| Question And Answer | |
|---|---|
| Subject: | Percentage completion Method. |
| Category: | Income-Tax |
| Querist: | Kulkarni P.S |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | method of accounting |
| Date: | February 12, 2023 |
Assessee is partnership firm engaged in the business of development of housing project. It started residential housing project in the F.y. 2013-14 and decided to adopt project completion Method for recognizing revenue . In the F.Y. 2013-14 and 2014-15 assessee has not offered any income and capitalized all cost in WIP. In the 2015-16 search u/132 was carried out at business premises , managing partner in the statement recorded u/sec. 132(4) has stated that he was not aware about offering of income on % completion Method and he accepted that he will offer income computed as per Guidence Note issued by ICAI. Accordingly he has offered the income as per percent completion method in FY2015-16 .
In the assessment proceedings, for FY 2014-15 , on the basis of statement given by managing partner U/Sec. 132(4) AO has made addition by rejecting books of accounts u/Sec.145(3) and by estimating income as per percentage completion method.
CIt A has also confirm the addition made by AO on the ground that assessee has accepted percentage completion method in the FY 2014-15.
Issues
1. Whether action of AO in making an addition in FY 2014-15 on the basis of admission of managing partner u/Sec 132(4) making declaration of adoption of percentage completion method From F.Y. 2015_16 and accordingly offer the income in FY 2015-16.
2. Whether rejection of books of accounts u/Sec. 145(3) is justified on the ground that in the FY 2015-16 assessee has accepted Percentage completion Method.
Tax is levied as per the statute and not on the basis of a statement made. Both, project completion and percentage completion are accepted methods for recognizing revenue. As long as they are consistently applied, there is no need to change the method amidst the project. The assessee should not have changed their method of income for AY 2015-16. Although res judicata does not strictly apply to income-tax proceedings, the principle of consistency is applicable. It is advisable to follow a uniform method of accounting. Refer PCIT v. Ambika Sarees (P) Ltd (2022) 288 Taxman 174 (Cal) ( HC) the Court held that Solely relying on statement of director addition cannot be made . In CIT v. Bhageeratha Engineering Ltd. (No. 1) (2022)448 ITR 81/288 Taxman 737 (Ker)(HC) the court held that if the change is bonafide addition cannot be made . SLP rejected SLP of revenue dismissed , CIT v .Bhageeratha Engineering Ltd. (No. 2)( 2022) 289 Taxman 10(SC)