Principal Commissioner Of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj v. M/S. Panchsheel Colonizers Pvt. Ltd., C

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 3 / 2018 Principal Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj.) ----Appellant Versus M/s. Panchsheel Colonizers Pvt. Ltd., C-17, Panchsheel Colony, Ajmer Road, Jaipur. ----Respondent Principal Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj.) ----Appellant Versus M/s. Panchsheel Colonizers Pvt. Ltd., C-17, Panchsheel Colony, Ajmer Road, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 20/02/2018 1. In both these appeals common question of law and facts areinvolved hence they are decided by this common judgment. 2.By way of these appeals, the appellant has assailed thejudgment and order of the Tribunal whereby tribunal hasdismissed the appeals of the department. 3.Counsel for the appellant has framed following substantialquestions of law:- 3.1Appeal No.3/2018 “i) Whether on the facts and circumstances ofthe case, the Tribunal was justified in deletingthe addition made by the Assessing Officer byapplying Percentage Completion Method,without appreciating that the actual receipts onsale of flats could be ascertained on the basis ofsale/allotment agreements entered by theassessee and the assessee has contravened AS-7 and AS-9, which tantamount to not followingAS-1 provided in Section 145(2) of the Act? ii) Whether on the facts and circumstances ofthe case, the Tribunal was justified in holdingthat the Assessing Officer rejected the accountson the sole ground that the assessee has notfollowed Accounting Standard-7 and AS-9 forrecognition of revenue, though the AO hadexamined actual allotment agreement and hadthen reached the conclusion that revenue couldbe reliably recognized on the basis ofPercentage Completion Method? iii) Whether on the facts and circumstances ofthe case the tribunal has erred in confirmingdeletion the disallowance made under Section40(a)(ai) on the ground that assessee hasfollowed project completion method andexpenses have not been claimed ignoring thefact that said expenses were included in work-in-progress, to be claimed as revenue expensessubsequently?” 3.2Appeal No.4/2018 “i) Whether on the facts and circumstances ofthe case, the Tribunal was justified in deletingthe addition made by the Assessing Officer byapplying Percentage Completion Method,without appreciating that the actual receipts onsale of flats could be ascertained on the basis ofsale/allotment agreements entered by theassessee and the assessee has contravened AS-7 and AS-9, which tantamount to not followingAS-1 provided in Section 145(2) of the Act? ii) Whether on the facts and circumstances ofthe case, the Tribunal was justified in holdingthat the Assessing Officer rejected the accountson the sole ground that the assessee has notfollowed Accounting Standard-7 and AS-9 for recognition of revenue, though the AO hadexamined actual allotment agreement and hadthen reached the conclusion that revenue couldbe reliably recognized on the basis ofPercentage Completion Method? iii) Whether on the facts and circumstances ofthe case the tribunal has erred in confirmingdeletion the disallowance made under Section40(a)(ai) & 40A(3) on the ground that assesseehas followed project completion method andexpenses have not been claimed ignoring thefact that said expenses were included in work-in-progress, to be claimed as revenue expensessubsequently?” recognition of revenue, though the AO hadexamined actual allotment agreement and hadthen reached the conclusion that revenue couldbe reliably recognized on the basis ofPercentage Completion Method? iii) Whether on the facts and circumstances ofthe case the tribunal has erred in confirmingdeletion the disallowance made under Section40(a)(ai) & 40A(3) on the ground that assesseehas followed project completion method andexpenses have not been claimed ignoring thefact that said expenses were included in work-in-progress, to be claimed as revenue expensessubsequently?” 4.The facts of the case are that the appellant had filed returnof income on 29.9.2011 declaring nil income. Subsequently, thesame was selected for scrutiny and notice u/s 143(2) was issuedon 1.8.2012. The appellant is a real state developer and haslaunched a residential scheme at Ajmer Road, Jaipur. The AOobserved that the appellant had not prepared any P & L accountfor the year under consideration. The company has prepared astatement of work in progress and capitalized all sort of direct andindirect expenses. The AO was not satisfied with the system ofaccountancy being adopted by the appellant and he proceeded tore-cast the trading and profit and loss account taking intoconsideration the previous assessment made in the appellant’sown case. Thereafter, he considered the allowability of variousexpenses and held that donation and charity of Rs.2,70,200/-,Interest on TDS of Rs.33,442/-, Depreciation on AC of Rs.7,670/-are not allowable. Further, he made disallowance ofRs.1,22,65,012/- by invoking the provisions of section 40(a)(ia).Thus, the income was computed at Rs.14,51,770/-. After setting off the unabsorbed depreciation for A.Y. 2008-09 and 2009-10,the total income was assessed at NIL. 5.Now, the issues are squarely covered by the decision of thiscourt in ITA No.23/2013 (CIT Central Jaipur vs. M/s UniqueBuilders And Developers Jpr) decided on 19.5.2017 wherein