D.b. Income Tax Appeal v. M/S. Unique Builders & Developers (Ajit) Udb Tower, Sb

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 292 / 2017Principal Commissioner of Income Tax, Jaipur-2, Jaipur. ----Appellant Versus M/s. Unique Builders & Developers (Ajit) UDB Tower, SB-59, 3[rd]Floor, Opp. Jaipur Nagar Nigam, Tonk Road, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. K.D. Mathur for Mr. R.B. Mathur _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 09/11/2017 1. By way of this appeal, the appellant has assailed thejudgment and order of the tribunal whereby the tribunal hasallowed the appeal preferred by the assessee and dismissed theappeal of the department. 2.Counsel for the department has framed following substantialquestion of law:- 1. Whether in the facts and circumstancesof the case the ITAT was justified in lawand has erred in rejecting the books ofaccounts of the assessee u/s.145(3) of theAct and thereby reversing the finding givenby Assessing Officer as well as CIT(A),ignoring the undisputed facts that theassessee failed to maintain quantitativeand qualitative stock registers and vouchexpenses incurred by it and ‘on money’received by it has not been disclosed. 2. Whether in the facts and circumstancesof the case the ITAT was justified in law in rejecting the application of percentagecompletion method adopted by theAssessing Officer, when this rejectionmeans acceptance of loss returns of theassessee engaged in construction and saleof residential/commercial project incontravention of accounting standard 7 and9 issued by ICAI. 3. Whether in the facts and circumstancesof the case the ITAT was justified in law inignoring the fact that the two brothers whoare partners either themselves or throughtheir families were actively engaged jointlyin the business of the assessee firm andtherefore ignoring the acceptance of ‘onmoney’ and specific seized documents. 4. Whether in the facts and circumstancesof the case the ITAT was justified in law inconfirming the order of CIT(A) allowing theclaim of assessee u/s. 80IB(10) despite ofthe facts that the assessee was not havingcertificate of approval in its name. 5. Whether in the facts and circumstancesof the case the ITAT was justified in law inconfirming the order of CIT(A) in relaxingthe conditions u/s. 80IB(10) despite of thefact that the CIT(A) has no power to relaxstatutory conditions. 3.The facts of the case that the assessee is a partnership firmengaged in the business of real estate and Developers ofcommercial/residential buildings. During the assessmentproceedings, it was observed by the Assessing Officer that theassessee has adapted the “Project Completion Method” forpurpose of accounting of its income from building developmentactivity. 3.1Further, during the assessment proceedings, the assesseecould not produce stock register and vouchers of some directexpenses also remained unverifiable. Therefore, the Assessing 5. Whether in the facts and circumstancesof the case the ITAT was justified in law inconfirming the order of CIT(A) in relaxingthe conditions u/s. 80IB(10) despite of thefact that the CIT(A) has no power to relaxstatutory conditions. 3.The facts of the case that the assessee is a partnership firmengaged in the business of real estate and Developers ofcommercial/residential buildings. During the assessmentproceedings, it was observed by the Assessing Officer that theassessee has adapted the “Project Completion Method” forpurpose of accounting of its income from building developmentactivity. 3.1Further, during the assessment proceedings, the assesseecould not produce stock register and vouchers of some directexpenses also remained unverifiable. Therefore, the Assessing Officer rejected the books of account u/s. 145(3) of the Act andprofit of the project “Southern heights” was calculated by adoptingpercentage completion method at Rs.29265090/-. Further on thebasis of seized records, which was found from the laptop of ShriNaveen Bhutani, the working of profit was also worked out whichcomes to Rs.28917000/-. Although, the percentage completionmethod is logical way to arrive at true profits of the real estateproject, but the seized papers mentioning the complete details ofproject from commencement to completion also could not beignored. The profit as per seized document was taken atRs.28917000/-, however, no separate addition of Rs.28917000/-was made by the Assessing Officer on total income of theassessee. Further, the assessee claimed deduction u/s. 80IB ofRs.48000415/-. The Assessing Officer disallowed the claim of theassessee as the certificate of approval of project by the localauthority was in the name of partner Sh. Ajit Singh and not in thename of the firm. 4.However, in view of the decision of this court in the case ofsame assessee in Income Tax Appeal No.23/2013 decided on19.5.2017 wherein it has been held as under:- 7.Counsel for the respondent Mr.Jhanwar has contended that the first issueis squarely covered by the decision of thisCourt in the case of Pr. Commissioner ofIncome-tax Vs. Bhawani Silicate Industries,(2016) 65 taxmann.com 106 (Rajasthan)wherein the Division Bench of this Court inpara 9 & 10 has observed as under: “8. We have heard and considered thearguments advanced by counsel for theRevenue and in our view, the Tribunal,which is the ultimate final fact finding 4.However, in view of the decision of this court in the case ofsame assessee in