Commr.of Income Tax,
New Delhi Vs. M/S
Realest Builders & Services Ltd.  INSC 827 (7 May 2008)
CIVIL APPELLATE JURISDICTION CIVIL
APPEAL NO. 3378 OF 2008 (Arising out of S.L.P.(C) No.23777/2007) Commr. of
Income Tax, New Delhi ...Appellant(s) Versus M/s. Realest Builders &
Services Ltd. ...Respondent(s) WITH
CIVIL APPEAL NO. 3379 OF 2008 (Arising out of S.L.P.(C) No.23778/2007) ORDER In
This Civil Appeal is directed
against the judgment and order dated 17th January, 2007 passed
by the High Court of Delhi in I.T.A.No.708/2006 by which the Department's
Appeal stood dismissed.
The short point arising in this
case is: Whether income accrued to the assessee on registration of the sale
deed in favour of the third party (plot purchaser) or whether it accrued at the
time of execution of the tripartite agreement? According to the Department,
income accrued on the date of execution of the tripartite agreement when the
assessee received full consideration of the plot and not in the year in which
the sale deed stood executed.
...2/- C.A....@ SLP(C) 23777/07
-2- In his assessment order, the
AO has given the working in support of his order based on the basic sale price
paid by the third party to the assessee, the cost per Sq.Mtr., the price paid
by the assessee for the individual plot to DLF and the profits worked out on
that basis. The working shows that profit is worked out on sale of individual
According to the assessee, since
there was no transfer of right, title and interest upto the date of execution
of conveyance, income did not accrue to the assessee till the date of
conveyance and, therefore, there was no accrual of income at the time of
execution of the tripartite agreement(s) which took place during the Assessment
We are proceeding on the basis
that the transaction in this case is genuine as there is no challenge on that
account by the Department. The basic controversy is in the context of the year
in which taxability arose. The basic controversy is in which year the liability
arose - whether it arose during the Assessment Year 1994-95 or whether it
accrued in the year when conveyance stood executed. Under the Income Tax Act,
under Section 145, it is always open to the Department to insist on the change
in the method of accounting followed by the assessee over the years (which is
...3/- C.A....@ SLP(C) 23777/07 etc...contd..
-3- the case herein) if the
impugned method of accounting results in under estimation of profits/net income.
In this case, no allegation of that nature was ever made by the Department. In
fact, the chart annexed at page 29 (Assessment Order) also does not indicate
whether the impugned method of accounting followed by the assessee results in
under estimation of the profits/net income. Therefore, though we do not agree
with the reasons given by the High Court in its impugned judgment, since the
Department has not gone into the above vital aspect regarding method of
accounting under Section 145 of the Income Tax Act, we see no reason to
interfere with the impugned judgment.
Before concluding, we may state
that the High Court has proceeded on the basis of 'rule of consistency'. We do
not agree with the view taken by the High Court on that count. In cases where
the Department wants to tax an assessee on the ground of the liability arising
in a particular year, it should always ascertain the method of accounting
followed by the assessee in the past and whether change in method of accounting
was warranted on the ground that profit is being under estimated under the
impugned method of accounting. If the AO comes to the conclusion that there is
under estimation of profits, he must give facts and ...4/- C.A....@ SLP(C)
-4- figures in that regard and demonstrate
to the Court that the impugned method of accounting adopted by the assessee
results in under estimation of profits and is therefore rejected. Otherwise,
the presumption would be that the entire exercise is Revenue neutral. In this
case, that exercise has never been undertaken. The AO was required to
demonstrate both the methods, one adopted by the assessee and the other by the
Department. In the circumstances, we see no reason to interfere with the
conclusion given by the High Court and the Tribunal.
Civil Appeal is, accordingly,
In S.L.P.(C) No.23778/2007:
Civil Appeal is dismissed in terms
of our above order in Civil Appeal arising out of S.L.P.(C) No.23777/2007.
(S.H. KAPADIA) ...................J.
(B. SUDERSHAN REDDY) New Delhi, May 07, 2008.