it hasbeen observed as under:- “4.3 Counsel for the appellant has reliedupon the decision of Supreme Court in thecase of S.N. Namasivayam Chettiar vs.The Commissioner of Income Tax,Madras AIR 1960 SCC 729 where theSupreme Court has observed as under: “10. It was then urged that the fourreasons given, which we have out above,could not make s. 13 applicable. For therejection of accounts several reasons weregiven by the Appellate Tribunal; one thesereasons was the non-production of stockregisters and manufacturing accounts Thisreason was given by the Income-tax Officerand adopted by the Appellate Tribunal. Itwas submitted that the non-production ofstock account was not such a defect as toentitle the Taxing Authorities to reject thebooks and apply the proviso to S. 13.Reliance was placed on the judgment of thePunjab High Court in Pandit Brothers v.Commissioner of Income-tax, Delhi,MANU/PH/0015/1955. The facts in that casewere very different. The income-tax Officerthere added a certain sum to the assessee'sprofits on the ground that the expense ratiowas too high and the profits disclosed weretoo low and there was no stock register. Thefinding in that case was that the assesseemaintained regular accounts of hispurchases and sales and there was nofinding by Income-tax Officer that in hisopinion the income could not properly bededuced therefrom. Khosla, J. (as he thenwas) there said : 'There is no finding that there was materialbefore the Income-tax Officer to lead him tothe conclusion that a proper statement ofincome, profits and gains could not bededuced from the material placed before 'There is no finding that there was materialbefore the Income-tax Officer to lead him tothe conclusion that a proper statement ofincome, profits and gains could not bededuced from the material placed before him. All he said was that the profitsappeared to be somewhat low and therewasnostockregister'.The want of a stock register was, in thatparticular case, not a very serious defectbecause the account books had been foundand accepted as correct and disclosed atrue state of affairs. It cannot therefore besaid that that case laid down as aproposition of law that the want of a stockregister by which a proper check could bemade was not such a serious defect as tomake the proviso to s. 13 inapplicable.” 4.4He has also relied on the decision inthe case of Commissioner Of Income Tax,vs. M/S Bilahari Investment (P) Ltd. 2008(4) SCC 232 wherein it is held as under: “11. The limited controversy is whether thecompleted contract method of accountingadopted by the assessees as method ofaccounting for chit discount is required tobe substituted by percentage of completionmethod. 12. In this connection, it is the case of theassessees that, profits (loss) accrued to theassessees only when the dividendsexceeded the discount paid and thatdifference could be known only on thetermination of the chit when the total figureof dividend received and discount paidwould be available. That, it would bepossible for the assessees to make profitsonly when the sum total of the dividendreceived exceeded the sum total ofdiscounts suffered which is debited to P & Laccount. According to the assessees, theDepartment has all along been acceptingthe completed contract method and,therefore, there was no justification in lawor in facts for deviating from the acceptedpractice. According to the assessees, a chittransaction has been treated by the variouscourts as one single scheme running for thefull period and, therefore, according to theassessees, the completed contract methodadopted by it over the years was notrequired to be substituted by any othermethodofaccounting.21.Beforeconcluding, we may point out thatunder section 211(2) of the Companies Act,Accounting Standards ("AS") enacted bythe Institute of Chartered Accountants havenow been adopted [see: judgment ofthis Court in J.K. Industries case (supra)].Shri Tripathi, learned counsel for theDepartment, has placed reliance on AS 22as the basis of his argument that thecompleted contract method should besubstitutedbydeferredrevenueexpenditure(spreadingthesaidexpenditure on proportionate basis over aperiod of time). He also relied upon theconcept of timing difference introduced byAS 22. It may be stated that all thesedevelopments are of recent origin. It isopen to the Department to consider thesenew accounting standards and concepts infuture cases of chit transactions. Weexpress no opinion in that regard. Suffice itto state that, these new concepts andaccounting standards have not beeninvoked by the Department in the presentbatch of civil appeals.” 4.5He has further relied upon thedecision in the case of (2008) 15 SCC 112wherein it has been held as under: “In cases where the Department wants totax an assessee on the ground of theliability arising in a particular year, itshould always ascertain the method ofaccounting followed by the assessee in thepast and whether change in method ofaccounting was warranted on the groundthat profit is being under estimated underthe impugned method of accounting. If theAO comes to the conclusion that there isunder estimation of profits, he must givefacts and figures in that regard anddemonstrate to the Court that theimpugned method of accounting adoptedby the assessee results in under estimationof profits and is therefore rejected.Otherwise, the presumption would be thatthe entire exercise is Revenue neutral.” “In cases where the Department wants totax an assessee on the ground of theliability arising in a particular year, itshould always ascertain the method ofaccounting followed by the assessee in thepast and whether change in method ofaccounting was warranted on the groundthat profit is being under estimated underthe impugned method of accounting. If theAO comes to the conclusion that there isunder estimation of profits, he must givefacts and figures in that regard anddemonstrate to the Court that theimpugned method of accounting adoptedby the assessee results in under estimationof profits and is therefore rejected.Otherwise, the presumption would be thatthe entire exercise is Revenue neutral.” 