Income Tax Appeal No.23/2013 decided on19.5.2017 wherein it has been held as under:- 7.Counsel for the respondent Mr.Jhanwar has contended that the first issueis squarely covered by the decision of thisCourt in the case of Pr. Commissioner ofIncome-tax Vs. Bhawani Silicate Industries,(2016) 65 taxmann.com 106 (Rajasthan)wherein the Division Bench of this Court inpara 9 & 10 has observed as under: “8. We have heard and considered thearguments advanced by counsel for theRevenue and in our view, the Tribunal,which is the ultimate final fact finding authority, after analyzing the material againplaced before it and having goneinto theissue once again has come to theconclusion that merely because qualitativerecord was not maintained and on thispremise, the books of account could nothave been rejected. It is also an admittedfact that mustard seed is only singlecommodity used by the assessee formanufacturing of mustard oil and theTribunal noticed that the assessee filed yieldpercentage for two months before the AO inwhich no discrepancy was found by the AO.The Tribunal has found that the productionof mustard oil is a continuous process andthe seeds are put into the milling forcontinuous oil production. The Tribunal hasfurther found that 8096 of its mustard oil isby way of trading sale and neitherdiscrepancies were noticed by the AO ineither purchase or sale nor any sale orpurchase, found unrecorded. The Tribunalalso found that the books of account hadbeen maintained in the same manner as inthe past and the assessee cannot beexpected to stop the plant as and when thenew lot of mustard seed is subjected tocrushing as manufacturing of mustard oil isa continuous process. The Tribunal has alsofound as a finding of fact that exceptquality, quantity wise stock details has beenmaintained but no other defect was noticedby the AO in the quantitative details andafter noticing the above fact, has come tothe conclusion that the books of accountought not to have been rejected. In ourview, such a finding of fact which has beenreached by the Tribunal is after appreciatingthe material and evidence on record andsuch a finding has been arrived at by theTribunal after analyzing the material and inour view, no substantial question of law canbe said to arise out of the order of theTribunal. Once the stock register has beenheld to be properly maintained and hasbeen held to be proper, no trading additioncould have been made and rightly so, evenotherwise, minor discrepancies cannotresult into rejection of books of account. 9. Leave apart the above, in our view, whatconclusions are to be reached isindependent of the results shown in thebooks of account if any maintained by the 9. Leave apart the above, in our view, whatconclusions are to be reached isindependent of the results shown in thebooks of account if any maintained by the assessee. Section 145 only provides thebasis on which computation of income istobe made for the purpose of determining theamount of tax payable by an assessee. Theprovision by itself does not deal with theaddition or deletion in the income. Bestjudgment is also based on the materialavailable on record and therefore, whilemaking an addition something more is to becollected by the AO who makes assessmentof an assessee. As pointed out above,merely because there is some deficiency ofquality wise record in the books of account,or merely because of rejection of the booksof account, it does not mean that it mustnecessarily lead to addition in the return ofincome of the assessee. As noticed earlier,even the AO estimated the income bymaking estimated addition by applying aparticular GP Rate so also the CIT(A)reduced it further. Therefore, these twoauthorities even while resorting to bestjudgment had no basis for coming to theconclusion reached and even in a case ofestimated/ad hoc addition, prima-facie,some material is required to be brought onrecord. The revenue has ample powersunder the Act, if an assessee avoids orevades to unearth of tax evasion, thisobservation is on the contention of counselfor the Revenue that except resorting torejection of books of account, Revenuepossibly has no other alternative and cometo make estimated addition after resortingto provisions of Sec. 145(3).” 8.He has also relied upon the decision ofGujarat High Court in the case of JaytickIntermediates (P.) Ltd. Vs. AssistantCommissioner of Income Tax, (2016) 73Taxmann.com 195 (Gujarat) wherein inpara 8 to 10 it is observed as under: “8. It will not be out of place to mentionhere that the assessee is a manufacturingunit and it has to pay the excise duty. It isthe specific contention of the assessee thatthe books of accounts maintained by it aretallying and the excise duty is paid on thatbasis. The stock register is not tallying withthe other books of account only becausesome of the items were not deleted from thestock register. Taking into account thedecision of this Court, not maintaining theday-today stock register is not a ground to rejectthebooksofaccount.-In Commissioner of Incometax-IVv.Symphony Comfort Systems Ltd. (supra), itis observed as under:--"Question No. 1 pertains to the additionmade by the Assessing Officer on the basisoflowgrossprofit.The Commissioner (Appeals) as well asthe Tribunal, however, deleted such additionafter examining the material on record. Inparticular, the Tribunal while upholding theorder of the Commissioner (Appeals) inthis respect, made following observations: rejectthebooksofaccount.