1 IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 8TH DAY OF JULY 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE HEMANT CHANDANGOUDAR I.T.A. NO.153 OF 2012 BETWEEN: 1. COMMISSIONER OF INCOIME-TAX C.R. BUILDING, QUEENS ROAD BANGALORE. 2. INCOME-TAX OFFICER WARD-11(1), C.R. BUILDING QUEENS ROAD, BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: M/S. BANJARA DEVELOPERS AND CONSTRUCTIONS PVT., LTD., NO.418, I MAIN, I BLOCK R.T. NAGAR BANGALORE-560032. ... RESPONDENT (BY SRI. PUKALE MANOJ DEVINDER, ADV.) --- THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT F ORDER DATED 13.01.2012 PASSED IN ITA NO.472/BANG/2003 FOR ASSESSMENT YEAR 2004-05, PRAYING THAT THIS HON BLE COURT MAY BE PLEASED TO: 2 (I) FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (I) SET ASIDE ORDER OF TRIBUNAL IN ITA NO.472/BANG/2003 DATED 13/1/2012, CONFIRMING ORDER OF APPELLATE COMMISSIONER AND CONFIRM ORDER PASSED BY INCOME TAX OFFICER, WARD -11(1), BANGALORE. THIS ITA COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT This appeal has under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act for short) has been preferred by assessee. subject matter of appeal pertains to Assessment year 1997- 98. appeal was admitted by bench of this Court by order dated 17.09.2012 on following substantial question of law: (i) Whether tribunal was correct in holding that assessee could adopt completed contract method of accounts without appreciating amendment to Section 145 of Act w.e.f. 3 01.04.1997 and applicable to current assessment year? 2. Facts leading to filing of this appeal briefly stated are that assessee is company carrying on business of development of plots and construction of flats. Admittedly, assessee company follows mercantile system of accounting and completed contract method of accounting for contracts. assessee filed its return of income for assessment year 1997-98 on 27.11.1998 declaring income of Rs.7,59,730/-. aforesaid return of income was processed under Section 143(ia) and income returned, was accepted. Subsequently, case was selected for scrutiny and assessment was completed under Section 143(3) on 10.02.2000 by which income was determined at Rs.7,59,730/-. Subsequently, it was noticed that assessee had received Rs.1,52,42,380/- as advance from customers pending transfer to income accounts. Thereupon notice under Section 148 was issued. 4 assessing officer by order dated 28.03.2002 inter alia held that current profit cannot be decided by method of book of accounting followed by assessee and estimated income of assessee by applying 8% rate on advances received by assessee on sum of Rs.1,52,42,380/-. Accordingly, addition was made by assessing officer. 3. Being aggrieved, assessee filed appeal before Commissioner of Income Tax (Appeals). Commissioner of Income Tax (Appeals) by order dated 04.02.2003 inter alia held that advance of Rs.1,53,42,380/- is in fact accumulated balance of number of years (advance as on 31.03.1996 being Rs.1,44,14,067/-) that completed income for completed contracts being declared in subsequent assessment years. Accordingly, it was held that assessing officer was not justified in making addition of 8% on total advances as on 31.03.1997 and assessing officer was directed to delete addition of Rs.12,19,390/-. In 5 result, appeal was allowed. Being aggrieved, revenue preferred appeal. appeal which was dismissed by Income Tax Appellate Tribunal by order dated 13.07.2005. 4. aforesaid order passed by tribunal was challenged in appeal before this court by revenue. said appeal viz., I.T.A.No.36/2006 was decided by bench of this court vide order dated 23.09.2010. It was inter alia held that assessment year pertains to 1997-98 i.e., subsequent to amendment to Section 145(1) of act and tribunal ought to have looked into matter to ascertain whether assessee could adopt completed contract method which is not contemplated under Section 145(1) of Act as it refers to cash or mercantile system of accounting. order of tribunal was set aside and matter was remitted to tribunal for decision of appeal afresh in light of observations made in order. 