5.Counsel for the appellant hascontended that the observations whichhave been made by the Tribunal in para 12& 13 are contrary to law, which reads asunder: We have heard parties with reference tomaterial on record. The rival submissionsas well as case laws brought to our noticehave duly been considered. The assessee isengaged in the business of construction asa builder/real estate developer. The appellant has maintained complete booksof account which are duly audited by aqualified Chartered Accountant. Theassessee maintains its accounts onmercantile basis by regularly employingProject Completion Method. The closingstock has been valued consistently at lowerof cost or net realizable value. The auditorshave reported no change in methodadopted by the assessee. The revenue hasaccepted this method in regularassessments made from year to year. Anaction under section 132 of the IT Act("Act" for short) was taken on its businesspremises on 28.01.2009. On the same veryday the members of the appellant group aswell as of the separated group and theirbusiness/residential premises were alsosearched by the department. Theassessee-appellant furnished return ofincome in response to notice issued undersection 153A of the Act. The return ofincome was furnished on the basis of booksof account maintained by it as nodocument giving rise to undisclosed incomewas found or detected by the search party.The books of account seized during thecourse of search were considered inmaking the assessment pursuant to noticesissue under section 153A of the Act. TheAssessing Officer reached a finding that thebooks of account maintained by theassessee did not present true and completepicture of its accounts and financialtransactions. The Assessing Officer aftermaking elaborate discussion has rejectedthe books of account of the assessee byapplication of provisions of section 145(3)of the Act as they failed to depict thecomplete picture of accounts and moreoverdo not follow the method of accountingstandard as specified under section 145(2)of the Act. The Assessing Officer has drawnsupport from few judgments rendered bythe Appellate Tribunal and also by thejudgment in the case of Kachwala Gemsvs.JCIT,MANU/SC/8797/2006MANU/SC/8797/2006: 288 ITR 10 (SC) for invoking provisionsof section 145(3) of the Act. “12.1. Section 145 as is relevant in the yearunder appeal is reproduced as under:- Sec. 145(1) Income chargeable under thehead "Profits and gains of business orprofession" or "Income from other sources"shall, subject to the provisions of sub-section (2), be computed in accordancewith either cash or mercantile system ofaccounting regularly employed by theassessee. (2) The Central Government may notify inthe Official Gazette from time to timeaccounting standards to be followed by anyclass of assessees or in respect of any classof income. “12.1. Section 145 as is relevant in the yearunder appeal is reproduced as under:- Sec. 145(1) Income chargeable under thehead "Profits and gains of business orprofession" or "Income from other sources"shall, subject to the provisions of sub-section (2), be computed in accordancewith either cash or mercantile system ofaccounting regularly employed by theassessee. (2) The Central Government may notify inthe Official Gazette from time to timeaccounting standards to be followed by anyclass of assessees or in respect of any classof income. (3) Where the Assessing Officer is notsatisfied about the correctness orcompleteness of the accounts of theassessee, or where the method ofaccounting provided in sub-section (1) oraccounting standards as notified under sub-section (2), have not been regularlyfollowed by the assessee, the AssessingOfficer may make an assessment in themanner provided in section 144. 12.2. The first basis taken by the AssessingAuthority in reaching a finding that theassessee's accounts do not depict correctand complete picture of its accounts is thatthe assessee has not maintained a detailedqualitative and quantitative stock registerand failed to get the valuation of its closingstock verified with the detailed day-wisequalitative cum quantitative stock register.The appellant's case before the authoritiesbelow has, however, been that theassessee had kept both quantitative andqualitative details of material purchased byit as is evident from various ledgeraccounts related to construction materialthat were forming part of the seizedmaterial available with the assessingauthority. All the expenses relating to theproject including material purchased werecharged to project/work-in-progress anddirectly taken to the balance sheet. Inother words, the materials purchased forthe project are issued to site immediatelyafter its purchase and transferred