TMI Blog2017 (5) TMI 1505X X X X Extracts X X X X X X X X Extracts X X X X ..... n to have required the assessee to get payment of any specific amount of direct expenses verified. Merely for saying it could not be taken a lacuna in the books of account of the assessee and take the same as a reason for rejecting the books of account that were maintained by assessee in regular course of its business. Search proceedings revealed incriminating documents which contained nothings of receipt of cash "out of books" by the members of Unique Group of which the assessee is an important member - Held that:- There is also a feeble observation inthe orders of the authorities below for rejecting the accounts that in the trade of real estates 'notorious trade practices' are prevailing. The Ld. Counsel for the assessee has placed reliance on the judgment by Hon'ble Apex Court in the case of Lalchand Bhagat Ambica Ram vs. CIT (1959 (5) TMI 12 - SUPREME Court) in which the practice of making additions in the assessment on mere suspicions and surmises or by taking note of the 'notorious trade practices' prevailing in trade circles has been disapproved. Having considered the aforesaid view, the finding of "on-money transactions" in the appellant's case by the authorities below i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal was justified in holding that the Assessing Officer as well as CIT (A) have erred in rejecting the books of accounts of the assessee u/s 145(3) of the Act and thereby reversing the findings given by the Assessing Officer as well as CIT(A), ignoring the undisputed fact that the assessee has failed to maintain quantitative and qualitative stock registers and vouch the expenses incurred by it and on-money received by it has not been disclosed. (ii) Whether the Tribunal was justified inrejecting application of Percentage completion method adopted by the AO and confirmed by CIT(A)(C), Jaipur, in contravention of the Accounting Standard7 and Accounting Standard-9 issued by the ICAI, resulting in acceptance of loss return of the assessee engaged in construction and sale of residential/commercial projects. (iii) Whether the Tribunal was justified inignoring that the two brothers were partners either themselves or through their sons and their families and were actively engaged in the business of the assessee firm and thus acceptance of on-money and specific seized documents cannot be ignored for intervention. 3.2 ITA No. 19/2013, 21/2013, 29/2013, 32/2013, 35/2013, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee under Section 145(3) of the IT Act, and thereby reversing the findings given by the Assessing Officer ignoring the undisputed facts that the assessee failed to maintain quantities and qualitative stock registers and vouch the expenses incurred by its and on money received by it has not been disclosed. (ii) Whether on the facts and in the circumstances of the case and in law the ITAT was justified law in rejecting the application of percentage completion method adopted by the Assessing Officer, when this rejection means acceptance of loss returns of the assessee engaged in construction and sale of residential/commercial projects in contravention of Accounting Standard-7 and Accounting Standard-9 issued by ICAI. 3.5 ITA 250/2016, 254/2016, (i) Whether the Tribunal was justified rejecting the revenue s appeal without any application of mind and thereby holding that the Assessing Officer has erred in rejecting the books of accounts of the assessee under Section 145(3) of the Act and reversing the findings ignoring the undisputed facts that the assessee has failed to maintain quantitative and qualitative stock registers and vouch the expenses incurred by it and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I? 4. Mr. Mehta counsel for the appellant has contended that the Tribunal has seriously committed an error in ignoring the reasoning adopted by the Assessing Officer in para 8 of its order. Para 8 reads as under: 8. Rejection of books of accounts:- During the course of assessment proceedings, the assessee was asked to furnish stock register, basis of valuation of closing stock as well as details/information including original vouchers for the payments made in respect of direct expenses. However, the Assessee could not produce such a stock register and argued that the basis of closing stock is 'lower of cost or net realizable value'. Further, some voucher relating to payment in respect of direct expenses could not be verified. In adition during the course of search proceedings, incriminating documents were found which contain nothing of receipt of cash 'out-ofbooks' by the members of Unique Group of which the Assessee is an important member. The members of the Unique Group also surrendered their undisclosed income on the basis of such evidences of'out-of-books cash sales and purchases/expenses. This, thus, proves that the Assessee-firm did not mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and construction of residential/commercial buildings. During the period of last six preceding years from the years in which search was conducted i.e. AY 2003-04 to AY 2009-10 which is the scope of Assessment u/s 153A/143(3) in the instant group which was searched on 28.01.2009. it is noticed that the Assessee group had launched a number of projects under the aegis of Unique Group (Ajit/Ajay sub-groups). 