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2013 (11) TMI 721 - AT - Income TaxRejection of Books of accounts - Method of accounting - Percentage completion method or project completion method - Held that:- The Assessing Officer in this case rejected the accounts on the sole ground that the assessee has not followed Accounting Standard-7 and AS-9 for recognition of revenue which required him to deduce income on the basis of Percentage Completion Method by working out the profits at the end of each financial year as the projects are spread over in the series of financial years. The assessee admittedly is engaged in the business of construction as a builder/real estate developer. He has also maintained complete books of account, which are duly audited by duly qualified Chartered Accountants. The assessee has also maintained its account on mercantile basis by regularly applying Project Completion Method. The assessee in assessment for assessment year 2009-10 has also consistently followed the same method as was applied for assessment year 2009-10. The auditors have reported no change in method of accounting adopted by the assessee. The assessee has clearly demonstrated that it has regularly employed the project completion method of accounting - Accounting Standard-7 issued by the Institute of Chartered Accountants of India recognizes the position that in the case of construction contracts the assessee can follow either the project completion method or percentage completion method. It is the option of the assessee to follow either the completed contract method or the percentage completed method. The completed contract method in the present case in appeal followed by the appellant, therefore, could not be faulted with by the revenue authorities and on that basis it is neither correct nor justified to say that the accounts did not present correct and complete picture of its profits. The accounts rejected by the Assessing Officer on the basis adopted by him are thus not found tenable - recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. The Completion Contract method is one of such methods. Under the Completed contract method, the revenue is not recognized until the contract is completed. Under the said method, costs are accumulated during the course of the contract. The profit and Loss is established in the last accounting period and transferred to the profit and loss account. The said method determines results only when the contract is completed. The method leads to objective assessment of the results of the contract. On the other hand the Percentage of Completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under this method is determined by reference to the stage of completion and can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract - Decided in favour of Assessee.
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