toproject in progress for determining profit atthe time of completion of the project. Noexpenditure is charged to Profit & Lossaccount. The quantity so issued to thesites/projects is recorded in separaterecords maintained for each item of building material used therein. There wasthus no need to maintain a detailedquality-wise quantitative register by theappellant. The lower authorities have notpointed out any defect in the valuation ofproject/work-in-progress. It is also not thecase of the Assessing Officer that therehave been omission or failure to record anypurchases or direct expenses to the projectin process nor even the case is that theassessee has inflated the cost of such stockheld and disclosed by the assessee in thefinancial statements presented along withthe return of income. In fact, this is a casewhere the accounts were found dulyaudited by a qualified CharteredAccountant with no adverse comments withrespect to correctness and completeness ofthe accounts maintained by the assesseeor the method of valuation adopted by him.The appellant has valued the stock ofproject in process at cost as all thepurchases of materials and direct expenseswere charged to this account. The books ofaccount stood seized as a result of searchon assessee-appellant and the same wereavailable with the Assessing Officer. Theassessee had also produced requisitevouchers and other documents as weredemanded by the Assessing Officer fromtime to time. It was, therefore, his ownduty to verify quantity of each quality ofgoods purchased by the assessee andcorrectness of valuation disclosed in theaccounts. For the remissness on the part ofthe Assessing Officer, assessee cannot beblamed. The Assessing Officer also appearsto have casually stated that as per AS-2 itis essential that the details of both qualityas well as quantity of different items ofstocks including details of direct expensesand costs are required to be maintainedmeticulously. In fact, the AS-2 notified bythe CBDT relates to disclosure of priorperiod and extra ordinary items andchange of accounting policies. Theaccounts maintained by the assessee-appellant conform to the commerciallyaccepted accounting standards and trueprofits of assessee's business could bededuced therefrom. The findings reachedby the Assessing Officer are thus notfactually correct with respect to the lacunapointed out by him on maintenance of stock record as well as valuation ofinventory held by the assessee. 12.3. In the case of Pandit Brothers vs. CIT,MANU/PH/0015/1955MANU/PH/0015/1955 : 26 ITR 159, the Hon'ble Punjab & HaryanaHigh Court has held that the mere fact thatthere is no stock register, it only cautionshim against the falsity of the return madeby the assessee. He cannot say that merelythere is no stock register, the accounts bookmust be false. The Hon'ble Supreme Courttook note of this judgment in the case ofS.N. Namasivayam Chettiar vs. CIT, 38 ITR570 (SC) and held that it is for the Income-tax authorities to consider the materialwhich is placed before him and if aftertaking into account in any case the absenceof stock register coupled with othermaterial, are of the opinion that correctprofits and gains could not be deduced thenthey would be justified in applying theproviso to section 13 of the IT Act, 1922.On the peculiar facts in the present case inappeal before us, merely because of non-maintenance of a detailed qualitative andquantitative register alone, the same couldnot be a valid reason to reach a finding thatbooks of account do not present true andcomplete picture of accounts and financialtransactions. The finding by the assessingauthority being perverse is, therefore, setaside. 12.4. The second issue raised by theassessing authority for invoking provisionsof section 145 of the Act is about nonverification of some of the vouchersrelating to payment in respect of directexpenses. The perusal of the impugnedorder reveals that this was only a primafacie view which the assessing authorityentertained before issuing a show causenotice to the assessee for rejecting itsaccounts by invoking provisions of section145(3) of the Act. He has not been able topoint out as to which of these payments inrespect of direct expenses could not beverified by him nor the Assessing authorityis shown to have required the assessee toget payment of any specific amount ofdirect expenses verified. Merely for sayingit could not be taken a lacuna in the booksof account of the assessee and take thesame as a reason for rejecting the books of account that were maintained by assesseein regular course of its business. 12.5. Thirdly, the Assessing Officer hastaken the reasoning that the searchproceedingsrevealedincriminatingdocuments which contained nothings ofreceipt of cash "out of books" by themembers of Unique Group of which theassessee is an important member. The Ld.CIT (A) in paras 13.1 to 13.3 of theimpugned order has supported the findingsreached by assessing authority by statingthat the group is owned and controlled bytwo brothers, namely, Shri Ajay Pal Singhand Shri Ajit Singh and their sons. Duringthe search and seizure operation evidenceof "on money" received on sale of differentflats of this firm were found and were alsoadmitted by the partners of the firm ShriRavinder Singh/Shri Ajit Singh. Moreover,the "on-money" so received was alsoincluded as undisclosed income in thereturn of income so filed by one of