2. The Assessee has launched numerous realestate projects from AY 2003-04 to 2009-10 (limited to scope of assessment) and soem projects out of which are complete and some of them are in the process of completion. The current status as on the date of completion of assessment in respect of commencement, completion, stage of completion, the profits shown in the return of income is tabulated as below: From the above chart, we have a bird's eye view of the income offered by the group in each project/venture in each FY. Itis seen that no income is offered for taxation and almost all the projects are lurking in loss in all the years in which the project is spread out. 3. The taxability of income of the personswho are engaged in the business of real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm contracts based on the percentage of a contract completed during the tax year. Costs allocated to the contract and incurred before the close of the tax year are compared to total estimated costs of the completed contract. That percentage of completion is applied to gross revenue from the contract to determine the amount to be included in taxable income for that tax year. Taxpayers using the percentage of completion method are also subject to the look-back rule for re-computing prior year tax liability. IT was seen from the return of income that the Assessee group is invariably following the completion method in order to work out the profits of the firms. As it is seen from the above chart, the Assessee group has declared loss or marginal profits in each of its real estate projects over the years. Not satisfied with the working of the profits, a small exercise of working out the profits in some of the projects employing percentage completion method was done and it was seen that it gave different and positive results. Accordingly, a show cause letter was issued to the Assessee which is reproduced below: Show cause letter issued to the Assessee: On perusal of documents, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue after the search and seizure operation was carried out on January, 2009 but cannot be said to be true before the search. Secondly, the facts available on record by way of partnership deed duly executed and registered clearly speaks that both the families are effectively equal partner in all the various firms namely M/s United Builders Developers, M/s United Builders Developer (Krishna), M/s Rama Ajit Builders Developers, M/s Unique Builder and Developer (Reality) and M/s Uniqe Builder Developer (Ajit), which are under appeal before the undersigned. It may be further added that in various firms of the appellant group there had been change in the constitution of the partnership firm form time to time in as much as that some member of other outside family has retired, but even at the time of those changes, the members of both the families continued in all those firms and not only continued but continued with equal share (50-50%) in partnership firms. In view of the aforesaid discussion, it is evident that there is nothing on record to substantiate that these are two independent groups running independent partnership firms. More so at least till the date of search, there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable. 4.4 He has also relied on the decision in the case of Commissioner Of Income Tax, vs. M/S Bilahari Investment (P) Ltd. 2008 (4) SCC 232 wherein it is held as under: 11. The limited controversy is whether the completed contract method of accounting adopted by the assessees as method of accounting for chit discount is required to be substituted by percentage of completion method. 12. In this connection, it is the case of the assessees that, profits (loss) accrued to the assessees only when the dividends exceeded the discount paid and that difference could be known only on the termination of the chit when the total figure of dividend received and discount paid would be available. That, it would be possible for the assessees to make profits only when the sum total of the dividend received exceeded the sum total of discounts suffered which is debited to P L account. According to the assessees, the Department has all along been accepting the completed contract method and, therefore, there was no justification in law or in facts for deviating from the accepted practice. According to the assessees, a chit transaction has been treated by the various courts as one singl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a builder/real estate developer. The appellant has maintained complete books of account which are duly audited by a qualified Chartered Accountant. The assessee maintains its accounts on mercantile basis by regularly employing Project Completion Method. The closing stock has been valued consistently at lower of cost or net realizable value. The auditors have reported no change in method adopted by the assessee. The revenue has accepted this method in regular assessments made from year to year. An action under section 132 of the IT Act ( Act for short) was taken on its business premises on 28.01.2009. On the same very day the members of the appellant group as well as of the separated group and their business/residential premises were