Principal Commissioner Of Income Tax, Jaipur-2, Jaipur v. M/S. Unique Builders & Developers (Ajay) 8Th Floor, The Mile Stone, Tonk Road, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 263 / 2016 PRINCIPAL COMMISSIONER OF INCOME TAX, JAIPUR-2, JAIPUR ----Appellant Versus M/S. UNIQUE BUILDERS & DEVELOPERS (AJAY) 8th FLOOR, THE MILE STONE, TONK ROAD, JAIPUR ----Respondent _____________________________________________________ For Petitioner(s) : Mr. K.D. Mathur for Mr. R.B.Mathur _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERIHON’BLE MR. JUSTICE VIJAY KUMAR VYAS Order 19/09/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby Tribunal hasdismissed the appeal of the department. 2.This Court while admitting the appeal on 2.5.2017,framed following substantial questions of law:- “(i)Whether on the facts and in the circumstances of thecase and in law the ITAT has erred in deleting theaddition of Rs.47508276/- made by the Assessing Officerby application of Section 145(3) of the Act andestimation of profits when the assessee is notmaintainable quantitative and qualitative stock registersand seized documents like A-2/51 found from the laptopof Sh. Naveen Bhutani reflected ‘on money received”. (ii) Whether on the facts and in the circumstances of thecase and in law the ITAT has erred in rejecting theapplication of percentage completion method adopted bythe Assessing Officer, when this rejection meansacceptance of loss returns of the assessee engaged inconstruction and sale of residential/commercial protect. (iii) Whether on the facts and in the circumstancesof the case and in law the ITAT was justified in ignoringthe facts that the two brothers either themselves or through their families were actively engaged jointly inthe business of the sister concerns of the assessee andthus acceptance of ‘on money’ and specific ceizeddocuments cannot be ignored for intervention.” 3.The issue is covered by the decision of the assessee itself in D.B. Income Tax Appeal No.207/2016, PrincipalCommissioner of Income Tax, Jaipur-2, Jaipur Vs. M/s. UniqueAffordable Homes Pvt. LTD, 8[th] Floor, The Milestone, Tonk Road,Jaipur decided on 19.5.2017, wherein it has been observed as under:- “7. Counsel for the respondent Mr. Jhanwar hascontended that the first issue is squarely covered bythe decision of this Court in the case of Pr.Commissioner of Income-tax Vs. Bhawani SilicateIndustries, (2016) 65 taxmann.com 106(Rajasthan) wherein the Division Bench of thisCourt in para 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 isthe ultimate final fact finding authority, afteranalyzing the material again placed before itand having gone into the issue once again hascome to the conclusion that merely becausequalitative record was not maintained and onthis premise, the books of account could nothave been rejected. It is also an admitted factthat mustard seed is only single commodityused by the assessee for manufacturing ofmustard oil and the Tribunal noticed that theassessee filed yield percentage for two monthsbefore the AO in which no discrepancy wasfound by the AO. The Tribunal has found thatthe production of mustard oil is a continuousprocess and the seeds are put into the millingfor continuous oil production. The Tribunal hasfurther found that 8096 of its mustard oil is byway of trading sale and neither discrepancieswere noticed by the AO in either purchase orsale nor any sale or purchase, foundunrecorded. The Tribunal also found that thebooks of account had been maintained in thesame manner as in the past and the assesseecannot be expected to stop the plant as andwhen the new lot of mustard seed is subjectedto crushing as manufacturing of mustard oil is acontinuous process. The Tribunal has also found as a finding of fact that except quality, quantitywise stock details has been maintained but noother defect was noticed by the AO in thequantitative details and after noticing the abovefact, has come to the conclusion that the booksof account ought not to have been rejected. Inour view, such a finding of fact which has beenreached by the Tribunal is after appreciatingthe material and evidence on record and such afinding has been arrived at by the Tribunal afteranalyzing the material and in our view, nosubstantial question of law can be said to ariseout of the order of the Tribunal. Once the stockregister has been held to be properlymaintained and has been held to be proper, notrading addition could have been made andrightly so, even otherwise, minor discrepanciescannot result into rejection of books of account. 