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2013 (2) TMI 403 - HC - Income TaxUndervaluation of profits by changing method of valuation of work in progress - CIT (A) allowed the appeal of the appellant but was reversed by ITAT - Applicability of AS-7 issued by ICAI - Held that:- CIT (A) in his judgment has rightly held that change in the accounting system was bona fide after taking into consideration the facts in the present case. The ITAT however, while giving its reasons has clearly avoided to give any finding on this question of fact and as such, it cannot be said that ITAT had given any finding against the appellant on the question of bona fides of the appellant or had set aside the finding which was recorded by the CIT (Appeals). The submission made by revenue that this finding was confirmed by ITAT cannot be accepted. CIT(A) has rightly observed that since there was no sale of flats in the earlier assessment year, the appellant could have shown the said expenditure which was incurred, as loss and could have carried forward the loss in the next year. Secondly, it is admitted position that in the subsequent years, the appellant has been following AS-7 accounting system and the same was accepted by the AO. In fact thereafter, the Central Government has directed all the developers and builders to follow AS-7 accounting system. Taking into consideration the aforesaid facts, therefore, the ITAT has clearly erred in setting aside the order passed by the CIT(A). Thirdly the ratio of the judgment in the case of British Paints India Ltd (1990 (12) TMI 2 - SUPREME COURT) would strictly not apply to the facts of the present case as in the present case, however, the costs in fact were indirect costs namely financial costs, general administrative costs and marketing costs and, therefore, they had to be shared amongst three projects and had to be considered in the profit and loss account under AS-7 system. The ratio of this judgment, therefore, strictly speaking would not support the case of the revenue - in favour of assessee.
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