also searched by the department. The assesseeappellant furnished return of income in response to notice issued under section 153A of the Act. The return of income was furnished on the basis of books of account maintained by it as no document giving rise to undisclosed income was found or detected by the search party. The books of account seized during the course of search were considered in making the assessment pursuant to notices issue under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e seized material available with the assessing authority. All the expenses relating to the project including material purchased were charged to project/work-in-progress and directly taken to the balance sheet. In other words, the materials purchased for the project are issued to site immediately after its purchase and transferred to project in progress for determining profit at the time of completion of the project. No expenditure is charged to Profit Loss account. The quantity so issued to the sites/projects is recorded in separate records maintained for each item of building material used therein. There was thus no need to maintain a detailed qualitywise quantitative register by the appellant. The lower authorities have not pointed out any defect in the valuation of project/workin-progress. It is also not the case of the Assessing Officer that there have been omission or failure to record any purchases or direct expenses to the project in process nor even the case is that the assessee has inflated the cost of such stock held and disclosed by the assessee in the financial statements presented along with the return of income. In fact, this is a case where the accounts were found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be deduced then they would be justified in applying the proviso to section 13 of the IT Act, 1922. On the peculiar facts in the present case in appeal before us, merely because of nonmaintenance of a detailed qualitative and quantitative register alone, the same could not be a valid reason to reach a finding that books of account do not present true and complete picture of accounts and financial transactions. The finding by the assessing authority being perverse is, therefore, set aside. 12.4. The second issue raised by theassessing authority for invoking provisions of section 145 of the Act is about non verification of some of the vouchers relating to payment in respect of direct expenses. The perusal of the impugned order reveals that this was only a prima facie view which the assessing authority entertained before issuing a show cause notice to the assessee for rejecting its accounts by invoking provisions of section 145(3) of the Act. He has not been able to point out as to which of these payments in respect of direct expenses could not be verified by him nor the Assessing authority is shown to have required the assessee to get payment of any specific amount of dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not constitute a material or evidence for rejecting the books of account maintained by the assessee in saying that the monies received as earnest money or advances towards sale of its flats are not fully accounted. The reason so taken by the Assessing Officer for rejecting the accounts is thus vitiated and unfounded. ---- ---- ---- 12.8. The Hon'ble Kerala High Court in thecase of St. Teresa's Oil Mills vs. State of Kerala, 76 ITR 365 (Ker.) has entertained a view that the accounts regularly maintained by the assessee in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. The department has to prove satisfactorily that the accounts books are unreliable, incorrect or incomplete before rejecting the accounts. The rejection of books is not a matter to be done light heartedly. 12.9. There is also a feeble observation inthe orders of the authorities below for rejecting the accounts that in the trade of real estates 'notorious trade practices' are prevailing. The Ld. Counsel for the assessee has placed reliance on the judgment by Hon'ble Apex Court in the case of Lalchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The revenue has also not been able to successfully demonstrate that the method of accounting provided under sub-section (1) or Accounting Standard notified under sub section (2) of section 145 of the Act have not been regularly followed by the assessee. Even for the first year, the method of accounting is deemed to have been employed if the same is shown to have been regularly employed in subsequent years. The decision by Hon'ble Delhi High Court in the case of CIT vs. Smt. V. Sikka Another (1984) 149 ITR 73 (Del.) is relevant. The real estate developer is not a pure contractor but is a seller of flats/goods. The revenue recognition in the case of sale of goods is triggered on completion of performance as provided in para 11 of AS-9 revenue recognition . It is not mandatory for a real estate developer to follow percentage of completion method as prescribed by the Institute of Chartered Accountants of India under AS-7. AS-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 the Percentage completion method. The judgment by Hon'ble De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer may determine. 