9. Leave apart the above, in our view, whatconclusions are to be reached is independent ofthe results shown in the books of account if anymaintained by the assessee. Section 145 onlyprovides the basis on which computation ofincome is to be made for the purpose ofdetermining the amount of tax payable by anassessee. The provision by itself does not dealwith the addition or deletion in the income.Best judgment is also based on the materialavailable on record and therefore, while makingan addition something more is to be collectedby the AO who makes assessment of anassessee. As pointed out above, merelybecause there is some deficiency of quality wiserecord in the books of account, or merelybecause of rejection of the books of account, itdoes not mean that it must necessarily lead toaddition in the return of income of theassessee. As noticed earlier, even the AOestimated the income by making estimatedaddition by applying a particular GP Rate soalso the CIT(A) reduced it further. Therefore,these two authorities even while resorting tobest judgment had no basis for coming to theconclusion reached and even in a case ofestimated/ad hoc addition, prima-facie, somematerial is required to be brought on record.The revenue has ample powers under the Act,if an assessee avoids or evades to unearth oftax evasion, this observation is on thecontention of counsel for the Revenue thatexcept resorting to rejection of books ofaccount, Revenue possibly has no otheralternative and come to make estimatedaddition after resorting to provisions of Sec.145(3).” 8. He has also relied upon the decision of GujaratHigh Court in the case of Jaytick Intermediates (P.)Ltd. Vs. Assistant Commissioner of Income Tax,(2016) 73 Taxmann.com 195 (Gujarat) wherein in para 8 to 10 it is observed as under: “8. It will not be out of place to mention herethat the assessee is a manufacturing unit and ithas to pay the excise duty. It is the specificcontention of the assessee that the books ofaccounts maintained by it are tallying and theexcise duty is paid on that basis. The stockregister is not tallying with the other books ofaccount only because some of the items werenot deleted from the stock register. Taking intoaccount the decision of this Court, notmaintaining the day-today stock register is not aground to reject the books of account.-In Commissioner of Incometax-IVv.Symphony Comfort Systems Ltd. (supra), it isobserved as under:-- "Question No. 1 pertains to the addition madeby the Assessing Officer on the basis of lowgross profit. The Commissioner (Appeals) aswell as the Tribunal, however, deleted suchaddition after examining the material onrecord. In particular, the Tribunal whileupholdingtheorderofthe Commissioner (Appeals) in this respect,made following observations: "Question No. 1 pertains to the addition madeby the Assessing Officer on the basis of lowgross profit. The Commissioner (Appeals) aswell as the Tribunal, however, deleted suchaddition after examining the material onrecord. In particular, the Tribunal whileupholdingtheorderofthe Commissioner (Appeals) in this respect,made following observations: "4. On consideration of the rival submissions,we do not find any justification to interfere withthe order of the learned CIT(A) in deleting theaddition. The AO merely gone by the fact thatthere was a fall in the gross profit rate ascompared to the preceding assessment yearwhich itself is no ground to reject the books ofaccounts of the assessee. No specific defect inthe maintenance of the books of accounts bythe assessee has been pointed out AO. The AOfurther noted that day to day stock and inwardand outward registers are maintained oncomputer. Perhaps, this was the sale reasonwhich swayed the AO to reject the books ofaccounts and make the addition. Now-a-days itis common knowledge that all the records aremaintained on computer including by thegovernmentandsemigovernmentorganizations. Even if, records are maintainedon computer is not ground to reject theexplanation of the assessee. The AO shouldhave verified the entries from the computerizedrecords also to point out any defect thereon. Inthe absence of any specific defect pointed outin the books of accounts and the recordsmaintained on computer, the AO was notjustified in rejecting the books results, or to enhance the gross profit rate. Accordingly,there is no 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, arisesparticularly when the Commissioner (Appeals)as well as the Tribunal concurrently held in favourof the assessee. Issue No. 2 pertains to the additions made by theAssessing Officer on account of excessiveexpenses. The Commissioner (Appeals) as wellas the Tribunal, however were of the opinion thatsuch additions were not justified. The Tribunalwhileupholdingtheviewofthe Commissioner (Appeals), made followingobservations: "6. On consideration of the rival submissions, wedo not find any merit in this ground of appeal ofthe revenue. The AO merely made comparativestudy of the expenses for the year underconsideration with the preceding assessment yearand found that expenses incurred in thepreceding assessment year were 2.89% onturnover but in the assessment year under appealit was 4.78% on the turnover. The expenseswere, therefore, found excessive without pointingout as to which of the expenses incurred by theassessee was not connected with the businessactivity of the assessee. The AO has not pointedout which of the expenditure were not admissiblein law. In the absence of any pointing outinadmissible expenses, the AO cannot makeaddition merely by comparing the expenditurewith the preceding year's expenditure. Thelearned CIT(A) on proper appreciation of the factsand material on record rightly