Case Law Details
M/s. Shanti Constructions Vs ITO (ITAT Agra)
AO the assessee partnership firm , has been engaged in the business of real estate and construction of buildings for past several years, assessed total income of Rs. 3,94,62,580 u/s 143(3) of the Income Tax Act, 1961 (“the Act” in short) as against returned income shown by the assessee of Rs. 1,12,120. The AO has observed that the assessee did not produce bills/vouchers before him for ascertaining the accuracy and correctness of the books of account; that it did not furnish evidence regarding closing stock; that it could only furnish the photocopy of confirmations of advances received from customers and that the assessee is following project completion method and not percentage completion method. The AO also observed that the project completion method has no existence at all since 01.04.2003 and laid emphasis on revised AS-7 introduced by the ICAI (Institute of Chartered Accountants of India) in 2002 and accordingly on that basis the accounts of construction business should be prepared from AY 2002-03 onwards. Thus, the AO rejected the books of account maintained and determined the business profit of the assessee at Rs.3,24,93,594 during the assessment year by sales of assuming constructed area of 4,500 sq. yards by way of adopting value for the purpose of stamp duty and further made addition of Rs.15,56,866 with respect to closing work in progress on estimate basis of 15% and by considering advances of Rs.50,10,000 from customers as bogus advances.
The Ld. AR also submitted that section 145(1 ) of the Act states that income chargeable under the head ‘Profit and Gains of business and profession” shall be computed in accordance with either of mercantile system of accounting ‘regularly employed by the assessee: It is only w.e.f. 1″ April, 2015 that a change has been brought about in section 145(2) of the Act which permit the Central Govt to notify in the official Gazette from time to time the income computation and disclosure standard to be followed by any claim of the assessee or in respect of any claim. Such change is prospective and, in any event, does not apply to the case of the assessee.
Heard, We find that the issue in question, before us, is to decide whether there is any merit in rejection of books of account of the assessee by the AO and the applicability of method of accounting in the case of the assessee i.e. project completion method of accounting as adopted by the assessee vis a vis percentage completion method of accounting as held to be applicable by the revenue.
As regards to the adoption of project completion method of accounting by the assessee, it is seen that the assessee’s business came into existence from 11.03.2003 and since then it has been consistently following project completion method of accounting. The Ld. AR has contended that the assessee has never deviated from such method of accounting since the inception of the business and that the revenue had also accepted project completion method and profit shown by the assessee during the assessment proceedings for AY 2014-15 in assessee’s own case which also finds mention in para 6.2.1 of the order passed by Ld. CIT(A). It is well settled that the project completion method is one of the recognized method of accounting and as the assessee has consistently been followed such recognized method of accounting thus in the absence of any prohibition or restriction under the act for doing so, it can’t be held that the decision of the CIT(A) was erroneous or illegal in any manner. The judgement in the case of “CIT vs. Realest Builders & Services Ltd.”, (Supra) relied Id. DR on method of accounting is rather in favor of the assessee and against the revenue in the peculiar facts of the present case.
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