12.12. Again the Apex Court in the case of Investment Ltd. vs. CIT MANU/SC/0265/1970MANU/SC/0265/1970 : 77 ITR 533 (SC) at page 537 and 538 has taken a view that the tax payer is free to employ any method of accounting but the same should be consistently and regularly followed by him. This is so evident from the following passage:- In the balance-sheet, it is true, the securities and shares are valued at cost, but no firm conclusion can be drawn from the method of keeping accounts. A taxpayer is free to employ, for the purpose of his trade, his own method of keeping accounts, and for that purpose to value his stock-in-trade either at cost or market price. A method of accounting adopted by the trader consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping account or of valuation. The method of accounting regularly employed may be discarded only if, in the opinion of the taxing authorities, income of the trade cannot be properly deduced therefrom. Valuation of stock at cost is one of the recognized methods. 12.13. The Apex Court in the case of United Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax, even if it is ideally suited for other purposes of his business, such as the creation of a reserve, declaration of dividends, planning and the like, it is the duty of the Assessing Officer to adopt any such computation as he deems appropriate for the proper determination of the true income of the assessee. This is not only a right but a duty that is placed on the officer, in terms of the first proviso to section 145, which concerns a correct and complete account but which, in the opinion of the officer, does not disclose the true and proper income. Hence, for the purpose of income-tax whichever method is adopted by the assessee, a true picture of the profits and gains, that is to say, the real income is to be disclosed. For determining the real income, the entries in a balance-sheet require to be maintained in the statutory form, may not be decisive or conclusive. In such cases, it is open to the Income-tax Officer as well as the assessee to point out the true and proper income while submitting the income-tax return. 12.14. The Hon'ble Andhra Pradesh High Court in the case of CIT vs. Margadarshi Chit Funds (P) Ltd., 155 ITR 442 (AP) did not find any justification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Completed Project Method in the case of CIT vs. Bilahari Investment Pvt. Ltd., 299 ITR 1 (SC). In this judgment it has taken a view that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ANU/SC/8797/2006 : 288 ITR 10 (SC) the Hon'ble Apex Court has observed that several cogent reasons have been given on facts by Income-tax authorities for rejecting the books of account and that is the reason no different view could be taken on this issue. This case as well as other case laws brought on record by revenue are distinguishable on the peculiar facts of this case in hand and the same do not advance revenue's case. 13. Considering entire conspectus of the case in the light of the peculiar facts and findings reached herein before in this case, it is neither proper nor justified to hold that the books of account maintained by the assessee did not present true and complete picture of its accounts and financial transactions. It is a case where accounts of the assessee are correct and complete. Method of accounting and accounting standard has been regularly followed. True and correct profits of the business of the assessee could be deduced from such books of accounts. In this view of the matter the assessing authority could not change the method regularly adopted by the assessee from Project Completion Method to Percentage Completion Method on irrelevant considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details and after noticing the above fact, has come to the conclusion that the books of account ought not to have been rejected. In our view, such a finding of fact which has been reached by the Tribunal is after appreciating the material and evidence on record and such a finding has been arrived at by the Tribunal after analyzing the material and in our view, no substantial question of law can be said to arise out of the order of the Tribunal. Once the stock register has been held to be properly maintained and has been held to be proper, no trading addition could have been made and rightly so, even otherwise, minor discrepancies cannot result into rejection of books of account. 9. Leave apart the above, in our view, what conclusions are to be reached is independent of the results shown in the books of account if any maintained by the assessee. Section 145 only provides the basis on which computation of income is to be made for the purpose of determining the amount of tax payable by an assessee. The provision by itself does not deal with the addition or deletion in the income. Best judgment is also based on the material available on record and therefore, while making an additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e do not find any justification to interfere with the order of the learned CIT(A) in deleting the addition. The AO merely gone by the fact that there was a fall in the gross profit rate as compared to the preceding assessment year which itself is no ground to reject the books of accounts of the assessee. No specific defect in the maintenance of the books of accounts by the assessee has been pointed