2011 (11) TMI 181 - HC - Income Tax

Method of Accounting - to comply with requirement of companies act merchantile system was adopted - overriding provisions of section 209 of companies act over section 145 of the income tax act - Held that - Tribunal was justified in rejecting cash method.

Summary

Issues Involved:
1. Rejection of cash method of accounting for taxable income
2. Override of Companies Act over Income Tax Act provisions
3. Rejection of claim for deduction of travelling and training expenses
4. Rejection of claim for deduction of proportionate expenditure on training and travelling
5. Validity of reopening assessments based on Companies Act

Analysis:
1. The appellant challenged the rejection of the cash method of accounting for taxable income by the Income Tax Tribunal. The Tribunal justified the Assessing Officer in reopening assessments and revising income based on an accrual system, citing compliance with the Companies Act. The appellant contended that the Tribunal erred in not upholding the cash basis accounting, relying on past acceptance by the Department. However, the court held that the cited judgments were not applicable as the appellant had changed the accounting method themselves, leading to a decision against the appellant.

2. The issue of the Companies Act overriding Income Tax Act provisions was raised. The appellant argued that the Tribunal erred in holding that Section 209 of the Companies Act supersedes Section 145 of the Income Tax Act. The court found that the Tribunal's decision was based on the facts of the case where the appellant changed the accounting method, distinguishing it from the cited cases. Consequently, the court ruled against the appellant on this issue.

3. The appellant's claim for deduction of entire travelling and training expenses was rejected by the Tribunal. The appellant contended that the entire sum should be deductible, while the Tribunal based its decision on only 1/5th being debited in the profit and loss account. The court did not find any material to support the appellant's argument and confirmed the Tribunal's decision, leaving this issue unanswered in favor of the parties.

4. The appellant's claim for deduction of proportionate expenditure on training and travelling for subsequent assessment years was also rejected by the Tribunal. However, as no Tax Case Appeal was filed for those years, the court held that this issue did not survive for consideration in the present appeal.

5. The validity of reopening assessments for certain years based on the Companies Act was contested. The appellant argued that reopening assessments after remand for finding the accounting method was not permissible under Section 148 of the Income Tax Act. The court found no material to support this argument and confirmed the Tribunal's order, leaving this substantial question of law unanswered in favor of the parties. Ultimately, the Tax Case Appeal was disposed of with no costs awarded.