thepartners. We, therefore, required the Ld.D/R to produce such material and evidenceso as to test the correctness of the veracityof the authorities below as the appellanthas categorically denied of receipt of any"on-money" in the joint business carriedwith his separated brother Shri Ajit Singhand his son. The separation had occasionedin the year 2006 which is a date muchprior to the date of action taken undersection 132 of the Act on the appellant.From the record produced, we find that it isa correct fact that these two groups haveseparated from joint business in the year2006 and thereafter carried business withno interest or involvement of the otherbrother. This fact, the appellant alsodisclosed by way of a foot note on thecomputation of income filed along withreturn of income. The statements given byShri Ajit Singh and Shri Ravinder Singhduring the course of search admittedlywere with regard to receipt of extra moneywith respect to the flats sold by them.These sales were not of the projects donejointly with the appellant, its constituentsor family members. The "on-money" soreceived by them has been disclosed andapplied to explain the transactions of theirindependent business unrelated to theappellant and its constituents. The statements so taken, therefore, did notconstitute a material or evidence forrejecting the books of account maintainedby the assessee in saying that the moniesreceived as earnest money or advancestowards sale of its flats are not fullyaccounted. The reason so taken by theAssessing Officer for rejecting the accountsis thus vitiated and unfounded. ---- ---- ---- statements so taken, therefore, did notconstitute a material or evidence forrejecting the books of account maintainedby the assessee in saying that the moniesreceived as earnest money or advancestowards sale of its flats are not fullyaccounted. The reason so taken by theAssessing Officer for rejecting the accountsis thus vitiated and unfounded. ---- ---- ---- 12.8. The Hon'ble Kerala High Court in thecase of St. Teresa's Oil Mills vs. State ofKerala, 76 ITR 365 (Ker.) has entertained aview that the accounts regularly maintainedby the assessee in the course of businesshave to be taken as correct unless there arestrong and sufficient reasons to indicatethat they are unreliable. The departmenthas to prove satisfactorily that the accountsbooks are unreliable, incorrect orincomplete before rejecting the accounts.The rejection of books is not a matter to bedone light heartedly. 12.9. There is also a feeble observation inthe orders of the authorities below forrejecting the accounts that in the trade ofreal estates 'notorious trade practices' areprevailing. The Ld. Counsel for theassessee has placed reliance on thejudgment by Hon'ble Apex Court in thecase of Lalchand Bhagat Ambica Ram vs.CIT, MANU/SC/0081/1959MANU/SC/0081/1959: 37 ITR 288 (SC) and also by Hon'bleDelhi High Court in the case of CIT vs.Discovery Estate Pvt. Ltd. 2013 TIOL 139High Court DEL-IT in which the practice ofmaking additions in the assessment onmere suspicions and surmises or by takingnote of the 'notorious trade practices'prevailing in trade circles has beendisapproved. Having considered theaforesaid view, the finding of "on-moneytransactions" in the appellant's case by theauthorities below is found without anybasis and found perverse on facts. It,therefore, could not be a reason forrejecting the books of account maintainedby the assessee in regular course ofbusiness. MANU/SC/0081/1959MANU/SC/0081/1959: 37 ITR 288 (SC) and also by Hon'bleDelhi High Court in the case of CIT vs.Discovery Estate Pvt. Ltd. 2013 TIOL 139High Court DEL-IT in which the practice ofmaking additions in the assessment onmere suspicions and surmises or by takingnote of the 'notorious trade practices'prevailing in trade circles has beendisapproved. Having considered theaforesaid view, the finding of "on-moneytransactions" in the appellant's case by theauthorities below is found without anybasis and found perverse on facts. It,therefore, could not be a reason forrejecting the books of account maintainedby the assessee in regular course ofbusiness. 12.10. The last reasoning taken by theassessing authority as also stood confirmedby the Ld. CIT (A) is that the assessee hasnot followed Accounting Standards 9 & 7which tantamount to not followingAccounting Standard-1 as prescribed undersection 145(2) of the Act in view of theexercise undertaken by the AssessingAuthority to apply percentage of projectmethod that gave a different and positiveresults revealing more profits taxable inthe years under consideration. TheAssessing Officer, therefore, changed themethod to percentage completion methodas against the project completion methodregularly employed by the assessee. Theadmitted position and also the fact is thatthe appellant has regularly employedproject completion method from year toyear and the assessments prior to the dateof search were also made by acceptingproject completion method. Both ProjectCompletion method and the PercentageCompletion method are recognizedmethods for assessment of correct incomeof the assessee under the IT Act, 1961.The choice of method of accounting,however, lies with the assessee. It is notopen to the Assessing Officer to change hisown opinion or change the method ofaccounting because he finds anothermethod of accounting better than the oneadopted regularly by the assessee and byrejecting his accounts