This is departmental appeal directed against order of Commissioner (Appeals), Hyderabad, dated 9-8-1984 and it relates to assessment year 1981-82. 2. assessee is registered firm. assessment year involved is 1981-82 for which previous year ended by 7-11-1980. assessee is builder of multi-storey flats and it offers to sell same to public. During, course of its business assessee-firm would be entering into contracts with purchasers and admittedly according to stipulations of every contract purchasers of flats have to pay amounts of purchase price in instalments as well as deposit certain amounts as advances with assessee. amounts of advances as well as instalment receipts would be shown as receipts in account books maintained by assessee and assessee was in habit of estimating gross profit against receipts. For assessment year 1980-81 assessee returned gross profit of 18 per cent as against which ITO completed assessment estimating net profit at 20 per cent of gross receipts as income of assessee. During accounting year relevant to assessment year 1981-82 assessee had received advance deposits amounting to Rs. 32,27,000. names of purchasers of flats, date of agreements entered into with each of them, various dates on which advance amounts are received from each of purchasers during relevant accounting year and particulars of amounts of advances received from each of purchasers during relevant accounting year are all furnished in tabular form on behalf of assessee. It would show that assessee had received advances of Rs. 32,37,000 during relevant accounting period. During enquiry before assessment assessee addressed two letters dated 29-12-1983 and 7-1-1984 wherein assessee-firm had explained that even though there is increase in cost of labour, cost of material they could not increase price of flats agreed upon with purchasers as there is no provision in agreement of sale to increase sale price and there was ]no likelihood of their getting more profit than what they had shown in their return. For assessment year 1981-82 assessee-firm had estimated gross profit at 9 per cent on total deposits of Rs. 32,27,000 and estimated gross profit at Rs. 2,87,980. assessee-firm returned income of Rs. 2,31,760. ITO completed assessment on protective basis. He found that up to end of accounting year no sales were effected and none of purchasers occupied flats. ITO also found that normally in business of this type profit arises in year in which sales of flats are actually effected. He, therefore, held that income has to be assessed in year in which sales of flats are effected. However, without prejudice to computation of income in year in which flats are sold since assessee had admitted income of Rs. 2,31,760 ITO thought he would assess same on protective basis. Thus, ITO completed his assessment dated 7-3-1984. 3. Aggrieved against said assessment assessee went in appeal before learned Commissioner (Appeals). Firstly it is contended before learned Commissioner (Appeals) that making or completing assessment on protective basis is illegal in facts and circumstances of case. learned Commissioner (Appeals) found that whereas for assessment year 1980-81 gross profit was estimated at 18 per cent in this year, however, ITO accepted when assessee returned gross profit only at 9 per cent. He held that estimating of gross profit at 9 per cent accepted by ITO after considering explanation furnished by assessee explaining possibility o f reduction in rate of profit. However, after doing this, according to learned Commissioner (Appeals) it was not proper for ITO to hold that income is to be assessed in year in which sales of flats are affected and thereafter to complete assessment on income admitted by saying that same is assessed on protective basis. learned Commissioner (Appeals) held that only option to ITO was to assess income or to reject it. He further observed that ITO cannot assess assessee-firm on protective basis and keep assessee in perpetual anxiety. Ultimately he held that completion of assessment on protective basis is not justified. He ordered that assessment made should be treated as regular assessment and further ordered that credit for income assessed in this assessment should be given in computing income when sales of flats are finally effected. 4. Aggrieved by impugned order of Commissioner (Appeals) revenue filed second appeal. It is contended by learned departmental representative that no flats were sold to intending purchasers and, therefore, representative that no flats were sold to intending purchasers and, therefore, assessee could not be said to have made profits out of itself. Profit will arise only in year when sale is effected. Since assessee had filed return admitting profit ITO correctly accepted return on protective basis. learned Commissioner (Appeals) ought not to have confirmed 9 per cent gross profit after finding that it was accepted by ITO. At outset learned Commissioner (Appeals) could have set aside assessment for finding out real profit earned by assessee. Firstly, it was argued by learned departmental representative that no appeal lies against protective assessment under section 246(1)(c) of Income-tax Act, 1961 ('the Act'). Section 246(1)(c) is as follows: "(1) Subject to