IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 22.02.2010 CORAM THE HONOURABLE MR.JUSTICE D.MURUGESAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.165 of 2010 Commissioner of Income Tax Chennai III .. Appellant/Appellant -vs- M/s Subramanyan Construction Company (P) Ltd., No.20, Sir C.V.Raman Road Alwarpet, Chennai 600 018 .. Respondent/Respondent Memorandum of Grounds of Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Chennai 'C' Bench dated 11.7.2008 made in ITA No.2411/Mds/2007 for the assessment year 2003-2004 as against the order passed by the Commissioner of Income Tax (Appeals)V, 121, Mahatma Gandhi Road, Chennai-34 and made in ITA No.86/2006-07 dated 21.8.07 for the Assessment year 2003-04 as against the order passed by the Assistant Commissioner of Income Tax, Company Circle VI(1) Chennai-34 and made in GIR No./PAN.S-52/AAFCS 3911A dated 10.3.2006 for the Assessment year 2003-04. For Appellant :: Mr.K.Subramaniam JUDGMENT (Judgment of the Court was delivered by D.MURUGESAN, J.) This appeal is at the instance of the revenue. The respondent- company is engaged in the contract business of civil construction. For the assessment year 2003-2004, the assessee filed its return of income and the assessment was completed under Section 143(3) of the Income Tax Act. While completing the assessment, the assessing officer adopted the incomplete project method of accounting and thereby estimated an additional income with regard to the assessee's incomplete project shown as work-in-progress. That order was questioned by the assessee before the Commissioner of Income Tax (Appeals) and the same was allowed. Questioning the same, the revenue preferred an appeal before the Tribunal, which was rejected. Hence the revenue has filed the present tax case appeal raising the following substantial question of law:- "Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the Assessing Officer was not justified in computing the profits from the https://hcservices.ecourts.gov.in/hcservices/ assessee's business of construction contracts including the profits accrued on the incomplete projects?" 2. We have heard Mr.K.Subramaniam, learned standing counsel for the revenue. 3. Both the Tribunal as well as the Commissioner of Income Tax (Appeals) have concurrently held that the revenue had not disputed the fact that the assessee had been following the completed contract method of accounting since the year 1996-97 and had been filing the returns of income according to the said method of accounting which were being accepted by the revenue till the assessment year in question. In fact the Tribunal also found that the revenue had not pointed out any defect or inconsistency in the accounting method adopted by the assessee. The assessee has also shown the incomplete project in the form of work-in-progress in the books of accounts upon which the assessing officer estimated the income at the rate of 10% and added to the income of the assessee at the time of framing the assessment by adopting the method of incomplete project. 4. It is by now well settled that the assessee is free to follow different method of accounting for income from different sources and that the taxing authorities cannot compel the assessee to adopt the mercantile system of accounting, as has been held by the Supreme Court in CIT v. McMillan & Co., (1958) 33 ITR 182. If the method adopted by the assessee is consistent and regular, the revenue should not have insisted the assessee to adopt a particular method of accounting or valuation. 5. Mr.K.Subramaniam, learned standing counsel for the revenue, however, would submit that under similar circumstances, this Court had taken a stand in support of the revenue in the decision in CIT v. N.M.Associates, (2002) 256 ITR 141. In our considered view, that judgment can be distinguished on facts. The issue was answered in favour of the revenue in that judgment taking into consideration of the fact that the assessee in that case had no proper contract accounts whatsoever and only in that context, this Court had rejected the contention of the assessee for adopting the completed contract method of accounting. However, on the facts and circumstances of this case, the Tribunal and the Commissioner of Income Tax (Appeals) have concurrently held that from the inception the assessee had been following the completed contract method of accounting and the returns were filed only adopting the said method of accounting till the assessment year in question and there was no defect or inconsistency in the said accounting method adopted by the assessee. As pointed out by the revenue, the assessee has also shown the incomplete project in the form of work-in-progress in the books of accounts upon which the assessing officer estimated the income at the rate of 10%. In that view of the matter, we are not inclined to accept the submission of the learned standing counsel for the revenue. In view of the judgment of the Supreme Court in McMilan & Co., case (supra), the assessee has adopted the completed contract method of accounting consistently and there is no defect in the said method and in fact in the business of civil construction wherein the profit cannot be accurately ascertained by following the incomplete accounting method, https://hcservices.ecourts.gov.in/hcservices/ we are not inclined to interfere with the order of the Tribunal. Accordingly, the tax case appeal is dismissed. Sd/- Asst. Registrar //true copy// Sub Asst.Registrar ss To 1. The Assistant Registrar, Income Tax Appellate Tribunal Chennai 'C' Bench, Besant Nagar, Chennai-90. 2. The Commissioner of Income Tax Chennai III, Chennai-34. 3. The Commissioner of Income Tax (Appeals) V, 121, Mahatma Gandhi Road, Chennai-34. 4. The Assistant Commissioner of Income Tax, Company Circle VI (1), chennai-34. 1 cc to Mr.K.Subramaniam, Advocate, Sr.No.11740 T.C.(A) No.165 of 2010 PUR {CO} TP/3.3.2010. https://hcservices.ecourts.gov.in/hcservices/