TMI Blog2012 (4) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... red will be excluded from P/L A/c. Further, Completed contract method is not contrary and can be adopted and applied when an assessee follows mercantile system of accounting. However, we remand the matter to the tribunal to examine the other aspects relating to computation of taxable income on the basis of completed contract method – Decided partly in favor of assessee. - ITA 195/2006 - - - Dated:- 22-3-2012 - MR. JUSTICE SANJIV KHANNA, MR. JUSTICE R.V.EASWAR, JJ. For Appellant: Mr. S. Krishnan, Advocate. For Respondent: Mr. Sanjeev Rajpal, Advocate. O R D E R In this appeal by the assessee, which pertains to assessment year 1997-98, the following two substantial questions of law were formulated for determination vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs asked the appellant to furnish full details of the 12 projects, including NBCC project, which were complete or were continuing. The Assessing Officer held that the assessee cannot adopt project completion method after amendment of Section 145 of the Income Tax Act, 1961 (Act, for short) with effect from assessment year 1997-98. He held that project completion method would amount to adopting an hybrid system of accounting, which was prohibited and barred by the said amendment. On the basis of the details furnished by the assessee, the Assessing Officer drew up a statement of profit, i.e., income and expenditure account for the period ending 31st March, 1997. He calculated the average rate of profit on the value of 11 contracts and applie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the books of account, then he could reject the books of accounts. Therefore, I find no merit in this ground of appeal taken by the appellant which is rejected. 5. In the same order the CIT(Appeals) also dealt with the contention of the assessee in regard to computation of profit relating to NBCC and held as under:- 10. It has been explained that the appellant did not accept the calculations made by the NBCC Ltd and referred the matter for arbitration to Project Engineer vide letter dated 2.1.95 i.e. financial year 1994-95 and asstt. year 1995-96. Since then, the dispute is stated as pending before the arbitrator. It has been stated that after 31.3.94 further expenditure of Rs.49,941 had been incurred which included expenses on lit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l addition of Rs.8,92,606 made by the A.O., addition to the extent of Rs.5,95,747 (184964+410783) is confirmed resulting in relief of Rs.2,94,859 to the appellant. 6. A reading of paragraph 10 would show that the CIT(Appeals) had observed that both the billings/receivable as well as the expenditure had to be excluded from the debit and the credit side of the profit and loss account. This was necessary as per the CIT(Appeals), because the matter was pending arbitration. In other words, the CIT(Appeals) contrary to what has been held and quoted earlier, observed that the project completion method could be adopted. However, he again contradicted himself in paragraph 11 of the same order. He observed that the loss amounting to Rs.4,10,783/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng enunciated by the Hon ble Apex Court in the case of Hindustan Housing Land Development (supra) is relevant for consideration. In the instant case, neither has the NBCC contract been completed nor has the arbitration proceedings culminated in a settlement of dispute during the year under consideration in the absence of either of the aforesaid happenings a) it cannot be deduced as to what incomes devolve on the assessee and, b) as to how much expenditure is liable to be incurred by the assessee on this contract. Therefore, not only the right to receive the contract receipts is inchoate but even the expenditure incurred or likely to be incurred by the assessee remain in realm of contingency. Therefore, on this ground, we are unable to con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the CIT(Appeals) and the tribunal on the said aspect. With regard to NBCC contract, both of them have held that the receivables and expenses should be excluded as the contract was incomplete. But, at the same time they have held that completed contract method cannot be adopted for the purpose of accounts/computing taxable income as the assessee is following mercantile system of accounting. We may notice here that while examining the question of rejection of books of accounts, the CIT(Appeals) in his finding, which have been quoted above, was ambivalent and did not deal with the real issue and question whether or not the completed contract method is permitted and can be adopted by the assessee following mercantile system of accounting. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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