and Revenue. 7.1. Two methods of accounting for contracts commonly followed by contractors are the percentage of completion method and the completed contract method. 7.2. Under the percentage of completion method revenue is recognised as the contract activity progresses based on the stage of completion reached. The costs incurred in reaching the stage of completion are matched with this revenue, resulting in the reporting of results which can be attributed to the proportion of work completed. Although (as per the principle of prudence) revenue is recognised only when realised, under this method, the Revenue is recognised as the activity progress even though in certain circumstances it may not be realised. 7.3. Under the completed contract method, revenue is recognised only when the contract is completed or substantially completed, that is, when only minor work is expected other than warrantly obligation. Costs and progress payments received are accumulated during the course of the contract but revenue is not recognised until the contract activity is substantially completed. 7.4. Under both methods, provision is made for losses for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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