Law:

Section:

Section 145 of the income-tax act, 1961 - Method of accounting - Valuation of work-in-progress in respect of long-term contracts - Assessee arbitrarily changed valuation method from "cost" to "cost or realisable value, whichever is less" - Whether tribunal justified, inter alia, in rejecting this method - Held, on facts, yes Facts The assessee-company was all along following mercantile system of accounting. Up to the accounting year ended 30-09-1956 relevant for the assessment year 1957-58, the assessee had been valuing its work-in-progress at "cost". From the next accounting year, it changed its method of valuation to "cost or realisable value, whichever is less" for all subsequent years. Under the changed method, when the assessee found that its expenditure exceeded the amount realisable under the contract for the executed part, the difference was being written down at the end of the year. This change of method was not accepted by the ITO on the grounds (i) that this amounted to a change in method of accounting which, was not permissible; and (ii) that actual loss on completed contracts - and not the anticipated loss on incompleted contracts - could alone be allowed. Both the AAC and the Tribunal upheld the ITO's order. The assessments for the assessment years 1959-60 and 1960-61 made in similar manner were not challenged in appeal. For the assessment year 1961-62, the Tribunal rejecting the assessee's appeal holding (i) that the changed method was not in consonance with recognised principles of accountancy; and (ii) that when the assessee had not been assessed on profit or loss on incomplete work otherwise, it would not be proper to allow anticipated loss on such incomplete contracts as realisable work-in-progress. The appeals for the assessment years 1963-64 to 1966-67 on the said issues were also similarly rejected. On reference: Held 1. The method of accounting of an assessee required detailed examination of facts which can be done only by the tax authorities or the Tribunal and which cannot be gone into by the High Court in reference. The Tribunal's findings in this respect have to be accepted. The various authorities on accountancy do not lend any…

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