substitute the samewith another method of accounting withoutany just and reasonable cause. In thepresent case the exercise so undertakenbeing imaginary and rested on irrelevantconsiderations could not constitute a justor reasonable cause empowering theauthority to change the method ofaccounting regularly adopted by theappellant. The revenue has also not beenable to successfully demonstrate that themethod of accounting provided under sub-section (1) or Accounting Standard notifiedunder sub section (2) of section 145 of theAct have not been regularly followed by theassessee. Even for the first year, themethod of accounting is deemed to havebeen employed if the same is shown tohave been regularly employed insubsequent years. The decision by Hon'bleDelhi High Court in the case of CIT vs. Smt. V. Sikka & Another (1984) 149 ITR 73(Del.) is relevant. The real estatedeveloper is not a pure contractor but is aseller of flats/goods. The revenuerecognition in the case of sale of goods istriggered on completion of performance asprovided in para 11 of AS-9 " revenuerecognition". It is not mandatory for a realestate developer to follow percentage ofcompletion method as prescribed by theInstitute of Chartered Accountants of Indiaunder AS-7. AS-7 issued by the Institute ofChartered Accountants of India, recognizesthe position that in the case of constructioncontracts the assessee can follow eitherthe project completion method or thePercentage completion method. Thejudgment by Hon'ble Delhi High Court inthe case of CIT vs. Manish Buildwell (P)Ltd. in ITA No. 928/2011 dated 15.11.2011is relevant. Neither the revised GuidanceNotes 2012 issued by Institute ofChartered Accountants of India nor theExposure Draft for Guidance Note onRecognition of Revenue issued by theInstitute of Chartered Accounts of India in2011 are mandatory. The completedcontract method followed by the appellant,therefore, could not be faulted with by therevenue and the assumptions made by theAssessing Officer that by not following AS-9 & 7 the same tantamount to notfollowing prescribed AS-1 under section145(2) of the Act are found misplaced,unnecessary and uncalled for besides beingcontrary to principles ofinterpretation ofthe statutory provisions. The same,therefore, could not be taken a valid basisfor change of method regularly employedby the appellant. The Income-taxAuthority, therefore, has no option orjurisdiction to meddle in the matter eitherby directing the assessee to maintain itsaccount in a particular manner or adoptinga different method for valuing work-in-progress. It also cannot recompute incomeby adopting any method other than thatregularly employed by the assessee-appellant in a case like this nor make thesame as basis to reject its accounts. 12.11. The Apex Court in the case of CITvs. McMillan & Co. 33 ITR 182 (SC) at page188 has also entertained this opinion whichis evident from the following passage:- The section enacts that for the purposes ofsection 10 (profits of business, professionor vocation) and section 12 (income fromother sources) income, profits and gainsmust be computed in accordance with themethod of accounting regularly employedby the assessee. The choice of the methodof accounting lies with the assessee; butthe assessee must show that he hasfollowed the method regularly for his ownpurposes. The section and the proviso readtogether clearly make such a method ofaccounting regularly employed by theassessee a compulsory basis of computationunless, in the opinion of the Income-taxOfficer, the income, profits and gains cannotproperly be deduced therefrom. If the trueincome, profits and gains cannot beascertained on the basis of the assessee'smethod, or where no method of accountinghas been regularly employed, the incomemust be computed upon such basis and insuch manner as the Income-tax Officer maydetermine. 12.12. Again the Apex Court in the case ofInvestmentLtd.vs.CITMANU/SC/0265/1970MANU/SC/0265/1970: 77 ITR 533 (SC) at page 537 and 538has taken a view that the tax payer is freeto employ any method of accounting butthe same should be consistently andregularly followed by him. This is soevident from the following passage:- 12.12. Again the Apex Court in the case ofInvestmentLtd.vs.CITMANU/SC/0265/1970MANU/SC/0265/1970: 77 ITR 533 (SC) at page 537 and 538has taken a view that the tax payer is freeto employ any method of accounting butthe same should be consistently andregularly followed by him. This is soevident from the following passage:- In the balance-sheet, it is true, thesecurities and shares are valued at cost, butno firm conclusion can be drawn from themethod of keeping accounts. A taxpayer isfree to employ, for the purpose of his trade,his own method of keeping accounts, andfor that purpose to value his stock-in-tradeeither at cost or market price. A method ofaccounting adopted by the traderconsistently and regularly cannot bediscarded by the departmental authoritieson the view that he should have adopted adifferent method of keeping account or ofvaluation. The method of accountingregularly employed may be discarded onlyif, in the opinion of the taxing authorities,income of the trade cannot be properlydeduced therefrom. Valuation of stock atcost is one of the recognized methods. 