1982 (8) TMI 112 - AT - Income Tax

Summary

Issues:
1. Whether the additions of interest accrued and credited to the 'interest suspense account' by the revenue should be deleted.
2. Whether the hybrid system of accounting followed by the assessee is valid and justifiable.

Analysis:
1. The revenue challenged the deletion of additions of interest accrued and credited to the 'interest suspense account' by the assessee. The assessee maintained that for sticky accounts, a special accounting system was followed, where interest amounts were debited to customers but credited to the 'interest suspense account' until actual realization. The Commissioner (Appeals) agreed with the assessee, citing the method's regular use and past acceptance by the department. The Kerala High Court's decision was deemed distinguishable, and circulars by the CBDT supported the assessee's method, despite being withdrawn. The Tribunal upheld the deletion, emphasizing the binding nature of the circular in force during the assessment years.

2. The revenue contended that the hybrid accounting system was unproven and inconsistent, especially since other constituents were accounted for on a mercantile basis. The assessee argued for consistency in applying different accounting methods based on the nature of accounts. The Tribunal referred to CBDT circulars, highlighting the permissibility of different accounting methods for different aspects of business. The Tribunal upheld the Commissioner (Appeals)'s decision, recognizing the regularity and justifiability of the hybrid accounting system employed by the assessee.

3. Section 145(1) of the Income-tax Act, 1961, was referenced to determine the computation of income based on the employed accounting method. The Tribunal emphasized the allowance for hybrid accounting systems combining elements of cash and mercantile methods. Legal precedents supported the assessee's right to use different accounting methods for various aspects of business, as long as consistently applied. The Tribunal concluded that the hybrid accounting system was valid and justified, leading to the deletion of additions made by the revenue regarding the 'interest suspense account.'