TMI Blog2021 (2) TMI 1161X X X X Extracts X X X X X X X X Extracts X X X X ..... completion of the contract activity at the reporting date. Petitioner may have entered into several contracts with different clients with varied terms and conditions. These documents are required to be produced before the Assessing Officer at the time of assessments. The purpose of accounting under the Income Tax Act, 1961 is to ascertain the taxable income and to determine the tax payable by an assessee. Therefore, these documents and other ancillary documents are required to be produced before an AO or ITO during the assessment. A Proper Certification whether by an In-House Department of the Assessee or by an Independent Chartered Engineer certifying the percentage of work completed under the contract was required to be produced by the assessee before the Income Tax Officer for the purpose of assessment. What was the term of the contract under which the revenue was generated or the bill raised on a client or a customer cannot be certified in the Audited Profit and Loss Account and the Balance Sheet. At best, they can corroborate what is there in the contract. Therefore, unless those supporting documents are produced, it cannot be said that there was full disclosure. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner : Mr. M.V. Balaji in both W.Ps. For Respondents : Mr. Prabhu Mukunth Arunkumar for M/s. Hema Muralikrishnan Senior Standing Counsel in both W.Ps. COMMON ORDER By this common order, both the Writ Petitions are being disposed of. 2. In W.P.No.32797 of 2018, the petitioner has challenged the impugned notice dated 28.03.2018 issued under Section 148 of the Income Tax Act, 1961 and the consequential communication dated 26.11.2018 of the first respondent overruling the objection of the petitioner for reopening the assessment for the Assessment Year 2011-12. 3. In W.P.No.32801 of 2018, the petitioner has challenged impugned notice dated 26.03.2018 issued under Section 148 of the Income Tax Act, 1961 and the consequential communication dated 26.11.2018 of the first respondent overruling the objection of the petitioner for reopening the assessment for the aforesaid Assessment Year 2013-14. 4. The reasons furnished by the first respondent for reopening of the assessment for the respective Assessment Years are identical. It has been stated that the petitioner follows a mercantile system of accounting and therefore the income accrues the moment bills are raised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been accepted by the Income Tax Department. He therefore submits that once there is a particular method of accounting is being followed, there is no justification for reopening the assessments. 12. The learned counsel for the petitioner further submits that the respondent has invoked Section 148 of the Income Tax Act 1961 for the Assessment Year 2011-2012 just three days prior to expiry of limitation under the proviso to Section 147 of the Income Tax Act, 1961 and for the Assessment Year 2013-2014 two days prior to the expiry of normal period of limitation under proviso to Section 147 of the Income Tax Act, 1961. He submits that the entire exercise was arbitrary and smacks of revenue bias. 13. The learned counsel for the petitioner further submits that prior to 29.09.2016, under Section 145(2) of the Income Tax Act, 1961, Accounting Standards was in force from 1996, as per which, if the fundamental accounting assumption relating to Going Concern, Consistency and Accrual are followed in financial statements, specific disclosure in respect of such assumptions are not required. Only when fundamental accounting assumption is not followed, such fact shall be disclosed. 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .P.Mani and Mohan Diary Vs. The Assistant Commissioner of Income tax, order dated 26.09.2019, passed by this Court in W.P.No.3648 of 2018. vi. M/s.Asianet Star Communications Private Limited Vs. Assistant Commissioner of Income Tax, order dated 16.04.2019, passed by this Court in W.P.No.25328 of 2018 and batch. 18. These decisions were cited to state that once accounts were maintained in the course of business, they are to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. The learned counsel for the petitioner further submitted that in absence of any finding questioning the correctness or completeness of the accounts of the assessee, the accounts cannot be reopened. 19. He has further submitted that the respondents have not demonstrated any distortion in the accounts maintained by the petitioner for the purpose of computation of income. He submitted that even in the context of chit fund, the Hon ble Supreme Court has recognised in Bilahari Investments Private Limited case referred to supra the revenue method of accounting in the case of chit fund business. 20. He submitted that there the Hon ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the existing method. In this case, it is the contention of the Income Tax Department that the method followed by the petitioner has not disallowed the correct income. 28. The case laws also indicate that an ITO has liberty to examine the system of accounting regularly employed by the assessee to determine whether the system of accounting is defective and whether by following such system of accounting, correct profits can be deduced from the accounts book maintained by the assessee. 29. If on such scrutiny, an Income Tax Officer comes to a conclusion that with reference to the method of accounting followed by the assessee, correct profits cannot be deduced, it is open to him to apply to the provisions of Section 145 and make the assessment in an appropriate manner. 30. Even where advances are received (pre-paid amounts), if the assessee fails to perform the service as promised, it would be obliged to refund the advance payment received under the ordinary law of contract or special enactments, like the Consumer Protection Act. 31. Though in the context of construction contracts, the Central Government vide S.O.3079 (E) dated 29.9.2016 has officially recognized the Percen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l disclosure. 37. The enclosures filed before the Assessing Officer at the time of Section 143(3) Assessment do not indicate the same. Therefore, it cannot be said that there was true and full disclosure of all materials that were required for assessment before the Assessing Officer by the petitioner. At the same time, it is to be noticed that the reasons given in the communications dated 05.11.2018 for reopening the respective assessment have merely questioned the method of accounting adopted by the petitioner and show it was issued in a mechanical manner. 38. It is noticed that as per Explanation 1 to Section 147 of the Income Tax Act, 1961, production before the Assessing Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of Section 147 of the Act. In fact, Explanation incorporates the reasons given in the decision of the Hon'ble Supreme Court in Calcutta Discount Co. Ltd. Vs. Income Tax Officer, (1961) 41 ITR 191 (SC). 39. At the same time, the conclusions arrived in the impugned communications dated 26.11. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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