12.13. The Apex Court in the case of UnitedCommercialBankvs.CITMANU/SC/0623/1999MANU/SC/0623/1999 : 1999 240 ITR 355 (SC) after consideringthe judgment in the case of British PaintsIndiaLtd.MANU/SC/0729/1990MANU/SC/0729/1990 : 188 ITR 44 (SC) which is also relied uponby the authorities below against theappellant before us is found to haveentertained a view that a method ofaccounting adopted by the tax payerconsistently and regularly cannot bediscarded by the departmental authoritieson the view that he should have adopted adifferent method of keeping of accounts orof valuation. The Revenue's reliance uponthe decision in CIT vs. British Paints IndiaLtd. (supra) in no way advanced the case ofthe revenue. The Apex court while dealingwith the contention of the assessee in thatcase for valuation of the raw materialwithout taking into account any portion ofthe cost of manufacture, held that:- thequestion of fact which the Assessing Officermust necessarily decide is whether or notthe method of accounting followed by theassessee discloses the true income andobserved thus (page 51): It is a well-recognised principle ofcommercial accounting to enter in the profitand loss account the value of the stock-in-trade at the beginning and at the end of theaccounting year at cost or market price,which-ever is the lower. The court further considered section 145 ofthe Act and observed that what is to bedetermined by the officer in exercise of thepower is a question of fact, that is, whetheror not income chargeable Under the Act canbe properly deduced from the books ofaccount and the question must be decidedwith reference to the relevant material andin accordance with the correct principles.The court also observed (page 52): Where the market value has fallen beforethe date of valuation and, on that date, themarket value of the article is less than itsactual cost, the assessee is entitled to valuethe articles at market value and thusanticipate the loss which he will probablyincur at the time of the sale of the goods.Valuation of the stock-in-trade at cost or The court further considered section 145 ofthe Act and observed that what is to bedetermined by the officer in exercise of thepower is a question of fact, that is, whetheror not income chargeable Under the Act canbe properly deduced from the books ofaccount and the question must be decidedwith reference to the relevant material andin accordance with the correct principles.The court also observed (page 52): Where the market value has fallen beforethe date of valuation and, on that date, themarket value of the article is less than itsactual cost, the assessee is entitled to valuethe articles at market value and thusanticipate the loss which he will probablyincur at the time of the sale of the goods.Valuation of the stock-in-trade at cost or market value, whichever is the lower, is amatter entirely within the discretion of theassessee. But which-ever method headopts, it should disclose a true picture ofhis profits and gains. If, on the other hand,he adopts a system which does not disclosethe true state of affairs for thedetermination of tax, even if it is ideallysuited for other purposes of his business,such as the creation of a reserve,declaration of dividends, planning and thelike, it is the duty of the Assessing Officer toadopt any such computation as he deemsappropriate for the proper determination ofthe true income of the assessee. This is notonly a right but a duty that is placed on theofficer, in terms of the first proviso tosection 145, which concerns a correct andcomplete account but which, in the opinionof the officer, does not disclose the true andproper income. Hence, for the purpose of income-taxwhichever method is adopted by theassessee, a true picture of the profits andgains, that is to say, the real income is tobe disclosed. For determining the realincome, the entries in a balance-sheetrequire to be maintained in the statutoryform, may not be decisive or conclusive. Insuch cases, it is open to the Income-taxOfficer as well as the assessee to point outthe true and proper income whilesubmitting the income-tax return. 12.14. The Hon'ble Andhra Pradesh HighCourt in the case of CIT vs. MargadarshiChit Funds (P) Ltd., 155 ITR 442 (AP) didnot find any justification in theentertainment of the view by the AssessingOfficer that there could be a better systemof accounting. This is no reason to theapplication of the provisions of section 145of the Act. The relevant passage ascontained at page 447 of the report isreproduced as under:- The ITO's view that there could be a bettersystem of accounting is no reason to theapplication of the provisions of s. 145 of theI.T. Act, especially in view of the fact thatthis system of accounting is followed by theassessee uniformly and regularly for thepast several years, and was accepted by theDepartment without quarrel. It is not opento the ITO to intervene and substitute a system of accounting different from the onewhich is followed by the assessee, on theground that the system which commends tothe ITO is better. Attention may be invited to the decisionsin:(i) CIT & EPT v. Chari and RantMANU/TN/0427/1948MANU/TN/0427/1948 : [1949] 17 ITR 1 (Mad); (ii) CIT v. Srimati Singari BaiMANU/UP/0354/1954MANU/UP/0354/1954 : [1945] 13 ITR 224 (All); (iii)CITv.K.DoddabasappaMANU/KA/0021/1963MANU/KA/0021/1963 : [1964] 54 ITR 221 (Mys); and(iv) Juggilal Kamlapat, Bankers v. CITMANU/UP/0226/1973MANU/UP/0226/1973 : [1975] 101 ITR 40 (All). system of accounting different from the onewhich is followed by the assessee, on theground