deleted theaddition. This ground of appeal of the revenue isaccordingly dismissed." The entire issue is based on appreciation of evidence.Noquestionoflawarises.Whenthe Commissioner (Appeals) as well as the Tribunalconcurrently held that on the basis of the evidence,addition as made by the Assessing Officer was notjustified, we are not inclined to interfere." The entire issue is based on appreciation of evidence.Noquestionoflawarises.Whenthe Commissioner (Appeals) as well as the Tribunalconcurrently held that on the basis of the evidence,addition as made by the Assessing Officer was notjustified, we are not inclined to interfere." -9. In Commissioner of Incometax-XII v. Smt.Poonam Rani (supra), it is observed as under:--"10. During the course of arguments before us, itwas submitted by the learned counsel for theappellant that the assessee was not maintainingthe Daily Stock Register. We, however, find no suchfinding in the assessment order. On the other hand,we note that the Assessee had submitted beforethe Commissioner of IncomeTax (Appeals) thatForm 3CD containing all the quantitative details inrespect of raw materials as well as the finishedgoods, duly audited by the Certified Accountant hadbeen placed on record, but, the Assessing Officer ignored those actual figures enclosed with thereturn. In any case, no statutory provision underthe IncomeTaxregime requiring the assessee tomaintain the Daily Stock Register has been broughtto our notice. Hence, even if no such register wasbeing maintained by the assessee as is contendedby the learned counsel for the appellant, that byitself does not lead to inference that it was notpossible to deduce the true income of the assesseefrom the accounts maintained by her, nor theaccounts can be said to be defective or incompletefor this reason alone. If stock register is notmaintained by the assessee that may put theAssessing Officer on guard against the falsity of thereturn made by the assessee and persuade him tocarefully scrutinize the account books of theassessee. But the absence of one register alonedoes not amount to such a material as would leadto the conclusion that the account books wereincomplete or inaccurate. Similarly, if the rate ofgross profit declared by the assessee in a particularperiod is lower as compared to the gross profitdeclared by him in the preceding year, that mayalert the Assessing Officer and serve as a warningto him, to look into the accounts more carefully andto look for some material which could lead to theconclusion that the accounts maintained by theassessee were not correct. But, a low rate of grossprofit, in the absence of any material pointingtowards falsehood of the accounts books, cannot byitself be a ground to reject the account books underSection145(3)of the Act." 10. In view of above observations and consideringthe facts of the case, we are of the opinion that theview taken by CIT (Appeals) is required to beaccepted by setting aside the impugned order ofthe Tribunal. Accordingly, the question posed forour consideration is answered in favour of theassessee and it is held that the Tribunal has erredin upholding the action of the Respondent inrejecting the books of accounts of the Assesseeunder Section145 (2)of the Act and further erredin confirming the part of the addition on estimatedbasis against the revenue. Accordingly, Tax AppealNo. 1196 of 2007 is allowed.” 9. Therefore, he has contended that the rejectionof books of accounts for non maintenance of stockregister is not a ground under Section 145(3) of theAct. 10.He has relied upon following decisions:Manjusha Estates Pvt. Ltd. vs. The Income TaxOfficer Tax Appeal No.828/2007 [Gujrat HighCourt], decided on 12.08.2016: 4.1 Learned Counsel for the department hastaken this Court to Section 145(3) of the IT Actwhich relates to rejection of the books ofaccounts and contended that the CIT(A) as wellas the Tribunal has rightly come to theconclusion after considering the material placedbefore them. After making the aforesaidsubmissions he has contended that the appealmay be dismissed. 9. Therefore, he has contended that the rejectionof books of accounts for non maintenance of stockregister is not a ground under Section 145(3) of theAct. 10.He has relied upon following decisions:Manjusha Estates Pvt. Ltd. vs. The Income TaxOfficer Tax Appeal No.828/2007 [Gujrat HighCourt], decided on 12.08.2016: 4.1 Learned Counsel for the department hastaken this Court to Section 145(3) of the IT Actwhich relates to rejection of the books ofaccounts and contended that the CIT(A) as wellas the Tribunal has rightly come to theconclusion after considering the material placedbefore them. After making the aforesaidsubmissions he has contended that the appealmay 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 is ofthe opinion that the view taken by the tribunaland CIT(A) is not correct. Since the issueinvolved in this appeal is identical to thedecision cited by the learned Counsel for theassessee while adopting such reasons, we allowthis appeal and accordingly answer the issueraised in this appeal in favour of the assesseeand 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, onslightly different ground, namely, that theassessee being a developer of the project, profitin his case, will arise on transfer of title of theproperty and receipt of any advances or bookingamount cannot be treated as trading receipt ofthe year under consideration. The tribunalfurther noted that such method of accountingfollowed by the assessee had been accepted bythe revenue in earlier years. The Tribunal was,therefore, of the opinion that the AssessingOfficer’s decision to reject the book resultsduring the year under consideration was notjustified. 