INCOME TAX ACT, 1961

Section 145

Accounting method - Estimation of income - Advance from customers pending transfer to income accounts - Assessee following completed contract method consistently

Assessee-company was carrying on business of development of plots and construction of flats. It was following mercantile system of accounting and completed contract method of accounting for contracts. AO noticed that the assessee received advance from customers pending transfer to income accounts. Accordingly, the AO held that current profit could not be decided by the method of book of accounting followed by the assessee and estimated income of the assessee by applying 8% rate on the advances received by it. Held: In view of Supreme Court decision in the case of CIT v. Bilahari Investment (P) Ltd (2008) 299 ITR 1 (SC) : 2008 TaxPub(DT) 1709 (SC), every assessee is entitled to arrange its affairs and follow the method of accounting which the department has earlier accepted. It is only in those cases where the department records a finding that the method adopted by the assessee results in distortion of profits that the department can insist on substitution of the existing method. In instant case, since assessee was following completed contract method consistently and the said method was accepted by department in the past as well, thus, there was no justification on the part of AO to change the earlier method adopted by the assessee and to determine the income on the estimate basis.

Followed:CIT v. Bilahari Investment (P) Ltd (2008) 299 ITR 1 (SC): 2008 TaxPub(DT) 1709 (SC)

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

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