out AO. The AO further noted that day to day stock and inward and outward registers are maintained on computer. Perhaps, this was the sale reason which swayed the AO to reject the books of accounts and make the addition. Now-a-days it is common knowledge that all the records are maintained on computer including by the government and semi government organizations. Even if, records are maintained on computer is not ground to reject the explanation of the assessee. The AO should have verified the entries from the computerized records also to point out any defect thereon. In the absence of any specific defect pointed out in the books of accounts and the records maintained on computer, the AO was not justified in rejecting the books results, or to enhance the gross profit rate. Accordingly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Form 3CD containing all the quantitative details in respect of raw materials as well as the finished goods, duly audited by the Certified Accountant had been placed on record, but, the Assessing Officer ignored those actual figures enclosed with the return. In any case, no statutory provision under the Income Taxregime requiring the assessee to maintain the Daily Stock Register has been brought to our notice. Hence, even if no such register was being maintained by the assessee as is contended by the learned counsel for the appellant, that by itself does not lead to inference that it was not possible to deduce the true income of the assessee from the accounts maintained by her, nor the accounts can be said to be defective or incomplete for this reason alone. If stock register is not maintained by the assessee that may put the Assessing Officer on guard against the falsity of the return made by the assessee and persuade him to carefully scrutinize the account books of the assessee. But the absence of one register alone does not amount to such a material as would lead to the conclusion that the account books were incomplete or inaccurate. Similarly, if the rate of gross profit de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion cited by the learned Counsel for the assessee while adopting such reasons, we allow this appeal and accordingly answer the issue raised in this appeal in favour of the assessee and against the department. CIT-IV vs. Shivalik Buildwell (P.) Ltd. [2013] 40 Taxman.com 219 (Guj.): 3. On the revenue s appeal, the Tribunalconfirmed the view of CIT (Appeals), however, on slightly different ground, namely, that the assessee being a developer of the project, profit in his case, will arise on transfer of title of the property and receipt of any advances or booking amount cannot be treated as trading receipt of the year under consideration. The tribunal further noted that such method of accounting followed by the assessee had been accepted by the revenue in earlier years. The Tribunal was, therefore, of the opinion that the Assessing Officer s decision to reject the book results during the year under consideration was not justified. 4. WE are of the opinion that the Tribunalcommitted no error. If as per the accounting standard available, the assessee was entitled to claim the entire income on completion of the project and if such accounting standard was accepted by the revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The tribunal also went on certain other aspects relating to service of notice in the first proviso to Section 145 and did not deal with the issue and question accordingly. On the second question, therefore, we hold and observe that completed contract method can be adopted under Section 145 of the Act 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. Question No. 2 is accordingly answered partly affirmative and partly in negative. Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Tribunal rendered in paragraph 20 of its order. An addition of ₹ 28,21,000/was made by the assessing officer on the footing that the assessee was adopting the project completion method or the completed contract method, which was not proper and the profits of the business should be computed on the basis of the percentage completion method under which the profits of the development and construction business of the assessee get assessed over a period of years, keeping pace with the progress in the construction/development of the project. The CIT (A) however held that the assessee had no reason to withhold the handing over of possession of the space to the purchaser in respect of a project which is completed and that wherever possession was not handed over to the purchaser, it was for the reason that the project was not completed. He further found that a buyer who has paid the entire sale consideration would immediately demand possession and the entire sale consideration could be received by the assessee only on completion of the project. On these facts it was noted by the CIT (A) that unless the buyer makes full payment the assessee could not hand over possession nor ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervation that the department has accepted the assessee's method of accounting namely, the project completion method and therefore there was no justification for adopting the percentage completion method for one year on selective basis. 