Judgment:
1. Both these appeals are directed against the common order dated 30-3-1988 passed by the Commissioner of Income-tax, Bombay City-V, Bombay (Shri F.J. Bahadur) assuming jurisdiction under Section 263 of the Act. Since both the appeals raise common issues and are directed against the common order of the Commissioner, they are disposed of by this consolidated order.
2. The assessee undertakes civil construction contracts from reputed organisations. The construction contracts as also various projects undertaken to be completed take several years for completion. The work also continues at various sites on account of various works undertaken.
For example in assessment year 1983-84, the work started on behalf of Crompton Greaves Ambad, Nasik continued up to assessment year 1989-90.
So is the case in respect of Thane work undertaken on behalf of Precision Fasteners Ltd. For the purpose of accounts, the year adopted is financial year and for the purpose of books of account the assessee adopted project completion method, that is to say the profit or loss to be accounted for in the books of account of the year in which the project is completed. For example, the project undertaken on behalf of Crompton Greaves Satpur, Nasik, which was started in assessment year 1982-83, was completed in assessment year 1988-89 and on total receipts of rupees sixty-six lakhs plus, profit of rupees ten lakhs plus was shown in the books of account of assessment year 1988-89. In assessment year 1982-83 the assessment was completed by the Assessing Officer in February 1985 under Section 143(3) of the Act where it is mentioned that during assessment year 1982-83 the construction business had been started and the profit or loss in each contract would be accounted for in the year in which the contract is completed and accordingly he completed the assessment. During these two years also the assessments were completed under Section 143(3) and after observing that the profit or loss shall be accounted for on completion of each project, the Assessing Officer completed the assessments. However, the Commissioner assumed jurisdiction under Section 263, being of the opinion that income from construction work had not been computed correctly by taking into account the profits on the work-in-progress. A notice was issued and the assessee was heard. The Commissioner held that the method of accounting employed did not enable the income of the year to be properly deduced and there was sufficient judicial authority for holding that in case where income arose from execution of contract, which would take several years for completion, it would be the duty of the Assessing Officer to ascertain the profits accruing to the assessee for each of the accounting year during the pendency of the contract and accordingly be directed the Assessing Officer, after setting aside the assessments, to work out the profits on the work-in-progress. He drew support from decision in the cases of P.M. Mohammed Meerakhan v. CIT [1969] 73 ITR 735 (SC), Sri Sukhdeodoas Jalan v. CIT I [1951] 26 ITR 617 (Pat.) and TirathRam Ahuja (P) Ltd. v. CIT [1976| 103 ITR 1.5 (Delhi). A decision of the Tribunal in the case of Champion Construction Co, v. First. ITO [1983] 5 ITD 495 (Bom.} was also considered by the Commissioner.
3. At the time of hearing, the learned counsel for the assessee, Shri Harish, was quite emphatic in stating that the controversy was covered in favour of the assesses by decision of Bombay High Court in the case of Shree Nirmal Commercial Ltd.v. CIT I 1992] 193 ITR694 where project completion method had been accepted. Apart from tins, order for assessment year 1062 83 had become final as the same was not disturbed where the method adopted by the assesses was accepted by the Assessing Officer. On a query from the Bench it was further clarified that the assessce had been following the same system of accounting right, from assessment year 3 982-83 in respect of business of civil construction.
No defect in method of accounting was found and, therefore, there was no need for revision. Explaining in detail the nature of business and the manner in which the business is being carried on by such large construction company and that too on behalf of very reputed clientele, which include large corporate-bodies managed by various reputed industrial firms, raised a grievance on the basis that when the books of account were audited and the assessee followed a particular system of accounting, which was admittedly recognised one and accepted in the first, year itself, the assessee was being put to various types of hardships in the assessments of various years. Further, consequent to the direction of the Commissioner in these two years ultimately the rate of profit, estimated by the Assessing Officer was 13 per cent whereas the assessee showed 18 per cent, net profit in respect of the project of Crompton Greaves, Sntpar, Nasik; more than 13 per cent in respect of project of Crompton Greaves, Ambad, Nasik and in respect of the project of Precision Fasteners, Thane the percentage of profit shown on completion of project work was still higher. Thus there was no need to disturb the assessments completed by the Assessing Officer. The project completion method was recognised one for which various decisions of the Tribunal were relied upon such as in the cases of ITO v., W.D Estates(P.) Ltd. [1993] 45 ITD 473 (Bom.); O.K. Enterprises v.ITO[1991] 39 ITD 394 (Bom.) and an unreported decision of the Tribunal appearing at page 64 of the paper-book as also at page 267 of the paper-book No, III. He also distinguished on facts the decision considered by the Commissioner.
