Commissioner Of Income Tax (Central), Gurgaon v. Principal Officer, M/S Hill View Infrastructure (P) Ltd., Chandigarh

ITA No. 206 of 2015 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 206 of 2015 (O&M) Date of Decision: 13.8.2015 Commissioner of Income Tax (Central), Gurgaon ....Appellant. Versus Principal Officer, M/s Hill View Infrastructure (P) Ltd., Chandigarh ...Respondent. CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE RAMENDRA JAIN. PRESENT: Mr. Rajesh Sethi, Senior Standing Counsel with Mr. Arun Biriwal, Advocate and Ms. Pridhi Jaswinder Sandhu, Advocate for the appellant. Mr. Arun Biriwal, Advocate and Ms. Pridhi Jaswinder Sandhu, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1.Delay of 70 days in re-filing the appeal is condoned. 2.This order shall dispose of a bunch of six appeals bearingITA Nos. 19, 206, 218, 219, 220 and 228 of 2015 as according to thelearned counsel for the revenue, issues involved therein are identical.For brevity, the facts are being extracted from ITA No. 206 of 2015. 3.This appeal has been filed by the revenue under Section260A of the Income Tax Act, 1961 (in short “the Act”) against the orderdated 6.6.2014 (Annexure A-3) passed by the Income Tax AppellateTribunal, Chandigarh Bench 'B', Chandigarh (hereinafter referred to as“the Tribunal”) in ITA No. 561/Chd/2013 for the assessment year 2009-10, claiming the following substantial questions of law:- a)Whether the ITAT has erred in law in deletingaddition of ` 12,34,000/- and directing to follow recognized method of accounting to computethe profits in the Real Estate business when theguidance notes of 2006 of ICAI requireaccounting of income on percentage completionmethod? b) Whether the ITAT has erred in law in decidingthat the assessee was following particularmethod consistently which has been followedon year to year basis which has been acceptedby the department whereas the AssessingOfficer has consistently applied percentagecompletion method? c) Whether ITAT has committed error in lawholding that in absence of any defect pointedout by the Assessing Officer in adoption ofproject completion method by the assessee thepercentage completion method cannot beapplied when the guidance note of ICAIrequires that the accounts of business of RealEstate are to be maintained by percentagecompletion method? 3.Briefly put, the facts necessary for adjudication of the instantappeal as narrated therein may be noticed. The assessee filed its returnof income under Section 153A of the Act on 28.10.2007 declaring a totalincome at ` 38,343/-. A search operation under Section 132(1) of the Actwas conducted at the premises of the assessee on 7.7.2009. TheAssessing Officer passed the assessment order dated 21.12.2011 ITA No. 206 of 2015-3- (Annexure A-1) by assessing the income at ` 30,97,620/-. Feelingaggrieved, the assessee filed an appeal before the Commissioner ofIncome Tax (Appeals) [for brevity “the CIT(A)”] who vide order dated6.3.2013 (Annexure A-2) for the assessment years 2007-08 to 2009-10partly allowed the appeal and deleted the addition. However, the appealrelating to the assessment year 2010-11 was allowed. Being dissatisfied,the revenue filed appeals before the Tribunal. The Tribunal vide orderdated 6.6.2014 (Annexure A-3) dismissed the appeals of the revenue.Hence, the present appeals by the revenue. 4.Learned counsel for the revenue submitted that each year isa separate year and the assessee is liable to pay tax on the percentagecompletion method and not on the basis of project completion method.According to the learned counsel, it would not be proper to accept theproject completion method for the year under consideration as the samewould distort the income accrued to the assessee in the current year andthe assessee by adopting such method can indefinitely defer its taxliability. 5.After hearing learned counsel for the revenue, we do notfind any merit in these appeals. 4.Learned counsel for the revenue submitted that each year isa separate year and the assessee is liable to pay tax on the percentagecompletion method and not on the basis of project completion method.According to the learned counsel, it would not be proper to accept theproject completion method for the year under consideration as the samewould distort the income accrued to the assessee in the current year andthe assessee by adopting such method can indefinitely defer its taxliability. 5.After hearing learned counsel for the revenue, we do notfind any merit in these appeals. 6.The assessee in its reply to the query raised by theAssessing Officer had inter alia claimed that it had been consistentlyfollowing method of booking of the revenue on the completion of the flatwhen full payment had been made to it by the person concerned andpossession was delivered to him. It was pointed out that neitherAccounting standard 9 (AS 9) or Accounting Standard 7 (AS 7) issued bythe Institute of Chartered Accountants of India has been recognized bythe Act and in such circumstances, there was no guidance or strict ITA No. 206 of 2015-4- procedure for adopting a particular accounting standard under the Actand it depends upon facts and circumstances of each case. In otherwords, the assessee was entitled to adopt Project Completion methodfor determining its income which was being regularly followed by it.Though the Assessing Officer had rejected the plea of the assessee, butthe CIT(A) while accepting the appeal of the assessee made thefollowing observations:- “It is however not the AO's case that the profits havebeen distorted by following the Project completionmethod. The impugned order is also silent as regardsthe position of the books of account. In other wordsthe books have not been rejected, nor any defectspointed out. In the case of CIT vs. BilahariInvestment (P) Ltd., (2008) 299 ITR 1 SC, the ApexCourt held that the completion contract methodadopted by the assessee for chit discount consistentlyover the years, is not required to be substituted bypercentage completion method. In CIT (v) ManishBuildwell (P) Ltd. (2011) 245 CTR 397 (Del), it wasenunciated that project completion method is one ofthe recognized methods of accounting. That it cannotbe said that the project completion method followedby the assessee would result in deferment of paymentof taxes. Therefore, considering the discussion above, Ido not find any merit on the part of the AO to haveworked out the income by applying the percentage ITA No. 206 of 2015 completion method.” 