4. WE are of the opinion that the Tribunalcommitted no error. If as per the accountingstandard available, the assessee was entitled toclaim the entire income on completion of theproject and if such accounting standard wasaccepted by the revenue in the earlier years, inthe present year, the Assessing Officer could nothave taken a different stand and that too,without hearing the assessee. Paras Buildtech India Private Limited & anr.vs. CIT & Anr. [2016] 382 ITR 630 (Delhi): 18. Section145(1)of the Act states that theincome chargeable under the heads 'Profits andgains of business or profession' shall be computedin accordance with either cash or mercantilesystem of accounting "regularly employed by theAssessee". It is only with effect from 1st April2015 that a change has been brought about inSection145(2)which permits the centralgovernment to notify in the Official Gazette fromtime to time the income computation anddisclosure standards to be followed by any classof Assesses or in respect of any class of income.That change is prospective and in any event doesnot apply to the case on hand. 19. The settled legal position as far asSection145of the Act is concerned is that it isnot open to an AO to reject the accounts of anAssessee unless he comes to a determination thatnotified accounting standards have not beenregularly followed by the Assessee. As pointedout by the CIT (A) in the order dated 2nd July,2010, the AS of the ICAI did not have anystatutory recognition under the Act although itwas binding under the Companies Act, 1956. Themethod of accounting followed by the Assessee inthe present case i.e. project completion methodwas certainly one of the recognized methods andhas been consistently followed by it. 19. The settled legal position as far asSection145of the Act is concerned is that it isnot open to an AO to reject the accounts of anAssessee unless he comes to a determination thatnotified accounting standards have not beenregularly followed by the Assessee. As pointedout by the CIT (A) in the order dated 2nd July,2010, the AS of the ICAI did not have anystatutory recognition under the Act although itwas binding under the Companies Act, 1956. Themethod of accounting followed by the Assessee inthe present case i.e. project completion methodwas certainly one of the recognized methods andhas been consistently followed by it. Lunar Electricals vs. Assistant Commissionerof Income Tax [2012] 2010 Taxman 69(Delhi): The next aspect relates to rejection of books ofaccounts because the assessee was followingcompleted contract method. We do not thinkcompleted contract method is contrary andcannot be adopted and applied when anassessee follows mercantile system ofaccounting. This issue was examined by theMadrasHighCourtin Commissioner of Income Tax versus SASHotelsandEnterprisesLimited,MANU/TN/3098/2010: (2011) 334ITR 194 (Mad.) and it has been held that thesaid method confirms and can be adopted by anassessee. In fact, we find that there is acontradiction in the orders of both theCIT(Appeals) and the tribunal on the saidaspect. With regard to NBCC contract, both ofthem have held that the receivables andexpenses should be excluded as the contractwas incomplete. But, at the same time they have held that completed contract methodcannot be adopted for the purpose ofaccounts/computing taxable income as theassessee is following mercantile system ofaccounting. We may notice here that whileexamining the question of rejection of books ofaccounts, the CIT(Appeals) in his finding, whichhave been quoted above, was ambivalent anddid not deal with the real issue and questionwhether or not the completed contract methodis permitted and can be adopted by theassessee following mercantile system ofaccounting. The tribunal also went on certainother aspects relating to service of notice in thefirst proviso to Section145and did not deal withthe issue and question accordingly. On thesecond question, therefore, we hold and observethat completed contract method can be adoptedunder Section145of the Act when an assesseefollows mercantile system of accounting.However, we remand the matter to the tribunalto examine the other aspects relating tocomputation of taxable income on the basis ofcompleted contract method. Question No. 2 isaccordingly answered partly affirmative andpartly in negative. Commissioner of Income Tax vs. BilahariInvestment (P) Ltd [2008] 299 ITR 1 SC: 15.Recognition/ identification of incomeunderthe 1961 Act is attainable by several methods ofaccounting. It may be noted that the same resultcould be attained by any one of the accountingmethods. Completed contract method is onesuch method. Similarly, percentage of completionmethod is another such method. Commissioner of Income Tax vs. BilahariInvestment (P) Ltd [2008] 299 ITR 1 SC: 15.Recognition/ identification of incomeunderthe 1961 Act is attainable by several methods ofaccounting. It may be noted that the same resultcould be attained by any one of the accountingmethods. Completed contract method is onesuch method. Similarly, percentage of completionmethod is another such method. 