4. The Senior Departmental Representative, Shri keshav Prasad, at the outset, fairly submitted that both the methods, the method adopted by the asscssee and the method sought to be adopted by the Commissioner, were recognised methods and, therefore, it was necessary to determine which method should be adopted for the purpose of assessment. The decision relied upon by the assesses in the case of Skive Nirmal Commercial Ltd. (supra) was not applicable. Besides placing reliance on Peterson Candy International v. ITO [1989] 33 TTJ (Born.) 252 (copy of the order though promised not received) he submitted that it was open to the revenue to recover the tax from year to year and in this case various decisions were considered. Ultimately a reasonable view was required to be adopted and not a view favoring the assessee. The decisions relied upon by the assessee were also sought to be distinguished.
5. We have considered the material placed before us. One aspect is clear that both the parties have agreed that the method adopted by the assessee was also recognised one. There is also no dispute on the percentages of net profits reflected and shown in the books of account on the basis of completion of projects and admittedly they are fairly reasonable and even in some cases higher than the percentage adopted by the Assessing Officer while estimating the profit from year to year consequent to the direction by the Commissioner as was explained to us.
We, therefore, find no error in the assessment orders. Considering the nature of business and the manner in which it was carried on not only the assessee, but the independent Chartered Accountants have also found it appropriate to adopt project completion method for the purpose of true and fair view of the financial position including the profits earned by the assessee on various projects. Merely because the profit on a project is postponed from the year of commencement of the project to the year of completion of the project, the same would not be the basis for considering the assessment made on that basis as erroneous.
In this ease the rate of tax is constant and, therefore, in the context of the aforesaid circumstances, it cannot be said that the assessments were in any way prejudicial to the interest, of revenue. There is one more aspect which requires consideration. The profits of business must be computed in accordance with method of accounting regulary employee] by the assessee. The choice of the method of accounting, like the choice of the previous year, lies with the assessee. The only thing is that the assessee must show that he has followed the chosen method of accounting regularly. Even for the very first accounting year, in this case for assessment, year 1982-83, the method of accounting should be deemed to have been, regularly employed if the same method is shown to have been employed in the subsequent assessment years. As stated earlier, the assessee has been following the same method of accounting regularly in subsequent assessment years. Therefore, the mandatory provision of Section 145 would apply and the department is bound by the assessee's choice of method which cannot be rejected as improper merely because it gives the assessee benefit in certain years even if this is assumed to be the case or merely because according to the Commissioner another method is preferable. It will be worthwhile to recall the case of CIT v. Sarangpur Cotton Mfg. Co. Ltd. [1938]6ITR 36 (PC) where it was opined that Section 145 related to a method of accounting regularly employed by the assessee for its own purposes and in this case for the purpose of company's business and does not relate to a method of making up of the statutory return for assessment to income-tax. Moreover, the section clearly makes certain method of accounting a compulsory basis of computation unless the profits cannot properly be deduced there from. The Departmental Representative fairly admitted that the method followed by the assessee was also a recognised one and, indeed, on this aspect there cannot be dispute and that is why the Assessing Officer not only in assessment year 1982-83 but also in subsequent two years, found himself duty-bound to compute the profits on the basis of method of accounting adopted by the assessee. When the assessments are made on certain settled principles, we find no reason why assessments should be revised. We, therefore, hold that assumption of jurisdiction under Section 263 was not in accordance with law, on facts of the case and, therefore, we cancel the order passed under Section 263 and restore the assessments framed by the Assessing Officer. Accordingly all the consequent proceedings and the orders arising there from shall be treated as infructuous.