TMI Blog1983 (1) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... essment was the asst. yr. 1974-75. For that year, the assessee filed a return showing a loss of Rs. 35,388. In that year, the constructions were taken up and none of the flats or shops were completed. The ITO found on a perusal of the accounts that the expenditure of Rs. 7,51,808 had been shown as work-in-progress and no profit or loss was shown in the accounts. In his letter dt. 21st Feb., 1975, he gave his finding to the assessee and asked the assessee to confirm whether they were adopting the method of accounting for the profits only after the completion of the building. The assessee stated that their method followed was to show the profits after the entire project was completed. On that basis, the ITO completed the first assessment orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e wings for which possession was given. 4. On appeal, this was upheld by the CIT(A). 5. The assessee is on further appeal before us. Shri V.H. Patil, the ld. counsel for the assessee, submitted that the ITO has accepted the completed contract method and, therefore, he cannot go back on it and take up assessment on the basis of a percentage of the turnover. He alternatively submitted that if such an assessment has to be upheld, the rate of 10 per cent adopted was excessive. Shri G. Krishnan for the department pointed out that the assessee is a promoter and for him flats and shops are stock-in-trade. It is not correct to take the entire project as one unit. The entire project represents his business, whereas each flat represents the ite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 145, which states that if the ITO is not satisfied about the correctness or the completeness he can make as assessment under s. 144. But we are not concerned with sub-s. (2). We are concerned only with sub-s. (1) and the proviso thereof. 7. In the case of construction companies the method of accounting followed by the assessees i.e. to bring into account the profits when the project has been completed is a well recognized method. This will be clear from the following extract from Kanga Palkhivala's book "The Law and Practice of Income-tax', Seventh Edition : "Profits of trade in land and buildings- Several cases have arisen in England regarding the method of computing profits of trading in land and buildings. The speculative build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted such a method as the correct method. The assessments for the years 1974-75 and 1975-76 have been completed on that basis. By adopting a different method for the asst. yr. 1976-77, in effect, the IT Department would be losing the right to assess the income for the first two years. If the assessee's accounts are accepted, the entire income falls of consideration in the last year when the project is completed. Arising form the finding given by the ITO is a subsidiary question as to whether having accepted the method of accounting, the department can now go back on it. Shri Krishnan made a point that the ITO has not accepted the method of accounting as such. But our mind is clear on that point. The ITO's letter dt. 21st Feb., 1975 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the assessee has to sell in order to record its profits. It was treated as one venture. This is clear from the assessment orders or the earlier years. Having accepted and proceeded on that basis it may not be possible for the department to change the stand and to say that the flats and shops were its stock-in-trade. We may even consider such a change if it was a mistaken impression. We cannot say that it is a mistaken impression. The department fully knew that the six wings constructed would contain a number of flats and shops and they would be sold to different buyers. The accounts made up by the assessee had not treated the flats separately as stock-in-trade. They had considered the entire project as one contract. So it is not possibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluing the stock-in-trade, at the beginning and at the end of the year. They then quoted with approval the principles regarding valuation of stock given by the House of Lords in Whimster Co. vs. CIT (12 T.C. 830 (HL). It will be seen from the observations of the Supreme Court that they were consideration again a case of a trade where the assessee was dealing with stock. In this case, on the understanding between the department and the assessee, the entire project was one unit. There was no question of any stock being considered. So the decision of the Supreme Court in the case of P.M. Mohammed Meerakhan vs. CIT (1969) 73 ITR 735 (SC) and the decision of the Patna High Court in the case of Sri Sukhdeo Das Jalan vs. CIT (1954) 26 ITR 617 (P ..... X X X X Extracts X X X X X X X X Extracts X X X X
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