19. In the judgment of the Bombay High Courtin Taparia Tools Ltd. (supra) it has been heldthat in every case of substitution of one methodby another method, the burden is on theDepartment to prove that the method in vogue isnot correct and it distorts the profits of aparticular year. Under the mercantile system ofaccounting based on the concept of accrual, themethod of accounting followed by the assesseesis relevant. In the present case, there is nofinding recorded by the AO that the completedcontract method distorts the profits of aparticular year. Moreover, as held in variousjudgments, the Chit Scheme is one integratedscheme spread over a period of time, sometimesexceeding 12 months. We have examinedcomputation of tax effect in these cases and wefind that the entire exercise is revenue neutral,particularly when the scheme is read as oneintegrated scheme spread over a period of time. 20. As stated above, we are concerned withassessment years 1991-1992 to 1997-1998. Inthe past, the Department had accepted thecompleted contract method and because of suchacceptance, the assessees, in these cases, havefollowed the same method of accounting,particularly in the context of chit discount. Everyassessee is entitled to arrange its affairs andfollow the method of accounting, which theDepartment has earlier accepted. It is only inthose cases where the Department records afinding that the method adopted by the assesseeresults in distortion of profits, the Departmentcan insist on substitution of the existing method.Further, in the present cases, we find from thevarious statements produced before us, that theentire exercise, arising out of change of methodfrom completed contract method to deferredrevenue expenditure, is revenue neutral.Therefore, we do not wish to interfere with theimpugned judgment of the High Court. CIT vs. Manish Build Well (P) Ltd. [2011] 63DTR 369(Delhi): 6. Questions Nos. 2 and 3 are connected. Theyassail the decision of the Tribunal rendered inparagraph 20 of its order. An addition ofRs.28,21,000/was made by the assessing officeron the footing that the assessee was adopting theproject completion method or the completedcontract method, which was not proper and theprofits of the business should be computed on thebasis of the 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 assessee hadno reason to withhold the handing over ofpossession of the space to the purchaser inrespect of a project which is completed and thatwherever possession was not handed over to thepurchaser, it was for the reason that the projectwas not completed. He further found that a buyerwho has paid the entire sale consideration wouldimmediately demand possession and the entiresale consideration could be received by theassessee only on completion of the project. Onthese facts it was noted by the CIT (A) thatunless the buyer makes full payment theassessee could not hand over possession nor getthe sale transaction registered. A further findingrecorded by the CIT (A) was that the impugnedproject was completed only in the accountingperiod relevant to the assessment year 2008-09 and in support of this finding, he noted that acopy of the completion/occupancy certificate wasplaced on the record of the Assessing Officer. Hefurther recorded a finding that after the issue ofthe occupancy certificate and till the date of theassessment order, possession of almost 75% ofthe developed area was handed over to thebuyers who made full payment and the saledeeds were also executed. Thereafter, possessionof 20% of the remaining area was handed over tothe buyers. The possession of the balance 5% ofthe developed area could not be handed over tothe remaining buyers because they could notmake full payment and take possession. On thesefindings the CIT (A) held that the allegation ofthe 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 accounting isconcerned, the CIT (A) held that the projectcompletion method is a wellrecognized andaccepted method of accounting and was the onlymethod suitable for any developer who has todeliver a completed product to the buyer.Ultimately the CIT (A) held as under: Thus on overall perusal of the assessment order itis seen that neither any defect has been pointedout by the assessing officer in the method ofaccounting followed by the appellant nor anyfinding has been given that true and fair profitscannot be deduced following the said method ofaccounting. No evidence was found during thecourse of search to show that the books ofaccount are not properly maintained by theappellant. The main thrust of the assessing officerin making the addition is that the assessee isdeferring the payment of taxes. But thisallegation of the assessing officer cannot beaccepted as the assessee is consistently followinga method of accounting which is well recognizedin development business and has been acceptedby the assessing officer also in the other groupcases. Thus the addition is here by deleted. 