-In Commissioner of Incometax-IVv.Symphony Comfort Systems Ltd. (supra), itis observed as under:--"Question No. 1 pertains to the additionmade by the Assessing Officer on the basisoflowgrossprofit.The Commissioner (Appeals) as well asthe Tribunal, however, deleted such additionafter examining the material on record. Inparticular, the Tribunal while upholding theorder of the Commissioner (Appeals) inthis respect, made following observations: "4. On consideration of the rivalsubmissions, we do not find anyjustification to interfere with the order ofthe learned CIT(A) in deleting the addition.The AO merely gone by the fact that therewas a fall in the gross profit rate ascompared to the preceding assessment yearwhich itself is no ground to reject the booksof accounts of the assessee. No specificdefect in the maintenance of the books ofaccounts by the assessee has been pointedout AO. The AO further noted that day today stock and inward and outward registersare maintained on computer. Perhaps, thiswas the sale reason which swayed the AOto reject the books of accounts and makethe addition. Now-a-days it is commonknowledge that all the records aremaintained on computer including by thegovernmentandsemigovernmentorganizations. Even if, records aremaintained on computer is not ground toreject the explanation of the assessee. TheAO should have verified the entries fromthe computerized records also to point outany defect thereon. In the absence of anyspecific defect pointed out in the books ofaccounts and the records maintained oncomputer, the AO was not justified inrejecting the books results, or to enhancethe gross profit rate. Accordingly, there isno merit in this ground of appeal of therevenue. The same is accordingly,dismissed." From the above, it can be seen that the entireissue is based on appreciation of evidence onrecord. No question of law, therefore, arisesparticularlywhenthe Commissioner (Appeals) as well as the Tribunal concurrently held in favour of theassessee. Issue No. 2 pertains to the additions made bythe Assessing Officer on account of excessiveexpenses. The Commissioner (Appeals) aswell as the Tribunal, however were of theopinion that such additions were not justified.The Tribunal while upholding the view ofthe Commissioner (Appeals),madefollowing observations: made "6. On consideration of the rivalsubmissions, we do not find any merit inthis ground of appeal of the revenue. TheAO merely made comparative study of theexpenses for the year under considerationwith the preceding assessment year andfound that expenses incurred in thepreceding assessment year were 2.89% onturnover but in the assessment year underappeal it was 4.78% on the turnover. Theexpenses were, therefore, found excessivewithout pointing out as to which of theexpenses incurred by the assessee was notconnected with the business activity of theassessee. The AO has not pointed out whichof the expenditure were not admissible inlaw. In the absence of any pointing outinadmissible expenses, the AO cannot makeaddition merely by comparing theexpenditure with the preceding year'sexpenditure. The learned CIT(A) on properappreciation of the facts and material onrecord rightly deleted the addition. Thisground of appeal of the revenue isaccordingly dismissed." The entire issue is based on appreciation ofevidence. No question of law arises. Whenthe Commissioner (Appeals) as well as theTribunal concurrently held that on the basis of theevidence, addition as made by the AssessingOfficer was not justified, we are not inclined tointerfere." -9. In Commissioner of Incometax-XII v.Smt. Poonam Rani (supra), it is observed asunder:-- The entire issue is based on appreciation ofevidence. No question of law arises. Whenthe Commissioner (Appeals) as well as theTribunal concurrently held that on the basis of theevidence, addition as made by the AssessingOfficer was not justified, we are not inclined tointerfere." -9. In Commissioner of Incometax-XII v.Smt. Poonam Rani (supra), it is observed asunder:-- "10. During the course of arguments beforeus, it was submitted by the learned counselfor the appellant that the assessee was notmaintaining the Daily Stock Register. We,however, find no such finding in theassessment order. On the other hand, wenote that the Assessee had submitted before the Commissioner of IncomeTax (Appeals) that Form 3CD containing all thequantitative details in respect of rawmaterials as well as the finished goods, dulyaudited by the Certified Accountant hadbeen placed on record, but, the AssessingOfficer ignored those actual figuresenclosed with the return. In any case, nostatutoryprovisionunderthe IncomeTaxregimerequiringtheassessee to maintain the Daily StockRegister has been brought to our notice.Hence, even if no such register was beingmaintained by the assessee as is contendedby the learned counsel for the appellant,that by itself does not lead to inference thatit was not possible to deduce thetrue income of the assessee from theaccounts maintained by her, nor theaccounts can be said to be defective orincomplete for this reason alone. If stockregister is not maintained by the assesseethat may put the Assessing Officer on guardagainst the falsity of the return made bythe assessee and persuade him to carefullyscrutinize the account books of theassessee. But the absence of one registeralone does not amount to such a materialas would lead to the conclusion that theaccount books were incomplete orinaccurate. Similarly, if the rate of grossprofit declared by the assessee in aparticular period is lower as compared tothegross profit declared by him in thepreceding year, that may alert theAssessing Officer and serve as a warning tohim, to look into the accounts morecarefully and to look for some materialwhich could lead to the conclusion that theaccounts maintained by the assessee werenot correct. But, a low rate of gross profit,in the absence of any material pointingtowards falsehood of the accounts books,cannot by itself be a ground to reject theaccount books under Section145(3)of theAct." 