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DATE: May 16, 2019 (Date of pronouncement)
DATE: June 1, 2019 (Date of publication)
AY: 2012-13
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CITATION:
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)

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

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DATE: May 1, 2018 (Date of pronouncement)
DATE: August 17, 2018 (Date of publication)
AY: 1984-85
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CITATION:
S. 37(1)/145(2): Entire law on accrual of liability under mercantile system of accounting explained in the context of Accounting Standard 4 (AS-4) (contingencies and events occurring after the balance sheet date) issued by the ICAI and s. 211 of the Companies Act, 1956, after referring to all important judgements of the Supreme Court and High Courts

While the judgment in Challapalli Sugars Ltd is that of a two Judge bench of the Supreme Court, the judgment in Tutirorin Alkali Chemicals and Fertilizers Ltd is that of a three Judge bench of the Supreme Court. As the judgment in Challapalli Sugars Ltd was noticed by the Supreme Court, in its subsequent judgment in Tutirorin Alkali Chemicals and Fertilizers Ltd, the law declared in Challapalli Sugars Ltd, as explained in the subsequent judgment of the Supreme Court in Tutirorin Alkali Chemicals and Fertilizers Ltd, is binding on this Court. The law declared in Challapalli Sugars Ltd, as explained in Tutirorin Alkali Chemicals and Fertilizers Ltd, is that, in the absence of a provision in the Income-tax Act indicating the contrary, the rules of accountancy or the Accounting Standards framed by the Institute of Chartered Accountants of India can be adopted.

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DATE: December 22, 2017 (Date of pronouncement)
DATE: January 29, 2018 (Date of publication)
AY: 2012-13
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CITATION:
S. 145(2): Law on how revenue should be recognized by a developer of property under the “percentage completion method” in the light of Accounting Standards AS-1, AS-7 & AS-9, the Guidance Note on Accounting for Real Estate Transactions issued by the ICAI and several judgements on the issue explained

As per AS 7, the recognition of revenue and expenses by reference to the stage of completion of a contract is often referred to as the percentage completion method. Under this method, contract revenue is matched with the contract costs incurred in reaching the stage of completion, resulting in the reporting of revenue, expenses and profit which can be attributed to the proportion of work completed

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DATE: November 8, 2017 (Date of pronouncement)
DATE: November 11, 2017 (Date of publication)
AY: -
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CITATION:
S. 145(2) ICDS: S. 145 (2) has to be read down to restrict power of the Central Government to notify ICDS that do not seek to override binding judicial precedents or provisions of the Act. If s. 145 (2) is not so read down it would be ultra vires the Act and Article 141 read with Article 144 and 265 of the Constitution. The ICDS which overrule the provisions of the Act, the Rules thereunder and the judicial precedents applicable thereto, are struck down as ultra vires the Act. To that extent, Notification Nos. 87 and 88 dated 29.09.2016 and Circular No. 10 of 2017 issued by the CBDT are also held to be ultra vires the Act and struck down as such

Section 145 (2), as amended, has to be read down to restrict power of the Central Government to notify ICDS that do not seek to override binding judicial precedents or provisions of the Act. The power to enact a validation law is an essential legislative power that can be exercised, in the context of the Act, only by the Parliament and not by the executive. If Section 145 (2) of the Act as amended is not so read down it would be ultra vires the Act and Article 141 read with Article 144 and 265 of the Constitution. The ICDS is not meant to overrule the provisions of the Act, the Rules thereunder and the judicial precedents applicable thereto as they stand. ICDS I which does away with the concept of ‘prudence’ is contrary to the Act and binding judicial precedents and is therefore unsustainable in law.

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