that the system which commends tothe ITO is better. Attention may be invited to the decisionsin:(i) CIT & EPT v. Chari and RantMANU/TN/0427/1948MANU/TN/0427/1948 : [1949] 17 ITR 1 (Mad); (ii) CIT v. Srimati Singari BaiMANU/UP/0354/1954MANU/UP/0354/1954 : [1945] 13 ITR 224 (All); (iii)CITv.K.DoddabasappaMANU/KA/0021/1963MANU/KA/0021/1963 : [1964] 54 ITR 221 (Mys); and(iv) Juggilal Kamlapat, Bankers v. CITMANU/UP/0226/1973MANU/UP/0226/1973 : [1975] 101 ITR 40 (All). These are all decisions which lend supportto the proposition that the Department isbound by the assessee's choice ofaccounting regularly employed unless it canbe said that the method of accountingfollowed by the assessee does not reflectthe true income. The AAC, as well as theIncome-tax Appellate Tribunal, after acareful scrutiny, came to the conclusion thatthe system of accounting employed by theassessee is consistent and regular and theITO, therefore, is not entitled to interferewith the system of accounting followed bythe assessee, unless it is possible for him tomake out and bring the case within theterms of s. 145 of the I.T. Act. On this basicissue itself, the Department's contentionthat the dividend should be assessed in thehands of the assessee as and when it isreceived, in substitution of the method ofaccounting followed by the assessee, shouldfail. Even otherwise, we are not persuadedto accept the view that the system ofaccounting followed by the assessee is inany way defective. 12.15. The Apex Court had also an occasionto consider the Percentage of completionmethod and Completed Project Method inthe case of CIT vs. Bilahari Investment Pvt.Ltd., 299 ITR 1 (SC). In this judgment ithastakenaviewthatrecognition/identification of income underthe 1961 Act is attainable by severalmethods of accounting. It may be noted that the same result could be attained byany one of the accounting methods. TheCompletion Contract method is one of suchmethods. Under the Completed contractmethod, the revenue is not recognized untilthe contract is completed. Under the saidmethod, costs are accumulated during thecourse of the contract. The Profit and Lossis established in the last accounting periodand transferred to the profit and lossaccount. The said method determinesresults only when the contract is completed.The method leads to objective assessmentof the results of the contract. On the otherhand the Percentage of Completion methodtries to attain periodic recognition of incomein order to reflect current performance. Theamount of revenue recognized under thismethod is determined by reference to thestage of completion and can be looked atunder this method by taking intoconsideration the proportion that costsincurred to date bears to the estimatedtotal costs of contract. The Apex Courtagain in the case of CIT vs. Hyundai HeavyIndustries Co. Ltd., 291 ITR 482 (SC) tookthe similar view and held at page 495 asunder:- Lastly, there is a concept in accounts whichcalled the concept of contract accounts.Under that concept, two methods exist forascertaining profit for contracts, namely,"completedcontractmethod"and"percentage of completion method". Toknow the results of his operations, thecontractor prepares what is called acontract account which is debited withvarious costs and which is credited withrevenue associated with a particularcontract. However, the rules of recognitionof cost and revenue depend on the methodof accounting. Two methods are prescribedin Accounting Standard No. 7. They are"completedcontractmethod"and"percentage of completion method". Thus,as both the methods of accounting arerecognized methods of accounting, theassessee is at liberty to choose any of theabove and if any one of the method ofaccounting is consistently followed by theassessee, the assessing officer cannotchange the method of accounting to the"percentage of completion method. 12.16. The Hon'ble Delhi High Court whiledealing with the similar situation in the caseof CIT vs. Manish Buildwell Pvt. Ltd. in ITANo. 928/2011 dated 15.11.2011 held that'after the above judgment of SupremeCourt in CIT vs. Bilahari Investment Pvt.Ltd., 299 ITR 1, it cannot be said that theproject completion method followed by theassessee would result in deferment of thepayment of taxes which are to be assessedannually under the Income-tax Act.Accounting Standard AS-7 issued by theInstitute of Chartered Accountants of Indiaalso recognize the position that in the caseof construction contracts, the assessee canfollow either the project completion methodor the percentage completion method. Inview of the judgments of the SupremeCourt (supra), the findings of CIT (A),upheld by the Tribunal does not give rise toany substantial question of law. Further, theTribunal has also found that there was nojustification on the part of the assessingofficertoadoptthepercentagecompletionmethod for one year on selectivebasis. This will distort the true profits andgains of business."12.17. The judgment rendered by ApexCourt in the case of Kachwala Gems vs.JCIT, MANU/SC/8797/2006MANU/SC/8797/2006 : 288 ITR 10 (SC) the Hon'ble Apex Courthas observed that several cogent reasonshave been given on facts by Income-taxauthorities for rejecting the books ofaccount and that is the reason no differentview could be taken on this issue. This caseas well as other case laws brought onrecord by revenue are distinguishable onthe peculiar facts of this case in hand andth