10. In view of above observations andconsidering the facts of the case, we are of theopinion that the view taken by CIT (Appeals) isrequired to be accepted by setting aside theimpugned order of the Tribunal. Accordingly,the question posed for our consideration is answered in favour of the assessee and it isheld that the Tribunal has erred in upholdingthe action of the Respondent in rejecting thebooks of accounts of the Assessee underSection145 (2)of the Act and further erred inconfirming the part of the addition onestimated basis against the revenue.Accordingly, Tax Appeal No. 1196 of 2007 isallowed.” 9.Therefore, he has contended that therejection of books of accounts for nonmaintenance of stock register is not a groundunder Section 145(3) of the Act. 10.He has relied upon following decisions:Manjusha Estates Pvt. Ltd. vs. The IncomeTax Officer Tax Appeal No.828/2007[GujratHighCourt],decidedon12.08.2016: 4.1 Learned Counsel for the department hastaken this Court to Section 145(3) of the ITAct which relates to rejection of the booksof accounts and contended that the CIT(A)as well as the Tribunal has rightly come tothe conclusion after considering thematerial placed before them. After makingthe aforesaid submissions he has contendedthat the appeal may be dismissed. 9.Therefore, he has contended that therejection of books of accounts for nonmaintenance of stock register is not a groundunder Section 145(3) of the Act. 10.He has relied upon following decisions:Manjusha Estates Pvt. Ltd. vs. The IncomeTax Officer Tax Appeal No.828/2007[GujratHighCourt],decidedon12.08.2016: 4.1 Learned Counsel for the department hastaken this Court to Section 145(3) of the ITAct which relates to rejection of the booksof accounts and contended that the CIT(A)as well as the Tribunal has rightly come tothe conclusion after considering thematerial placed before them. After makingthe aforesaid submissions he has contendedthat the appeal may be dismissed. 5. Having heard the learned Counsel for theparties and having gone through the orderpassed by the authorities below, as well as,considering the fact that the assessee hasfollowed the method which is consistentconsidering the decision in case of ShivalikBuildwell (P.) Ltd. (supra) and Umang HiralalThakkar (supra) and therefore this Court isof the opinion that the view taken by thetribunal and CIT(A) is not correct. Since theissue involved in this appeal is identical tothe decision cited by the learned Counsel forthe assessee while adopting such reasons,we allow this appeal and accordingly answerthe issue raised in this appeal in favour ofthe assessee and against the department. CIT-IV vs. Shivalik Buildwell (P.) Ltd.[2013] 40 Taxman.com 219 (Guj.): 3. On the revenue’s appeal, the Tribunalconfirmed the view of CIT (Appeals),however, on slightly different ground,namely, that the assessee being a developerof the project, profit in his case, will arise ontransfer of title of the property and receipt of any advances or booking amount cannot betreated as trading receipt of the year underconsideration. The tribunal further noted thatsuch method of accounting followed by theassessee had been accepted by the revenuein earlier years. The Tribunal was, therefore,of the opinion that the Assessing Officer’sdecision to reject the book results during theyear under consideration was not justified. 4. WE are of the opinion that the Tribunalcommitted no error. If as per the accountingstandard available, the assessee was entitledto claim the entire income on completion ofthe project and if such accounting standardwas accepted by the revenue in the earlieryears, in the present year, the AssessingOfficer could not have taken a different standand that too, without hearing the assessee. Paras Buildtech India Private Limited &anr. vs. CIT & Anr. [2016] 382 ITR 630(Delhi): 18. Section 145(1)of the Act states that theincome chargeable under the heads 'Profitsand gains of business or profession' shall becomputed in accordance with either cash ormercantile system of accounting "regularlyemployed by the Assessee". It is only witheffect from 1st April 2015 that a change hasbeen brought about in Section145(2)whichpermits the central government to notify inthe Official Gazette from time to time theincome computation and disclosure standardsto be followed by any class of Assesses or inrespect of any class of income. That change isprospective and in any event does not applyto the case on hand. 19. The settled legal position as far asSection 145of the Act is concerned is that itis not open to an AO to reject the accounts ofan Assessee unless he comes to adetermination that notified accountingstandards have not been regularly followed bythe Assessee. As pointed out by the CIT (A)in