7. The aforesaid finding of the CIT (A) wasapproved by the Tribunal with the observationthat the department has accepted the assessee'smethod of accounting namely, the projectcompletion method and therefore there was nojustification for adopting the percentagecompletion method for one year on selectivebasis. 8. It is well settled that the project completionmethod is one of the recognized methods ofaccounting. In Commissioner Income-Tax And Anotherv.HyundaiHeavyIndustriesCo. Ltd.MANU/SC/7731/2007 : (2007) 291 ITR482 (SC) the Supreme Court held as follows: Lastly, there is a concept in accounts which iscalled the concept of contract accounts. Underthat concept, two methods exist for ascertainingprofit for contracts, namely, completed contractmethod" and "percentage of completion method".To know the results of his operations, thecontractor prepares what is called a contractaccount which is debited with various costs andwhich is credited with revenue associated with aparticular contract. However, the rules ofrecognition of cost and revenue depend on themethod of accounting. Two methods areprescribed in Accounting Standard No.7. They are"completed contract method" and "percentage ofcompletion method. This view was reiterated by the Supreme Court inCommissioner of Income-Tax v. BalearicInvestment 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 same resultcould be attained by any one of the accountingmethods.The completed contract method is onesuch method. Similarly, the percentage ofcompletion method is another such method. This view was reiterated by the Supreme Court inCommissioner of Income-Tax v. BalearicInvestment 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 same resultcould be attained by any one of the accountingmethods.The completed contract method is onesuch method. Similarly, the percentage ofcompletion method is another such method. Under the completed contract method, therevenue is not recognized until the contract iscomplete. Under the said method, costs areaccumulated during the course of the contract.The profit and loss is established in the lastaccounting period and transferred to the profitand loss account. The said method determinesresults only when the contract is completed. Thismethod leads to objective assessment of theresults of the contract. On the other hand, the percentage of completionmethod tries to attain periodic recognition ofincome in order to reflect current performance.The amount of revenue recognized under thismethod is determined by reference to the stageof completion of the contract. The stage ofcompletion can be looked at under this method bytaking into consideration the proportion that costsincurred to date bears to the estimated totalcosts of contract. The above indicates the difference between thecompleted contract method and the percentage ofcompletion method." (underlining ours) 9. After the above judgments of the SupremeCourt it cannot be said that the project completion method followed by the assesseewould result in deferment of the payment of thetaxes which are to be assessed annually underthe Income Tax Act. Accounting Standards 7(AS7) issued by the Institute of CharteredAccountants of India also recognize the positionthat in the case of construction contracts, theassessee can follow either the project completionmethod or the percentage completion method. Inview of the judgments of the Supreme Court(Supra), the finding of the CIT (A), upheld by theTribunal, does not give rise to any substantialquestion of law. Further, the Tribunal has alsofound that there was no justification on the partof the assessing officer to adopt the percentagecompletion method for one year (the year underappeal) on selective basis. This will distort thecomputation of the true profits and gains of thebusiness. For these reasons, we are of the viewthat no substantial question of law arises. We,therefore, decline to admit question Nos. 2 and 3. CIT vs. SAS Hotels & Enterprises Ltd. [2011]334 ITR 194 (Madras): 7. In this context, when we applySection145(3)of the Income Tax Act, itspecifically stipulates that where the AssessingAuthority is not satisfied about the correctnessor completeness of the accounts of theAssessee, or where the method of accountingprovided in Sub-section (1) or accountingstandards as notified under Sub-section (2),have not been regularly followed by theAssessee, the Assessing Authority may make anassessment in the manner provided inSection144. Therefore, in order to invokeSection145(3)of the Act and disturb theexisting system of accounting, the AssessingOfficermustnecessarilyexpresshisdissatisfaction about the correctness orcompleteness of the accounts of the Assesseeand also note that such system of accountingwas not regularly followed by