6 5. tribunal by order dated 13.01.2012 by taking note of decision of Supreme Court in CIT VS. BILAHARI INVESTMENTS PVT. LTD., , (2008) 299 ITR 1 (SC) held that in instant case assessee was following completed contract method consistently and aforesaid method was accepted by department in past as well and therefore, there was no justification on part of assessing officer to change earlier method adopted by assessee and to determine income on estimate basis. Accordingly, appeal was dismissed. Being aggrieved, revenue is in appeal before us. 6. Learned counsel for revenue while inviting attention of this court to order dated 23.09.2010 passed in I.T.A No.36/2006, by bench of this court submitted that directions contained in order have not been complied with. It is further submitted that assessee is in construction business and is bound to follow percentage completion method 7 instead of project completion method. It is also pointed out that aforesaid issue is covered by decision by bench of this court dated 09.09.2014 in favour of revenue in case of COMMISSIONER OF INCOME TAX AND ANOTHER VS. THUMBAY HOLDINGS (P) LTD . On other hand, learned counsel for assessee submitted that charge of tax in instant case pertains to previous year and not current year and therefore, decision rendered in case of THUMBAY HOLDINGS (P) LTD supra has no application to fact situation of case. It is also urged that method of accounting once adopted can be followed. In support of aforesaid submission, reference has been made to decision of this court dated 10.08.2011 in I.T.A.No.29/2006. 7. We have considered submissions made on both sides and have perused record. Section 145 of Act deals with method of accounting. Section 145(1) provides that income chargeable under head 8 profits and gains of business or profession or income from other sources shall subject to provisions of sub- Section (2) be computed in accordance with either cash or mercantile system of accounting regularly employed by assessee. It is noteworthy that Section 145 came to be amended w.e.f. 01.04.1987 and has not been given retrospective operation. supreme court in case of BILAHARI INVESTMENTS PVT. LTD. supra has held as under: Every assessee is entitled to arrange its affairs and follows method of accounting which department has earlier accepted. It is only in those cases where department records finding that method adopted by assessee results in distortion profits that department can insist on substitution of existing method. 8. In instant case, admittedly assessee is following mercantile system of accounting and as per notes to accounts, assessee is following 9 completed contract method of accounting for contracts. aforesaid method of assessment has been accepted by department in past and therefore, in view of law laid down by Supreme Court in BILAHARI INVESTMENTS PVT. LTD., Commissioner of Income Tax (Appeals) as well as tribunal has rightly held that there was no justification on part of assessing officer to change earlier method adopted by assessee and to determine income on estimate basis. 9. submission made on behalf of revenue that directions issued by bench of this court vide order dated 23.09.2010 in I.T.A.No.36/2006 appears to be attractive at first blush but on careful scrutiny of order it is evident that tribunal has referred to decision of this court in case of CIT VS. M/S SKYTOP BUILDERS PVT. LTD., AND OTHERS rendered in I.T.A.No.29/2006 vide order dated 10.08.2011 as well as decision of supreme 10 court in BILAHARI INVESTMENTS PVT. LTD., supra and has held that assessee was following completed contract method which was accepted by department in past as well and therefore, there is no justification for assessing officer to change same. For aforementioned reasons submission made on behalf of revenue cannot be accepted. Similarly, contention that controversy involved in this case is covered by decision of this court dated 09.09.2014 rendered in I.T.A.No.835-837/2008 is concerned, suffice it to say that substantial questions of law involved in aforesaid appeals were entirely different. By reading order of tribunal as whole, it is evident that tribunal has taken note of effect of Section 145 of Act. Therefore, aforesaid submission made on behalf of revenue also does not deserve acceptance. In view of preceding analysis, substantial question of law framed by this court is answered against revenue and in favour of assessee. In result, 11 we do not find any merit in this appeal, same fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE ss Commissioner of Income-tax, Bangalore / Income-tax Officer Ward-11(1), Bangalore v. Banjara Developers and Constructions Pvt. Ltd