8. It is well settled that the project completion method is one of the recognized methods of accounting. In Commissioner Income-Tax And Another v. Hyundai Heavy Industries Co. Ltd. MANU/SC/7731/2007 : (2007) 291 ITR 482 (SC) the Supreme Court held as follows: Lastly, there is a concept in accounts which is called the concept of contract accounts. Under that concept, two methods exist for ascertaining profit for contracts, namely, completed contract method and percentage of completion method . To know the results of his operations, the contractor prepares what is called a contract account which is debited with various costs and which is credited with revenue associated with a particular contract. However, the rules of recognition of cost and revenue depend on the method of accounting. Two methods are prescribed in Accounting Standard No.7. They are completed contract method and percentage of completion method. This view was reiterat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of the true profits and gains of the business. For these reasons, we are of the view that no substantial question of law arises. We, therefore, decline to admit question Nos. 2 and 3. CIT vs. SAS Hotels Enterprises Ltd. [2011] 334 ITR 194 (Madras): 7. In this context, when we apply Section 145(3) of the Income Tax Act, it specifically stipulates that where the Assessing Authority is not satisfied about the correctness or completeness of the accounts of the Assessee, or where the method of accounting provided in Sub-section (1) or accounting standards as notified under Subsection (2), have not been regularly followed by the Assessee, the Assessing Authority may make an assessment in the manner provided in Section 144. Therefore, in order to invoke Section 145(3) of the Act and disturb the existing system of accounting, the Assessing Officer must necessarily express his dissatisfaction about the correctness or completeness of the accounts of the Assessee and also note that such system of accounting was not regularly followed by the Assessee, in which event alone, the Assessing Officer can exercise his jurisdiction and make an assessment as provided under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The learned counsel for the petitionerbrought to our notice the decision of the Ahdhra Pradesh High Court in N. Raja Pullaiah v. Deputy Commercial Tax Officer, [1969] MANU/AP/0166/1969 : 73 I.T.R. 224 and contended that the consumption of electricity by itself cannot form a reliable test for determining the yield of oil, that the yield depends upon various factors like the condition of the machine, the quality of copra--whether it was dried or moist--the nature of the electric supply and other similar factors and that the consumption of electricity is affected by these and various other factors. It was also contended that no test-crushing had been done in this case and the department itself had accepted in other cases figures varying from 10 to 12 units per quintal of copra. In the petitioner's case, the average works out to 12 units per quintal. On behalf of the revenue it was urged that the rejection of the accounts was justified since there was very wide divergence in the consumption of electricity and that it was indicative of the unreliability of the petitioner's accounts. The proposition is well-settled that accounts regularly maintained in the course of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. 5. In the case on hand, the only circumstancerelied on by the authorities below for the rejection of the accounts is that there was wide disparity in the consumption of electricity. In our opinion, this factor by itself without any other supporting circumstance does not justify the rejection of the accounts. Such variation in the consumption of electricity can be due the various factors outside the control of the assessee. It is unsafe to categorically say that because there is variation in the consumption of electricity the accounts are incorrect or unreliable. It sometimes happens that current supply falls far below the usual voltage and on such occasions the output will necessarily be much lower than the normal rate. The efficiency of the crushing machine as also the moisture content in the copra would also be relevant factors to be taken into account in arriving at the output. It is, therefore, unsafe to uphold the rejection of the accounts purely on the ground that there has been divergenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii), (iv) and (v) of Item 4 of the assets side of the prescribed form. It is also undisputed that: (a) the appellant is a Nationalised Bank and therefore is governed by the Banking Regulation Act, 1949. (b) The appellant follows mercantile systemsof accounting both for Book keeping purpose as well as for tax purposes. (c) The appellant consistently and for over 30 years prior to the assessment year in dispute (1982-83) has been valuing its stock- in-trade (investments) 'at cost' in the balance sheet whereas for the same period of time the appellant has been valuing the very same investment 'at cost or market value whichever is lower' for income tax purposes. 