the Assessee, inwhich event alone, the Assessing Officer canexercise his jurisdiction and make anassessment as provided under Section144ofthe Act. 9. We fully concur with the conclusion of theTribunal in having interfered with the orders ofthe Assessing Authority as well as that of theCommissioner of Income-tax (Appeals). We are,therefore, not inclined to entertain thesubstantial question of law, as we do not findany need for the same. The appeal fails and thesame is dismissed. No costs. MKB (Asia) (P) Ltd. vs. CIT [2007] 294 ITR655 (Gau HC): 11. As stated above, the accounting system AS7 is an approved system of accounting by theInstitute of Chartered Accountants and as suchthe authenticity of the said accounting systemis not under challenge. The assessingfirm/appellant being a Private Limited Companywas maintaining the account following the saidsystem and the account were duly audited byqualified Chartered Accountant, maintenance ofthe accounts as well as the valuation of worksin progress will not prejudice either side.Admittedly, the particular work control were notcompleted and it comes under the category ofwork in progress. There is also no dispute thatthe ultimate liability of the Assessee as regardstax will be dependant upon in total (fixed)amount received by the Assessee against theparticular work control. 12. We, therefore, hold that the Income taxauthority has no option/ jurisdiction to muddlein the matter either by directing the assesseeto maintain the account in a particular manneror adopt a different method for valuing thework in progress. We reiterate the decision inDoom Dooma India Ltd. (supra) and hold thatan assessee has as the option/liberty to adoptany recognized method of account for hisbusiness and the income shall be computed inaccordance with such regularly maintainedaccounting system. CIT vs. V.S. Dempo & CO. Pvt. Ltd. [1996] 131CTR 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] 131CTR 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 behalf ofthe revenue it was urged that the rejection ofthe 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 given reasonableopportunityforofferingexplanations 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: reasonableopportunityforofferingexplanations 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 to uphold the rejection of the accounts purely onthe ground that there has been divergence inthe consumption of electricity. In this case,there is also the additional circumstance thatthe department itself has admitted variationsranging from 10 to 12 units per quintal; andthe petitioner's consumption of electricity is 12units per quintal, which cannot be said to bewide off the accepted consumption. We are ofthe opinion that in these circumstances therejection of the accounts is not legally justified. 6. We accordingly set aside the order of theTribunal and direct that the assessment bemodified accepting the assessee's accounts. Inthe circumstances, however, there will be noorder as to costs. United Commercial Bank vs. CIT [1999] 240ITR 355 (SC): uphold the rejection of the accounts purely onthe ground that there has been divergence inthe consumption of electricity. In this case,there is also the additional circumstance thatthe department itself has admitted variationsranging from 10 to 12 units per quintal; andthe petitioner's consumption of electricity is 12units per quintal, which cannot be said to bewide off the accepted consumption. We are ofthe opinion that in these circumstances therejection of the accounts is not legally justified. 6. We accordingly set aside the order of theTribunal and direct that the assessment bemodified accepting the assessee's accounts. Inthe circumstances, however, there will be noorder as to costs. United Commercial Bank vs. CIT [1999] 240ITR 355 (SC): 11. From the aforesaid form of the prescribedbalance sheet, it is evident that ScheduledNationalised Banks were directed to put thevalue of shares and securities at cost and if themarket value is lower, it was to be shownseparately in brackets. Now, the question wouldbe when such a Bank is submitting its statutoryreturn of income, whether it can disclose in itsreturn its real profit and/or loss on the basis ofmarket value of securities and shares? It hasbeen pointed out that the balance sheet or theaudited accounts maintained on the basis of theinvestment in shares at cost would not disclosethe real profit or loss of the Bankin view of thefact that depreciation in the value of the sharesor fall in the market value of the shares andsecurities is not provided in the auditedaccounts. Learned Counsel for the appellantsubmitted that even though in the balancesheet maintained by the assessee, market priceof the shares and securities is not mentioned,yet for determining the real income of theassessee Bank, the said price is required to betaken into account. And, for that purpose sinceyears, the assessee Bank was submittingincome tax returns after taking into account themarket price of such shares and securitieswhich has been accepted by the Departmentwithout any objection. He also submitted thatnot