provisions of sub-section (2), any assessee aggrieved b y any of following orders of Income-tax Officer may appeal to Appellate Assistant Commissioner against such order-- (a) and (b) ** ** ** (c) order against assessee, where assessee denies his liability to be assessed under this Act or any order of assessment under sub-section (3) o f section 143 or section 144, where assessee objects to amount of income assessed, or to amount of tax determined, or to amount of loss computed, or to status under which he is assessed;" According to learned departmental representative even though assessment is made under section 143(3) of Act only in four instances enumerated in section and in none others assessee has got right of appeal. four instances are: (i) where assessee objects to amount of income assessed, (ii) to amount of tax determined, (iii) to amount of loss computed, and (iv) to status under which he is assessed. Now, in this case, according to learned departmental representative, assessee is not questioning any order passed relating to four points mentioned above and, therefore, learned Commissioner (Appeals) ought not to have entertained appeal at instance of assessee at all. However, having entertained appeal impugned order is vitiated by error of jurisdiction. In support of his primary contention that no appeal lies against protective assessment learned departmental representative relied upon following decisions: Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC), CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC), and order of Tribunal Bench 'B', Calcutta in Official Trustee of West Bengal for Trust of Smt. Shitra Dassi v. ITO [1986] 16 ITD 483. 5. Shri Ratnakar, learned counsel for assessee countered arguments of learned departmental representative by stating that reading of impugned assessment order passed by ITO would show that whereas assessee came forward stating that he is liable to tax at certain amount, however, ITO says he is not liable and he would be liable only in later assessment years. In such case can anybody say that there is no controversy about income to be assessed. controversy which in fact arises from out of impugned assessment order is whether income offered for assessment is assessable either now or in future. 6. After considering arguments on both sides we are of opinion that arguments advanced on behalf of assessee are to prevail against those o f learned departmental representative for following reasons. In Smt. Tara Devi Aggarwal's case following is held: "The learned advocate for assessee contends that under section 33B Commissioner had no jurisdiction to cancel assessment made by ITO inasmuch as it cannot be said that where assessee has been assessed to tax it was prejudicial to interests of revenue on ground that no assessment could have been made in respect of income of which she made voluntary return. This contention in our view is unwarranted by language of section 33B...Even where income has not been earned and is not assessable, merely because assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to larger amount, assessment so made can certainly be erroneous and prejudicial to interests of revenue. If so--and we think it is so--the Commissioner under section 33B has ample jurisdiction to cancel assessment and may initiate proceedings for assessment under provisions of Act against some other assessee who according to income-tax authorities is liable for income thereof....." 7. Calcutta Bench of Tribunal in Official Trustee of West Bengal for Trust of Smt. Shitra Dassi's case also considered case where there was protective assessment made against AOP. In protective assessment I T O left finding that he had reserved right to proceed against somebodyelse if permitted under law. question is whether such remark could not give rise to any grievance to assessee who has been assessed exactly on basis of returns, filed by it. In that connection, no doubt, Calcutta Bench while interpreting section 246(1)(c) held as follows: "...Section 246(1)(c) states that if assessee is aggrieved as to his liability under Act or amount of income assessed or to amount of tax determined or to amount of loss computed or to status under which he is assessed then, and then alone, he has been given right to appeal against those points. In other words, there is no right of appeal conferred by law against any other point decided in assessment order or any other statement made therein...." 8. Shri Ratnakar wanted to distinguish these two cases on ground that in those two cases question was who was correct assessee? Is it or B? When revenue was not able to decide which of persons was correct assessee it reserved its right to determine correct assessee at later point of time. Then protective assessment was framed. In those cases and against such protective assessment it is stated no appeal lies. Therefore, it can be seen that at least two persons are involved in case before Calcutta Bench. But in case before us no two persons are involved. question is whether assessee was assessable in present assessment year or any future assessment year. same situation is not obtaining in facts of case either before Calcutta Bench or before Hon'ble Supreme Court in above two cases