13. In the background of the aforesaid facts, we would state that it is an established rule of commercial practice and accountancy that closing stock can be valued at cost or market price whichever is lower. In Chainrup Sampatram v. Commissioner of Income Tax, West Bengal MANU/SC/0046/1953 : [1953]24ITR481(SC) , this Court explained the underlying reasons for the said practice thus: 'It is wrong to assume that the valuation of the closing stock at market rate has, for its object, the br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shape of appreciated value of goods remaining unsold at the end of an accounting year and carried over to the following year's in a business that is continuing are not brought into the charge as a matter of practice, though as already stated, loss due to a fall in price below cost is allowed even if such loss has not been actually realised. As truly observed by one of the learned Judges in Whimster Co. v. Commissioner of Inland Revenue 12 Tax Cas. 813, Under this law (Revenue Law) the profits are the profits realised in the course of the year. What seems an exception is recognised where a trader purchased and still holds goods or stocks which have fallen in value. No loss has been realised. Loss may not occur. Nevertheless, at the close of the year he is permitted to treat these goods or stocks as of their market value. 18. Even applying the aforesaid tests laid down by this Court, what is taxable under the Act is the really accrued or arisen income. On the basis of the method of accountancy regularly employed by the assessee, the real income is pointed out in the income-tax return submitted by the assessee. This cannot be ignored by holding that in a balance sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declaration of dividends, planning and the like, it is the duty of the Assessing Officer to adopt any such computation as he deems appropriate for the proper determination of the true income of the assessee. This is not only a right but a duty that is placed on the officer, in terms of the first proviso to Section 145, which concerns a correct and complete account but which in the opinion of the officer, does not disclose the true and proper income. 23. Hence, for the purpose of income taxwhichever method is adopted by the assessee a true picture of the profits and gains, that is to say, the real income is to be disclosed. For determining the real income, the entries in a balance sheet required to be maintained in the statutory form, may not be decisive or conclusive. In such cases, it is open to the Income Tax Officer as well as the assessee to point out the true and proper income while submitting the income tax return. In Kedamath Jute Mfg. Co. Ltd. v. Commissioner of Income Tax (Central), Calcutta MANU/SC/0438/1971 : [1971]82ITR363(SC) , this Court has negatived the contention that if an assessee under misapprehension or mistake fails to make an entry into the books of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation shall be made in such manner and on such basis as the Income-Tax Officer may determine. 26. In our view, as stated above consistently for 30 years, the assessee was valuing the stock-in-trade at cost for the purpose of statutory balance sheet, and for the income tax return, valuation was at cost or market value whichever was lower. That practice was accepted by the Department and there was no justifiable reason for not accepting the same. Preparation of the balance sheet in accordance with the statutory provision would not disentitle the assessee in submitting income tax return on the real taxable income in accordance with a method of account adopted by the assessee consistently and regularly. That cannot be discarded by the departmental authorities on the ground that assessee was maintaining balance sheet in the statutory form on the basis of the cost of the investments. In such cases, there is no question of following two different methods for valuing its stock-in-trade (investments) because the Bank was required to prepare balance sheet in the prescribed form and it had no option to charge it. For the purpose of income tax as stated earlier, what is to be taxed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment's appeal on the ground that the addition in that year also was based on extrapolation, it emerged beyond pale of doubt that for the addition made for the year 2005-06 there was no evidence whatsoever and the same was presumptive in nature. 6. In above view, the findings recorded by the Tribunal were proper and legal flowing logically from the facts on record. The Tribunal has not committed any error in passing the impugned order. The appeal is devoid of merit, and raises no substantial question of law required to be considered. 7. Accordingly, the appeal is dismissed. 13. In that view of the matter, he has contended that the issue No.(iii) is required to be answered in favour of the assessee and against the department. 14. We have heard counsel for the parties. 15. In view of the observations made in para 12, 12.1 onwards and 13, by the Tribunal, we are of the opinion that the Tribunal while considering the case has gone in detail and after considering the facts on record has given a finding. In our considered opinion the Tribunal being a fact finding authority, it will not be appropriate for us to re appreciate the evidence which has already been apprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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