the order dated 2nd July, 2010, the AS ofthe ICAI did not have any statutoryrecognition under the Act although it wasbinding under the Companies Act, 1956. Themethod of accounting followed by theAssessee in the present case i.e. projectcompletion method was certainly one of therecognized methods and has beenconsistently followed by it. LunarElectricalsvs.AssistantCommissioner of Income Tax [2012]2010 Taxman 69 (Delhi): 19. The settled legal position as far asSection 145of the Act is concerned is that itis not open to an AO to reject the accounts ofan Assessee unless he comes to adetermination that notified accountingstandards have not been regularly followed bythe Assessee. As pointed out by the CIT (A)in the order dated 2nd July, 2010, the AS ofthe ICAI did not have any statutoryrecognition under the Act although it wasbinding under the Companies Act, 1956. Themethod of accounting followed by theAssessee in the present case i.e. projectcompletion method was certainly one of therecognized methods and has beenconsistently followed by it. LunarElectricalsvs.AssistantCommissioner of Income Tax [2012]2010 Taxman 69 (Delhi): The next aspect relates to rejection of booksof accounts because the assessee wasfollowing completed contract method. We donot think completed contract method iscontrary and cannot be adopted and appliedwhen an assessee follows mercantile systemof accounting. This issue was examined bytheMadrasHighCourtin Commissioner of Income Tax versusSASHotelsandEnterprisesLimited,MANU/TN/3098/2010: (2011) 334 ITR 194 (Mad.) and it has been heldthat the said method confirms and can beadopted by an assessee. In fact, we findthat there is a contradiction in the orders ofboth the CIT(Appeals) and the tribunal onthe said aspect. With regard to NBCCcontract, both of them have held that thereceivables and expenses should beexcluded as the contract was incomplete.But, at the same time they have held thatcompleted contract method cannot beadoptedforthepurposeofaccounts/computing taxable income as theassessee is following mercantile system ofaccounting. We may notice here that whileexamining the question of rejection of booksof accounts, the CIT(Appeals) in his finding,which have been quoted above, wasambivalent and did not deal with the realissue and question whether or not thecompleted contract method is permitted andcan be adopted by the assessee followingmercantile system of accounting. Thetribunal also went on certain other aspectsrelating to service of notice in the firstproviso to Section145and did not deal withthe issue and question accordingly. On thesecond question, therefore, we hold andobserve that completed contract method canbe adopted under Section145of the Actwhen an assessee follows mercantile systemof accounting. However, we remand thematter to the tribunal to examine the otheraspects relating to computation oftaxable income on the basis of completedcontract method. Question No. 2 isaccordingly answered partly affirmative andpartly in negative. Commissioner of Income Tax vs.Bilahari Investment (P) Ltd [2008] 299ITR 1 SC: 15.Recognition/ identification of incomeunder the 1961 Act is attainable by severalmethods of accounting. It may be noted thatthe same result could be attained by any oneof the accounting methods. Completedcontract method is one such method. Similarly, percentage of completion methodis another such method. Commissioner of Income Tax vs.Bilahari Investment (P) Ltd [2008] 299ITR 1 SC: 15.Recognition/ identification of incomeunder the 1961 Act is attainable by severalmethods of accounting. It may be noted thatthe same result could be attained by any oneof the accounting methods. Completedcontract method is one such method. Similarly, percentage of completion methodis another such method. 19. In the judgment of the Bombay HighCourt in Taparia Tools Ltd. (supra) it hasbeen held that in every case of substitutionof one method by another method, theburden is on the Department to prove thatthe method in vogue is not correct and itdistorts the profits of a particular year. Underthe mercantile system of accounting basedon the concept of accrual, the method ofaccounting followed by the assessees isrelevant. In the present case, there is nofinding recorded by the AO that thecompleted contract method distorts theprofits of a particular year. Moreover, as heldin various judgments, the Chit Scheme is oneintegrated scheme spread over a period oftime, sometimes exceeding 12 months. Wehave examined computation of tax effect inthese cases and we find that the entireexercise is revenue neutral, particularly whenthe scheme is read as one integrated schemespread over a period of time. 20. As stated above, we are concerned withassessment years 1991-1992 to 1997-1998.In the past, the Department had acceptedthe completed contract method and becauseof such acceptance, the assessees, in thesecases, have followed the same method ofaccounting, particularly in the context of chitdiscount. Every assessee is entitled toarrange its affairs and follow the method ofaccounting, which the Department has earlieraccepted. It is only in those cases where theDepartment records a finding that themethod adopted by the assessee results indistortion of profits, the Department caninsist on substitution of the existing method.Further, in the present cases, we find fromthe various statements produced before us,that the entire exercise, arising out of changeof method from completed contract methodto deferred revenue expenditure, is revenue neutral. Therefore, we do not wish tointerfere with the impugned judgment of theHigh Court. CIT vs. Manish Build Well (P) Ltd.