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2006 (7) TMI 680 - AT - Income TaxMethod of accounting - business of construction of multi-storied buildings - liability to pay the L&DO charges - HELD THAT:- In the present case initially upto and including the assessment year 1988-89 the Assessing Officer accepted the assessee’s method of computing the profits i.e., the project completion method, and completed the assessments on that basis. For the first time in the assessment year 1989-90 he switched to the percentage of completion method presumably because he found that the assessee had handed over possession in respect of 54 flats out of the total 86 flats constructed by it and had received sale consideration of ₹ 2,02,24,253. In the assessment years 1990-91 and 1991-92 the Assessing Officer accepted the project completion method as the basis of computing the profits of the business, thereby making a departure from his own stand taken in the assessment year 1989-90. We are unable to approve of this action of the Assessing Officer. As already noted the decision taken in the initial year to compute the profits of the assessee’s business under a particular method has to be given effect to in all the years till the project is completed. Any departure for some of the years fall in between will distort the entire picture. The assessments in such a case may not be fair to the assessee as well as the Department. It is not in dispute that the assessee has shown the entire profits from the construction in the return for the assessment year 1992-93. This is consistent with its stand. In these circumstances, we direct the Assessing Officer to compute the income of the assessee under the project completion method. The entire profits are assessable in the assessment year 1992-93. The Income-tax authorities were not justified in assessing the sale price of ₹ 2,02,24,253 in respect of the 54 flats in the assessment year 1989-90. We direct accordingly and allow the first two grounds filed by the assessee in the appeal for the assessment year 1989-90. Liability to pay the L&DO charges - We agree with the points raised by the learned Senior DR on the basis of the agreement entered into between the assessee and the flat purchasers. We accordingly uphold the disallowance of the liability for both the years. However, we find force in the alternative contention of the assessee raised by way of additional ground, which has already been admitted by the Tribunal. The amount has merely been collected by the assessee, but it does not form part of the sale price of the flats. Therefore, we direct exclusion of the amount collected by the assessee at the rate of ₹ 90 per sq. ft. from the flat purchasers for both the years under consideration. The deduction on account of liability to L&DO charges has been claimed by the assessee only because the amount of ₹ 90 per sq. ft. has been included in the receipts. If the deduction is not allowable on the ground that the assessee is not liable to pay the L&DO charges, for the same reason the amount collected cannot also be assessed as part of the receipts of the business. We accordingly accept the additional ground for both the years directing the Assessing Officer to exclude the amount collected by the assessee from the flat owners as charges L & DO from the assessment. In the result, both the appeals are partly allowed.
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