The Commissioner Of Income-Taxcentral-I, Chennai v. M/S. Sas Hotels & Enterprises Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR. JUSTICE F.M. IBRAHIM KALIFULLA The Commissioner of Income-taxCentral-I, Chennai... Appellant/ Respondent vs. M/s. SAS Hotels & Enterprises Ltd.No.3, Mangesh StreetT.Nagar, Chennai 600 017. .. Respondent/ Appellant Tax Case Appeal filed under Section 260A of the Income Tax Act,1961, against the order of the Income Tax Appellate Tribunal, Madras'B' Bench, Chennai dated 08.01.2010 passed in I.T.A.No.2176/Mds/2008for the assessment year 2003-2004 against the order of theCommissioner of Income Tax (Appeals) V Chenani 34 dated 17.3.2008passed in ITA.No.137/2006-07 for the assessment year 2003-2004 andagainst the order of the Assistant Commissioner of Income Tax,Company circle VI, (1) Chennai-34 dated 27.3.2006 passed in GIRNO./PAN-S-68/ for the assessment year 2003-2004. For Appellant : Mr.T.RavikumarStanding Counsel for Income-tax. (Judgment of the Court was delivered by F.M.IBRAHIM KALIFULLA,J.) following substantial question of law: "Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunal wasright in holding that the Assessing Officer was notjustified in detecting the completed contract methodfor accounting followed by the assessee for hisconstruction business even though the said method did https://hcservices.ecourts.gov.in/hcservices/ not reflect the correct profit of the business whichought to include the profits arising / accruing onthe incomplete project?" 2. The assessment year is 2003-2004. The assessee is in thebusiness of building construction apart from its other businessactivities. Indisputably, the assessee was following mercantilesystem of accounting and in respect of on-going projects, theassessee was following completed contract method in accounting itsprofits derived from construction work and thus such income wasbeing assessed in the relevant year in which the contract wascompleted. 3. However, for the first time, the Assessing Authority tookthe view that having regard to Section 5 of the Income-tax Act, thesystem of accounting being mercantile system, the assessee ought tohave disclosed the accrued profit earned even in respect of the on-going projects up to the point of the relevant assessment year. TheAssessing Authority by following the decision of this Court inCommissioner of Income-tax vs. N.M. Associates (256 ITR 141 Madras2002) proceeded to assess the deemed profit arose or accrued to theassessee in the relevant accounting year and pass the order ofassessment. 4. The Commissioner of Income-tax (Appeals) having confirmedthe said order of assessment, by the order impugned dated08.01.2010, the Tribunal reversed the orders of the AssessingAuthority as well as that of the Commissioner of Appeals. Aggrievedagainst the same, the Revenue has come forward with this appeal. 5. We heard Mr.T.Ravikumar, learned standing counsel for theappellant. 6. Having perused the order impugned as well as that of thelower authorities, as noted earlier, indisputably therespondent/assessee was all along following the completed workmethod for accounting its income from its business of construction.It is also not in dispute that for the first item for the assessmentyear 2003-2004, the Assessing Authority chose to take a differentview and held that by virtue of Section 5 of the Act, inasmuch asthe respondent/assessee was following mercantile system ofaccounting, it was bound to disclose whatever profit earned oraccrued up to the relevant accounting year and on that footingproceeded to pass the order of assessment by following the decisionof this Court reported in 256 ITR 141. 7. In this context, when we apply Section 145(3) of the Income-tax Act, it specifically stipulates that where the Assessing https://hcservices.ecourts.gov.in/hcservices/ 7. In this context, when we apply Section 145(3) of the Income-tax Act, it specifically stipulates that where the Assessing https://hcservices.ecourts.gov.in/hcservices/ Authority is not satisfied about the correctness or completeness ofthe accounts of the assessee, or where the method of accountingprovided in sub-section (1) or accounting standards as notifiedunder sub-section (2), have not been regularly followed by theassessee, the Assessing Authority may make an assessment in themanner provided in Section 144. Therefore, in order to invokeSection 145(3) of the Act and disturb the existing system ofaccounting, the Assessing Officer must necessarily express hisdissatisfaction about the correctness or completeness of theaccounts of the assessee and also note that such system ofaccounting was not regularly followed by the assessee, in whichevent alone, the Assessing Officer can exercise his jurisdiction andmake an assessment as provided under Section 144 of the Act. 8. Keeping the above statutory prescription in mind, when weanalyse the conclusion of the Tribunal, as set out in paragraph 18,we find that the respondent/assessee was hitherto following thecompleted contract method for accounting its income from theconstruction work and that it had not given room for anydissatisfaction, inasmuch as nothing has been said in the order ofthe Assessing Authority on that score. In such circumstances, ifthe respondent/assessee was regularly following the completedcontract method and had not given scope for any complaint in any ofthe earlier years, it was unnecessary for the Assessing Officer toinvoke Section 145(3) of the Act. In order to meddle with the saidpattern of accounting, the distinction made out by the Tribunal inregard to the decision of this Court in Commissioner of Income-taxvs. N.M.Associates reported in 256 ITR 141 is also perfectlyjustified, inasmuch as, in the said decision, indisputably, theassessee did not maintain proper accounts, which apparentlypersuaded the Assessing Authority to invoke Section 145(3) of theAct, by which, the calculation of annual profits on the basis ofreceipts was held to be justified. 9. We fully concur with the conclusion of the Tribunal inhaving interfered with the orders of the Assessing Authority as wellas that of the Commissioner of Income-tax (Appeals). We are,therefore, not inclined to entertain the substantial question oflaw, as we do not find any need for the same. The appeal fails andthe same is dismissed. No costs. Sd/- Asst.Registrar. ATR Sub Asst.Registrar. To 1. The Assistant RegistrarIncome Tax Appellate tribunal, III FloorRajaji Bhavan, Besant Nagar, Chennai-90 2. The Secretary Central Board of Direct Taxes New Delhi. 3. The Commissioner of Income-Tax (Appeals)-V No.121, Mahatma Gandhi Road, Chennai 600034.4. The Assistant Commissioner of Income-tax Company Circle VI(1), Chennai-34.1 cc to Mr.T. Ravikumar, Advocate, Sr. 87255T.C.(A) No.1030 of 2010KSK (CO)kk 22/12