[2011] 63 DTR 369(Delhi): neutral. Therefore, we do not wish tointerfere with the impugned judgment of theHigh Court. CIT vs. Manish Build Well (P) Ltd.[2011] 63 DTR 369(Delhi): 6. Questions Nos. 2 and 3 are connected.They assail the decision of the Tribunalrendered in paragraph 20 of its order. Anaddition of Rs.28,21,000/was made by theassessing officer on the footing that theassessee was adopting the project completionmethod or the completed contract method,which was not proper and the profits of thebusiness should be computed on the basis ofthe percentage completion method underwhich the profits of the development andconstruction business of the assessee getassessed over a period of years, keeping pacewiththeprogressintheconstruction/development of the project.The CIT (A) however held that the assesseehad no reason to withhold the handing over ofpossession of the space to the purchaser inrespect of a project which is completed andthat wherever possession was not handedover to the purchaser, it was for the reasonthat the project was not completed. Hefurther found that a buyer who has paid theentire sale consideration would immediatelydemand possession and the entire saleconsideration could be received by theassessee only on completion of the project.On these facts it was noted by the CIT (A)that unless the buyer makes full payment theassessee could not hand over possession norget the sale transaction registered. A furtherfinding recorded by the CIT (A) was that theimpugned project was completed only in theaccounting period relevant to the assessmentyear 2008-09 and in support of this finding,henotedthatacopy ofthecompletion/occupancy certificate was placedon the record of the Assessing Officer. Hefurther recorded a finding that after the issueof the occupancy certificate and till the dateof the assessment order, possession of almost75% of the developed area was handed overto the buyers who made full payment and thesale deeds were also executed. Thereafter,possession of 20% of the remaining area washanded over to the buyers. The possession ofthe balance 5% of the developed area could not be handed over to the remainingbuyersbecause they could not make fullpayment and take possession. On thesefindings the CIT (A) held that the allegationof the assessing officer that the assessee wasadopting a method of accounting namely theproject completion method, to suit itsconvenience to book income was baseless. Afurther finding recorded by the CIT (A) is thatthere was no manipulation in the books ofaccounts. So far as the method of accountingis concerned, the CIT (A) held that theprojectcompletionmethodisa wellrecognized and accepted method ofaccounting and was the only method suitablefor any developer who has to deliver acompleted product to the buyer. Ultimatelythe CIT (A) held as under: Thus on overall perusal of the assessmentorder it is seen that neither any defect hasbeen pointed out by the assessing officer inthe method of accounting followed by theappellant nor any finding has been given thattrue and fair profits cannot be deducedfollowing the said method of accounting. Noevidence was found during the course ofsearch to show that the books of account arenot properly maintained by the appellant. Themain thrust of the assessing officer in makingthe addition is that the assessee is deferringthe payment of taxes. But this allegation ofthe assessing officer cannot be accepted asthe assessee is consistently following amethodofaccountingwhichis well recognized in development businessand has been accepted by the assessingofficer also in the other group cases. Thus theaddition is here by deleted. 7. The aforesaid finding of the CIT (A) wasapproved by the Tribunal with the observationthat the department has accepted theassessee's method of accounting namely, theproject completion method and thereforethere was no justification for adopting thepercentage completion method for one yearon selective basis. 8. It is well settled that the projectcompletion method is one of the recognizedmethods of accounting. In CommissionerIncome-Tax And Another v. Hyundai HeavyIndustries Co. Ltd. MANU/SC/7731/2007 : (2007) 291 ITR 482 (SC) the Supreme Courtheld as follows: Lastly, there is a concept in accounts which iscalled the concept of contract accounts. Underthat concept, two methods exist forascertaining profit for contracts, namely,completed contract method" and "percentageof completion method". To know the results ofhis operations, the contractor prepares whatis called a contract account which is debitedwith various costs and which is credited withrevenue associated with a particular contract.However, the rules of recognition of cost andrevenue depend on the method of accounting.Two methods are prescribed in AccountingStandard No.7. They are "completed contractmethod" and "percentage of completionmethod. This view was reiterated by the SupremeCourt in Commissioner of Income-Tax v.Balearic Investment P. Ltd. MANU/IG/5001/2007 :(2008) 299 ITR 1 (SC) with the followingobservations: Recognition/identification of income under the1961 Act is attainable by several methods ofaccounting. It may be noted that the sameresult could be attained by any one of