|CORAM:||Mitha Lal Meena (AM), Sudhanshu Srivastava (JM)|
|CATCH WORDS:||completed contract, percentage completion method|
|COUNSEL:||Pradeep K. Sahgal, Utsav Sahgal|
|DATE:||May 16, 2019 (Date of pronouncement)|
|DATE:||June 1, 2019 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 145(2) "Project Completion Method" vs. "Percentage Completion Method": Dept's argument that assessee should have declared profit on percentage completion method because according to AS-7, revised in 2002 with effect from 01.04.2003, the 'Completed Contract method' has been scrapped & ICAI guidelines prefer the percentage completion method is not acceptable (Realest Builders 307 ITR 202 (SC) distinguished, All judgements referred)|
Apropos Ground Nos.1 and 2, the learned DR relied upon the assessment order and contended that the ld. CIT(A) has erred in accepting the appeal of the assessee on grounds of rejection of books of account U/S 145(3) of the Act as well as in deleting the additions of RS.3,24,93,594 and Rs.15,56,866 without appreciating the fact that the project completion method has no existence since 01 .04.2003. He submitted that the assessee should have declared profit on percentage completion method because according to AS-7, revised in 2002 with effect from 01.04.2003 the ‘Completed Contract method’ or ‘Project Completion method’ have been scrapped. He contended that when the, project period is more than 12 months, for the purpose of accuracy in computation of profit the percentage completion method is preferred over project completion method as per the ICA guidelines in the case of builders, For this purpose, he relies on ‘CIT vs, Realest Builders & Services Ltd.”, (2008) 22 (I) ITCL 73 (SC):
10. The Ld. AR also submitted that section 145(1 ) of the Act states that
income chargeable under the head ‘Profit and Gains of business and profession” shall be computed in accordance with either of mercantile system of accounting ‘regularly employed by the assessee: It is only w.e.f. 1″ April, 2015 that a change has been brought about in section 145(2) of the Act which permit the Central Govt to notify in the official Gazette from time to time the income computation and disclosure standard to be followed by any claim of the assessee or in respect of any claim. Such change is prospective and, in any event, does not apply to the case of the assessee.
11. Heard, We find that the issue in question, before us, is to decide whether there is any merit in rejection of books of account of the assessee by the AO and the applicability of method of accounting in t he case of the assessee i.e. project completion method of accounting as adopted by the assessee vis a vis percentage completion method of accounting as held to be applicable by the revenue.
15. As regards to the adoption of project completion method of accounting by the assessee, it is seen that the assessee’s business came into existence from 11.03.2003 and since then it has been consistently following project completion method of accounting. The Ld. AR has contended that the assessee has never deviated from such method of accounting since the inception of the business and that the revenue had also accepted project completion method and profit shown by the assessee during the assessment proceedings for AY 2014-15 in assessee’s own case which also finds mention in para 6.2.1 of the order passed by Ld. CIT(A). It is well settled that the project completion method is one of the recognized method of accounting and as the assessee has consistently been followed such recognized method of accounting thus in the absence of any prohibition or restriction under the act for doing so, it can’t be held that the decision of the CIT(A) was erroneous or illegal in any manner. The judgement in the case of “CIT vs. Realest Builders & Services Ltd.”, (Supra) relied Id. DR on method of accounting is rather in favor of the assessee and against the revenue in the peculiar facts of the present case.