and, therefore, ratio of two cases cited above are distinguishable and do not apply to facts of case before us. We accept this argument and point of distinction drawn and hold that it is valid and correct. Commenting upon another Supreme Court decision cited on behalf of revenue, viz., Kanpur Coal Syndicate's case Shri Ratnakar argued that ratio of Hon'ble Supreme Court in that case helps assessee more than department. In that case AOP had been assessed. assessee filed appeal contending that it would be more appropriate if individual members of association were assessed. revenue was contending that assessee which is AOP had no right of appeal, as it cannot deny its liability to tax. When matter went to Supreme Court following is held: "...Under section 30 assessee objecting to amount of income assessed under section 23 or amount of tax determined under said section or denying his liability to be assessed under Act can prefer appeal against order of Income-tax Officer to Appellate Assistant Commissioner. It is said that order made by Income-tax Officer rejecting plea of association of persons that members thereof shall be assessed individually does not fall under one or other of three heads mentioned above. What is substance of objection of assessee? assessee denies his liability to be assessed under Act in circumstances of case and pleads that members of association shall be assessed only individually. expression 'denial of liability' is comprehensive enough to take in not only total denial of liability but also liability to tax under particular circumstances. In either case denial is denial of liability to be assessed under provisions of Act. In one case assessee says that he is not liable to be assessed to tax under Act, and in other case assessee denies his liability to tax under provisions of Act if option given to appropriate officer under provisions of Act is judicially exercised. We, therefore, hold that such assessee has right of appeal under section 30 of Act against order of Income-tax Officer assessing association of members instead of members thereof individually ...." Here also question is whether assessee should be assessed to income-tax on income returned either in relevant accounting year or in later accounting year. ITO in substance says that assessee is not liable to be assessed on income disclosed by him in this assessment year and income disclosed this year should be considered as part of income of assessee while he would be assessed after complete sale of flats were effected. Therefore, Supreme Court decision in Kanpur Coal Syndicate's effected. Therefore, Supreme Court decision in Kanpur Coal Syndicate's case at p. 229 held that denial of liability is comprehensive enough not only to include total denial but also denial of liability to tax under particular circumstances. To our minds it appears that ratio of Supreme Court in Kanpur Coal Syndicate's case helps assessee rather than department inasmuch as assessee offered income to tax in relevant accounting year whereas ITO states that it should not be considered its income that it is not liable to tax in relevant accounting year and it should be assessed only in later accounting year. Thus, in our opinion, there was dispute between assessee and department about income assessed and, therefore, appeal clearly lies against impugned assessment order under section 246(1)(c). 9. It is contended by learned departmental representative that when assessee itself filed return in which certain amount of income was offered for tax ITO cannot but complete assessment. Shri. Ratnakar countered t h e argument by submitting that there is nothing like protective assessment recognised under Act and so-called protective assessment is as good as regular assessment and appeal lies against it. He cited before us unreported decision of Andhra Pradesh High Court rendered in Case Referred Nos. 75 and 169 of 1979. Andhra Pradesh High Court by its decision dated 12-2-1981 held as follows: "The assessment against other three assessees was made in status of individuals for assessment year 1973-74, but labelled protective assessment. It was argued that protective assessment is assessment which acquires no finality and which can be varied later on. But in support of this agreement, no statutory provision has been shown to us. provisions of Income-tax Act would only permit levying of assessment within period of limitation. assessment so made by Income-tax Officer cannot be contingent. It must be final and definite. In absence of any statutory provision authorising Income-tax Officer to make so-called protective assessment, we are compelled to hold that in law protective assessment, is final determination of tax payable by assessee and is incapable of being varied, except on grounds which are available for interfering with ordinary assessments." Therefore, in view of abovesaid authoritative pronouncement of Andhra Pradesh High Court argument that no appeal lies against protective assessment cannot be accepted. So also argument that protective assessment cannot be valid at any time and it had no finality is also to be rejected. It is further argued by Shri Ratnakar that there is no compulsion on part of ITO to pass protective assessment even if person comes forward with claim that he is liable to tax on certain income. In case ITO feels either that assessee is not liable to tax on that income or that income is not assessable in that particular accounting year but it was assessable only in later accounting year he could have as well made nil assessment. Nothing prevented ITO to do so in this case. We accept this argument as correct, and we have to reject argument of learned departmental representative that no option is left to ITO but to complete assessment on protective basis. 