theaccounting methods.The completed contractmethod is one such method. Similarly, thepercentage of completion method is anothersuch method. Under the completed contract method, therevenue is not recognized until the contract iscomplete. Under the said method, costs areaccumulated during the course of thecontract. The profit and loss is established inthe last accounting period and transferred tothe profit and loss account. The said methoddetermines results only when the contract iscompleted. This method leads to objectiveassessment of the results of the contract. On the other hand, the percentage ofcompletion method tries to attain periodicrecognition of income in order to reflectcurrent performance. The amount of revenuerecognized under this method is determinedby reference to the stage of completion of thecontract. The stage of completion can belooked at under this method by taking intoconsideration the proportion that costs incurred to date bears to the estimated totalcosts of contract. The above indicates the difference betweenthe completed contract method and thepercentageofcompletionmethod."(underlining ours) 9. After the above judgments of the SupremeCourt it cannot be said that the projectcompletion method followed by the assesseewould result in deferment of the payment ofthe taxes which are to be assessed annuallyunder the Income Tax Act. AccountingStandards 7 (AS7) issued by the Institute ofChartered Accountants of India also recognizethe position that in the case of constructioncontracts, the assessee can follow either theproject completion method or the percentagecompletion method. In view of the judgmentsof the Supreme Court (Supra), the finding ofthe CIT (A), upheld by the Tribunal, does notgive rise to any substantial question of law.Further, the Tribunal has also found that therewas no justification on the part of theassessing officer to adopt the percentagecompletion method for one year (the yearunder appeal) on selective basis. This willdistort the computation of the true profits andgains of the business. For these reasons, weare of the view that no substantial question oflaw arises. We, therefore, decline to admitquestion Nos. 2 and 3. CIT vs. SAS Hotels & Enterprises Ltd.[2011] 334 ITR 194 (Madras): CIT vs. SAS Hotels & Enterprises Ltd.[2011] 334 ITR 194 (Madras): 7. In this context, when we applySection 145(3)of the Income Tax Act, itspecifically stipulates that where theAssessing Authority is not satisfied about thecorrectness or completeness of the accountsof the Assessee, or where the method ofaccounting provided in Sub-section (1) oraccounting standards as notified under Sub-section (2), have not been regularly followedby the Assessee, the Assessing Authority maymake an assessment in the manner providedin Section 144. Therefore, in order to invokeSection 145(3)of the Act and disturb theexisting system of accounting, the AssessingOfficer must necessarily express hisdissatisfaction about the correctness orcompleteness of the accounts of the Assesseeand also note that such system of accounting was not regularly followed by the Assessee, inwhich event alone, the Assessing Officer canexercise his jurisdiction and make anassessment as provided under Section 144ofthe Act. 9. We fully concur with the conclusion of theTribunal in having interfered with the ordersof the Assessing Authority as well as that ofthe Commissioner of Income-tax (Appeals).We are, therefore, not inclined to entertainthe substantial question of law, as we do notfind any need for the same. The appeal failsand the same is dismissed. No costs. MKB (Asia) (P) Ltd. vs. CIT [2007] 294ITR 655 (Gau HC): 11. As stated above, the accounting systemAS 7 is an approved system of accountingby the Institute of Chartered Accountantsand as such the authenticity of the saidaccounting system is not under challenge.The assessing firm/appellant being a PrivateLimited Company was maintaining theaccount following the said system and theaccount were duly audited by qualifiedChartered Accountant, maintenance of theaccounts as well as the valuation of worksin progress will not prejudice either side.Admittedly, the particular work control werenot completed and it comes under thecategory of work in progress. There is alsono dispute that the ultimate liability of theAssessee as regards tax will be dependantupon in total (fixed) amount received by theAssessee against the particular workcontrol. 12. We, therefore, hold that the Income taxauthority has no option/ jurisdiction tomuddle in the matter either by directing theassessee to maintain the account in aparticular manner or adopt a different methodfor valuing the work in progress. We reiteratethe decision in Doom Dooma India Ltd.(supra) and hold that an assessee has as theoption/liberty to adopt any recognizedmethod of account for his business and theincome shall be computed in accordance withsuch regularly maintained accounting system. CIT vs. V.S. Dempo & CO. Pvt. Ltd.[1996] 131 CTR 203 (Mum): 4. We have carefully considered the rivalsubmissions. We find that the controversy inthis case is basically a finding of fact whichhas to be decided by the authoritiesconcerned on the facts and circumstances ofeach case. In the instant case, the Tribunalhas come to a conclusion that the method ofaccounting followed by the assessee wascorrect and resort to s. 145(1) was not calledfor. We do not find any infirmity in the saidfinding. We, therefore, refuse to interferewith the same. ST. Teresa’s Oil Mills vs. State of Kerala[1970] 76 ITR 0365 (Ker): CIT vs. V.S. Dempo & CO. Pvt. Ltd.