Commissioner of Income Tax, Bangalore vs Nadic Associates

Manjula Chellur, J.—The substantial questions of law raised in this appeal are as under: 1. Whether the Appellate Authorities were correct in holding that the assessee was entitled to follow "Completed Contract Method of Accounting" in the construction business, despite the substitution of section 145 with effect from 1-4-1997 by Finance Act, 1995, which contemplates only two methods of accounting i.e., cash or mercantile system and especially when the amended section applied to the current assessment year?

Whether the Appellate Authorities were correct in following the judgment of this Hon''ble Court in Khoday Distilleries Ltd., which was the law prior to the substitution of section 145 of the Act and the same could not be extend after 1-4-1997 from the date of the amendment?

The assessment year in the present case is 1998-99. According to the assessee, his business income has to be computed based on the completed contract method of accounting and not in accordance with the amended provisions to section 145 of income tax Act, 1961 as the assessee consistently adopted the ''Completed Contract Method of Accounting'' which was approved by the Department in the previous years as well. According to him, in spite of amendment to section 145 of the Act with effect from 1-4-1997, wherein cash or mercantile system of accounting is contemplated, still the assessee is entitled to follow the method of accounting which he followed earlier to the amendment. 2. According to the learned counsel for the appellant-revenue, though the Assessing Officer made a detailed order taking into consideration the claim of the assesses to allow him to continues with the ''Completed Contract Method of Accounting'' and the amendment to section 145 of the Act held that, the assessee has to follow one of the method contemplated u/s 145 of the Act and not any other method of his choice. Neither the first appellate Court nor the Tribunal considered the consequence of amendment to section 145 of the Act with effect from 1-4-1997. The cases referred to by the Tribunal H.M. Constructions v. Joint CIT [2003] 84 ITD 429 (Bang.) and the decision of this Court in the case of Khoday Distilleries Ltd. [IT Reference case No. 19 of 1993] are prior to the amendment to section 145 of the Act. Therefore, the Tribunal was not justified in concluding that the assessee was entitled was entitled to follow the method of ''Completed Contract Method of Accounting'' which he followed in the previous years despite the amendment to section 145 of the Act. The Tribunal, apparently, did not take note of the fact that the judgments relied upon by it were prior to the amendment and not subsequent to the amendment. Therefore, the appeal deserve to be allowed and accordingly. The matter is remanded to the Tribunal for consideration in the light of the amendment to section 145 of the Act with effect from 1-4-1997.