10. It is next argued that case of contractor is quite different from case of builder. learned departmental representative concedes that contractor derives profit even while contract work is being executed and work is in progress. But that is not possible in case of builders. learned departmental representative submits that income arises either on accrual or receipt basis but not in any other way. learned departmental representative also submits that though flats in multi-storeyed building built by builder are stock-in-trade in his hands ,but yet they do not shed their character as immovable property. In case of immovable property under mandatory provisions of section 54 of Transfer of Property Act, 1882, sale should not be considered complete unless regular registered document is executed involving transfer of title of flat in favour of purchaser. Now in this case inasmuch as assessee did not execute regular registered sale deeds in favour of any one of purchasers sale of flats cannot be considered to be complete and amount reflected in books of account of assessee cannot be taken to be gross receipts on which profit is derived and unless profit is derived assessment cannot be made on business income. Shri Ratnakar countered this argument both factually as well as legally. Firstly, he invited our attention to fact that in case of this very assessee when certain amount was offered as profit derived from business for assessment year 1980-81 ITO felt that 18 per cent gross profit disclosed was not enough and completed assessment adopting 20 per cent gross profit. He never stated that assessee is not liable to tax because he did not earn any business income inasmuch as sale was not complete. When in same way profit derived by assessee was returned for assessment year 1981- 82 how can ITO treat this income differently? Further, Shri Ratnakar filed several assessment orders where other builders were assessed on gross receipts by estimating their profits at certain percentage of gross receipts. For instance, at page I of paper book he had filed assessment order of ITO dated 13-3-1985 representing assessment made against registered firm called Jabbar Real Estates, Nallagutta, Secunderabad, for assessment year 1980-81. reading of assessment order itself would disclose that assessee is engaged in business of construction of flats and their sale and during that year firm received gross bills of Rs. 2,55,500. ITO estimated net income at 12 1/2 per cent on gross receipts of Rs. 2,55,500 which works out to Rs. 31,940. At page 3 assessment order dated 4-3-1985 representing assessment made against registered firm called Land Mark Builders, Khairtabad for assessment year 1982-83 was provided. returned business income in that case was Rs. 34,683. How business income was arrived at was explained at pages 4-5. Page 5 represents construction account. It shows that assessee received advance of Rs. 2,31,222 from its customers and 15 per cent thereof was estimated as gross profit and thus Rs. 34,683 was shown as business profit. By assessment order ITO accepted business income returned at Rs. 34,683. Similarly at page 7 order of assessment of same firm Land Mark Builders for assessment year 1983-84 was provided. business income returned was shown at Rs. 83,554. During relevant accounting year said firm received advance of Rs. 7,30,170, 15 per cent thereof was shown as gross profit. gross profit worked out to Rs. 1,09,525. After making adjustments as per particulars shown in profit and loss account total business income was shown at Rs. 83,554 which was accepted by department as per assessment order. Again at page 12 assessment framed against another registered firm Emerald Builders for assessment year 1983-84 was furnished. reading of assessment order discloses that total receipts as per trading account was Rs. 24,68,200. total receipts estimated by ITO works out to Rs. 22,68,200 and income from business of assessee was estimated at 121/2 per cent of said estimated amount and income from business was taken at Rs. 2,83,525. 