[1996] 131 CTR 203 (Mum): 4. We have carefully considered the rivalsubmissions. We find that the controversy inthis case is basically a finding of fact whichhas to be decided by the authoritiesconcerned on the facts and circumstances ofeach case. In the instant case, the Tribunalhas come to a conclusion that the method ofaccounting followed by the assessee wascorrect and resort to s. 145(1) was not calledfor. We do not find any infirmity in the saidfinding. We, therefore, refuse to interferewith the same. ST. Teresa’s Oil Mills vs. State of Kerala[1970] 76 ITR 0365 (Ker): 4. The learned counsel for the petitionerbrought to our notice the decision of theAhdhra Pradesh High Court in N. Raja Pullaiahv. Deputy Commercial Tax Officer,[1969]MANU/AP/0166/1969 : 73 I.T.R. 224and contended that the consumption ofelectricity by itself cannot form a reliable testfor determining the yield of oil, that the yielddepends upon various factors like thecondition of the machine, the quality ofcopra--whether it was dried or moist--thenature of the electric supply and other similarfactors and that the consumption of electricityis affected by these and various other factors.It was also contended that no test-crushinghad been done in this case and thedepartment itself had accepted in other casesfigures varying from 10 to 12 units per quintalof copra. In the petitioner's case, the averageworks out to 12 units per quintal. On behalfofthe revenue it was urged that the rejectionof the accounts was justified since there wasvery wide divergence in the consumption ofelectricity and that it was indicative of theunreliability of the petitioner's accounts. Theproposition is well-settled that accountsregularly maintained in the course of businesshave to be taken as correct unless there arestrong and sufficient reasons to indicate thatthey are unreliable. The department has toprove satisfactorily that the account booksare unreliable, incorrect or incomplete beforeit can reject the accounts. The rejection ofaccounts is not a matter to be done light- heartedly, though it may not be possible tolay down in general terms the exactcircumstances in which the accounts shouldbe considered as unreliable or incorrect. Theaccounts could be rejected as unreliable ifimportant transactions are omitted therefromor if proper particulars and vouchers are notforthcoming or if they do not include entriesrelating to one particular class of business. Inthis connection, it has to be pointed out thatthe rejection of accounts and assessment tothe best of judgment are two distinct andseparate processes and should not beconfused as one, although there will be nooverlapping in the materials used for applyingboth processes. The initial step of rejectingthe accounts will be justified when theaccount books are found for valid reasonsunreliable, incorrect or incomplete. Theassessee at this stage has to be givenreasonableopportunityforofferingexplanations regarding the defects in theaccounts and on his failure to satisfactorilyexplain the defects, the department will bejustified in rejecting the accounts. Thesubsequent step of assessment to the best ofjudgment, as has been uniformly recognisedby the courts, involves some guess-work andnecessarily has to be done on the materialsavailable in each case. The Privy Council hadoccasion to consider the exact import of theexpression "to the best of his judgment"occurring in Section 23(4)of the IndianIncome Tax Act, 1922 (see Commissioner ofIncome Tax v. Laxminarain Badridas [1937] 5I.T.R. 170, 180 (P.C.)). The Privy Councilmade the following observation in thatjudgment: "He (the assessing authority) must not actdishonestly or vindictively or capriciouslybecause he must exercise judgment in thematter. He must make what he honestlybelieves to be a fair estimate of the properfigure of assessment, and for this purpose hemust, their Lordships think, be able to take intoconsideration local knowledge and repute inregard to the assessee's circumstances, and hisown knowledge of previous returns by andassessments of the assessee, and all othermatters which he thinks will assist him inarriving at a fair and proper estimate; andthough there must necessarily be guess-workin the matter, it must be honest guess-work." 5. In the case on hand, the only circumstancerelied on by the authorities below for therejection of the accounts is that there was widedisparity in the consumption of electricity. Inour opinion, this factor by itself without anyother supporting circumstance does not justifythe rejection of the accounts. Such variation inthe consumption of electricity can be due thevarious factors outside the control of theassessee. It is unsafe to categorically say thatbecause there is variation in the consumptionof electricity the accounts are incorrect orunreliable. It sometimes happens that currentsupply falls far below the usual voltage and onsuch occasions the output will necessarily bemuch lower than the normal rate. Theefficiency of the crushing machine as also themoisture content in the copra would also berelevant factors to be taken into account inarriving at the output. It is, therefore, unsafe touphold the rejection of the accounts purely onthe ground that there has been divergence inthe consumption of electricity. In