Commissioner Of Income Tax-15 v. M/S Aditya Builders

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1738 OF 2013 Commissioner of Income Tax-15Vs.M/s Aditya Builders ..Appellant ..Respondent .... Mr. A.R. Malhotra a/w N.A. Kazi, Advocates for Appellant.Mr. Sanjiv M. Shah, Advocate for Respondent. .... P.C.: CORAM : M.S. SANKLECHA & G.S. KULKARNI, JJ.DATED : 14 SEPTEMBER 2015 This appeal filed under Section 260A of the Income TaxAct, 1961 (the 'Act') challenges the order dated 6 February 2013passed by the Income Tax Appellate Tribunal (the 'Tribunal'). 2.The Assessment Year involved is A.Y. 2007-08. 3.The revenue has raised following questions of law for ourconsideration: (1)Whether, on the facts and thecircumstances of the case, the Tribunal was justifiedin law in holding that the assumption of jurisdictionu/s. 263 of the Act, by the CIT is not valid and that S.S.DESHPANDE the assessee has not committed any legal error byuniformly and consistently following 'ProjectCompletion Method' when he should have followed'Percentage Completion Method' as per AccountingStandard 9? (2)Whether, on the facts and thecircumstances of the case, the Tribunal was justifiedin law in not appreciating that the order passed bythe assessing officer in this case is prejudicial to theinterest of the Revenue as the assessee has notrecognized revenue as per Accounting Standard 9from its Link Corner Project which was 88.78%complete in which case, the assessing officer shouldhave recognized the revenue from this project?” 4.The respondent-assessee is engaged in construction ofcommercial and residential premises. For the subject AssessmentYear 2007-08, the respondent filed return of income declaringincome of Rs.1.51 crores. The Assessing Officer also in the courseof assessment noticed that the respondent-assessee was undertakingtwo construction projections namely Link Corner Project and GymView Project following the Project Completion Method ofaccounting. Further the Gym View Project was completed in the subject Assessment Year and it's profits were offered to tax. TheAssessing Officer completed the assessment under Section 143(3) ofthe Act on 13 July 2009 determining the total income at Rs.1.58crores. 5.On 27 March 2012, the Commissioner of Income Tax (the'Commissioner') in exercise of his powers of revision under Section263 set aside the order dated 13 July 2009 of the Assessing Officerand directed him to recompute the income of the respondent-assessee in respect of Link Corner Project by applying thePercentage Completion Method. However the profits disclosed byapplying the Project Completion Method in case of Gym ViewProject was not distrubed. 6.Being aggrieved, the respondent-assessee filed an appealbefore the Tribunal. The Tribunal by the impugned order held thatthe respondent-assessee has been consistently following the ProjectCompletion Method over the years. Further in respect of the twoprojects which arise for consideration in the subject assessmentyear, the respondent was following the Project Completion MethodS.S.DESHPANDE3 / 8 6.Being aggrieved, the respondent-assessee filed an appealbefore the Tribunal. The Tribunal by the impugned order held thatthe respondent-assessee has been consistently following the ProjectCompletion Method over the years. Further in respect of the twoprojects which arise for consideration in the subject assessmentyear, the respondent was following the Project Completion MethodS.S.DESHPANDE3 / 8 in respect of both the projects. The Commissioner while seeking torevise the order of the Assessing Officer has not disturbed theadoption of Project Completion Method in respect of Gym ViewProject and merely sought to replace the Project Completion Methodby Percentage Completion Method in respect of Link Corner Project.Further, the impugned order relied upon the settled position of lawthat the method of accounting cannot be thrust upon the assesseeand where the assessee has been consistently following a particularmethod of accounting, the same cannot be lightly disturbed.Moreover, the issue relating to the appropriate method ofaccounting is a debatable issue and thus the Commissioner wouldhave no jurisdiction under Section 263 of the Act to directapplication of one particular method of accounting in preference toanother. In the above view, the Tribunal set aside the order of theCommissioner dated 27 March 2013 passed in exercise of power ofrevision under Section 263 of the Act. 7.Mr.Malhotra, learned Counsel for the revenue submitsthat in any case, as the project was substantially completed and theProject Completion Method ought to have followed. Otherwise heS.S.DESHPANDE4 / 8 supports the order of the Commissioner of Income Tax in exercise ofpowers under Section 263 of the Act. 8.We find that the revenue has accepted the ProjectCompletion Method in respect of Gym View Project of therespondent-assessee. Further as recorded by Commissioner in hisorder dated 27 March 2012, the respondent-assessee has offered totax the income earned on Link Corner Project by following theProject Completion Method in respect of subsequent assessmentyear i.e. A.Y. 2008-09. It is a settled position of law that where therevenue has accepted a particular method of accounting overseveral years, the same is not to be lightly substituted unless therevenue is able to show that the same distorts the profit for aparticular year. As held by the Apex Court in UCO Bank Vs. CIT 240ITR 355, the choice of method of accounting is of the assessee. Therespondent-assessee has chosen/adopted the Project CompletionMethod of accounting and has been consistently following it overthe years. It is not open to the revenue to reject a method becauseaccording to the Assessing Officer another method is prefereable. Inview of the above settled position, no fault can be found with theS.S.DESHPANDE5 / 8 impugned order of the Tribunal. Moreover, the most appropriatemethod of accounting to correctly reflect the true financialstatement is a matter of opinion and debate. Issues of debate arenot amenable to Revisional jurisdiction under Section 264 of theAct. 9.So far as the alternative submission made by Mr.Malhotra viz. the Link View Project should have also been broughtto tax under the Project Completion Method is concerned, the samedoes not arise for our consideration as Commissioner in his orderdated 27 March 2012 has specifically directed adoption ofPercentage Completion Method of accounting to subject the incomearising on Link Corner Project to tax. In any view of the matter, theprofits on Link Corner Project has been offered to tax and acceptedin the subsequent Assessment Year i.e. A.Y. 2008-09. In fact, thisCourt in CIT Vs. Nagri Mills Co. Ltd. (1958) 33 ITR 681 (Bom), hasobserved as under: “We have often wondered why the IT authorities, in amatter such as this where the deduction is obviously apermissible deduction under the IT Act, raise disputes as 6 / 8 “We have often wondered why the IT authorities, in amatter such as this where the deduction is obviously apermissible deduction under the IT Act, raise disputes as 6 / 8 to the year in which the deduction should be allowed. Thequestion as to the year in which a deduction is allwablemay be material when the rate of tax chargeable on theassessee in two different years is different; but in the caseof income of a company, tax is attracted at a uniform rate,and whether the deduction in respect of bonus wasgranted in the asst. yr. 1952-53 or in the assessment yearcorresponding to the accounting year 1952, that is in theasst. yr. 1953-54, should be a matter of no consequence tothe Department; and one should have thought that theDepartment would not fritter away its energies in fightingmatters of this kind. But, obviously, judging from thereferences that come up to us every now and then, theDepartment appears to delight in raising points of thischaracter which do not affect the taxability of the assesseeor the tax that the Department is likely to collect from himwhether in one year or the other.” 10.Accordingly, the questions raised for our consideration do not give rise to any substantial question of law. 11.Hence, appeal dismissed. No order as to costs. [G.S. KULKARNI, J][M.S. SANKLECHA, J.] Order. CERTIFICATE Certified to be true and correct copy of the original signed