11. All above evidence would show that department has been accepting profit returned by builders even from out of advances received from purchasers and even though sales were not complete by any registered documents. So estimating profit even while work was in progress was not foreign to line of business conducted by builders. Shri Ratnakar argued that ITO can reject accounts of assessee only if real income derived by assessee cannot be culled out from those accounts and not otherwise. He further argued that profits and gains must be computed in accordance with method of accounting regularly employed by assessee. But assessee must show that he has followed method regularly for his o w n purposes. Section 145(1), proviso, clearly makes such method of accounting regularly employed by assessee compulsory basis for computation unless in opinion of ITO income, profits and gains cannot properly be deduced therefrom. Whenever regular method of accounts maintained by assessee they should form part of basis of computation of income. In this connection Shri Ratnakar cited following decisions: 1. In CIT v. Mcmillan & Co. [1958] 33 ITR 182 (SC) it is held as follows: "The section enacts that for purposes of section 10 (profits of business, profession or vocation) and section 12 (income from other sources) income, profits and gains must be computed in accordance with method of accounting regularly employed by assessee. choice of method of accounting lies with assessee; but assessee must show that he has followed method regularly for his own purposes. section and proviso read together clearly make such method of accounting regularly employed by assessee compulsory basis of computation unless, in opinion of Income-tax Officer, income, profits and gains cannot properly be deduced therefrom. If true income, profits and gains cannot be ascertained on basis of assessee's method, or where no method of accounting has been regularly employed, income must be computed upon such basis and in such manner as Income-tax Officer may determine." 2. In CIT v. A. Krishnaswami Mudaliar [1964] 53 ITR 122 (SC) where it is held as follows: "...The section leaves it to assessee to adopt any system of accounting and obliges Income-tax Officer to compute income, profits and gains for purposes of sections 10 and 12 in accordance with such method of accounting regularly employed, if profits of business can properly be deduced therefrom...." 3. In CIT v. Tata Iron & Steel Co. Ltd. [1977] 106 ITR 363 (Bom.) where it is held that even if better method of accounts can be visualised method followed by assessee-company cannot be rejected as long as said method could not be said to be unreasonable. 4. In CIT v. K. Sankarapandia Asari & Sons [1981] 130 ITR 541 (Mad.) where it is held as follows: "...Nor can we say with definiteness that by adopting such method profits and gains cannot properly be deduced therefrom. We have also to keep in mind that while section 145 enables ITO not to accept method of accounting of assessee if he was of opinion that method employed is such that income cannot properly be deduced therefrom, there is no power in ITO to impose his own method...." ratio of above decisions was not disputed by learned departmental representative. Having regard to above arguments we have to hold that impugned order was not vitiated by error or lack of jurisdiction to entertain appeal. We hold that learned Commissioner (Appeals) had requisite authority to entertain appeal which was culminated in impugned orders. So also we hold that estimating profits even before sale was not technically complete by execution of registered sale deed is correct and this method is also followed by revenue not only in case of assessee in earlier years but also in other cases of builders and so we hold that method of accounting maintained by assessee during course of its business as builder cannot be found fault with. We further hold that learned Commissioner (Appeals) is correct in finding that completion of assessment on protective basis is not justified. It is not as if ITO blindly accepted returned income simply because he felt that under law that there was no other go or alternative except accepting returned income estimated at 9 per cent of gross receipts. If above is to be accepted as correct it cannot be explained as to why ITO questioned adequacy of returned income which should alone led assessee to explain its stand by means of letters dated 29-12-1983 and 7-1-1984. In those letters assessee explained that though cost of labour and cost of building material go on increasing they could not increase price of flats as there is no provision in agreement of sale to increase sale price and so after duly completing whole of construction activity ultimate profit which would be derived would not be more than returned percentage of gross receipt for this accounting year. 12. This explanation must have been found favour with ITO or prevailed with ITO. Otherwise instead of accepting 9 per cent of gross receipts he would have raised it to 18 per cent or 20 per cent and then would have accepted resultant figures as income of assessee on protective basis, especially reason why he made protective assessment was only because he felt that said profit is not assessable in this year but in future year. Under those circumstances we hold that ITO had deliberately accepted 9 per cent of gross receipts as profits earned by assessee. Therefore, we are unable to give credence to argument that learned Commissioner (Appeals) should have set aside assessment and direct ITO to adopt reasonable percentage of gross receipts as profits of this accounting year. We cannot also find fault with his direction that so-called protective assessment framed by ITO should be treated as regular assessment. Therefore, we fail to see any merit in revenue's appeal and hence it is dismissed. *** INCOME TAX OFFICER v. TIRUMALA CONSTRUCTIONS LIMITED