7.The Tribunal affirmed the order of the CIT(A). It wasconcluded that project completion method and percentage completionmethod are accepted standards of accounting and the assessee hasoption to adopt any one of them. The relevant findings recorded by theTribunal read thus:- “47.We have heard the rival contentions andperused the record. The issue arising in the presentappeal before us is in relation to the method to beapplied for recognizing the revenue generated by theassessee in the course of carrying on the business ofreal estate developers. The case of the assessee isthat it is following one of the accepted accountingstandards approved by ICAI for recognizing therevenue generated by it. The assessee had followedproject completion method which had beenconsistently followed by the assessee for thepreceding years also. The Assessing Officer, on theother hand, had applied percentage completionmethod to compute the income in the hands of theassessee. The Commissioner of Income Tax(Appeals) had allowed the claim of the assessee.48.Both the methods of accounting are i.e. projectcompletion method and percentage completionmethod is accepted standards of accounting andeither of the methods can be applied by the assessee.In the facts of the present case before us, the assessee had chosen to compute its income on thebasis of project completion method i.e. recognizingthe income on the completion of the project and notfrom year to year whereas the case of the revenuewas that it should account for the income as it isgenerated in the hands of the assessee i.e. from yearto year on the basis of the work completed beingrelatable to the revenue generated from year to year.49.The Hon'ble Supreme Court in CIT Vs. BilahariInvestment (P) Ltd. (supra) had held that,“recognition/identification of income under the 1961Act is attainable by several methods of accounting. Itmay be noted that the same result could be attainedby any one of the accounting methods. Completedcontract method is one such method.” It was furtherheld that “Every assessee is entitled to arrange itsaffairs and follow the method of accounting which theDepartment has earlier accepted. It is only in thosecases where the department records a finding that themethod adopted by the assessee results in distortionof profits, the Department can insist on substitution ofthe existing method.” 50.Applying the above said principles to the factsof the present case, we find that the assessee beforeus has been following the systematic method ofaccounting from year to year which has beenaccepted by the department and no defects have been pointed out by the department in the method ofaccounting adopted by the assessee and thus, thereis no reason to reject the same. 51.The Hon'ble Delhi High Court in CIT v. ManishBuildwell (P) Ltd. (supra) had held that “it is wellsettled that the project completion method is one ofthe recognized methods of accounting. It cannot besaid that the projection completion method followedby the assessee would result in deferment of thepayment of the taxes which are to be assessedannually under the IT Act. AS-7 issued by the ICAIalso recognizes the position that in the case ofconstruction contracts, the assessee can follow eitherthe project completion method or the percentagecompletion method.” 52.Where the assessee was following a particularmethod of accounting consistently, which has beenaccepted by the department from year to year and inthe absence of any defect being pointed out by theAssessing Officer that by following such method,income had escaped assessment, we find no merit inthe order of the Assessing Officer in holding thatpercentage completion method should be applied tothe assessee for the year under consideration. It isthe prerogative of the assessee to arrange its affairsin such a manner and follow any recognized methodof accounting to compute its profits. In view thereof, ITA No. 206 of 2015-8- we find no merit in the order of the Assessing Officerin re-computing the income in the hands of theassessee. Upholding the order of Commissioner ofIncome Tax (Appeals), we dismiss ground of appealraised by the revenue.” 8.The Delhi High Court in Commissioner of Income Tax v.Manish Build Well (P) Ltd. (2011) 245 CTR 397 noted that projectcompletion method is one of the recognized methods of accounting. Itwas held as under:- “It is well settled that the project completion method isone of the recognized methods of accounting. Itcannot be said that the project completion methodfollowed by the assessee would result in deferment ofthe payment of the taxes which are to be assessedannually under the IT Act.” 9.The assessee-respondent had been consistently followingone of the recognized methods of accountancy, i.e. project completionmethod, for computation of its income. In the absence of any prohibitionor restriction under the Act for doing so, it cannot be held that theapproach of the CIT(A) and the Tribunal was erroneous or illegal in anymanner so as to call for interference by this Court. No substantialquestion of law arises. Consequently, finding no merit in these appeals,the same are dismissed. (AJAY KUMAR MITTAL) JUDGE August 13, 2015 gbs (RAMENDRA JAIN) JUDGE