TMI Blog1996 (9) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... to the asst. yr. 1988-89 but received only in the subsequent year. The assessee's claim before the AO was that in respect of the cash incentive it had changed its method of accounting from mercantile system to cash system and so the amount was to be considered for the assessment for the subsequent assessment year only. The AO felt that the change in the method of accounting was not bona fide, and on that view he rejected the assessee's claim for excluding the cash incentive from the total income. The assessment for the asst. yr. 1988-89 was completed including the sum of Rs. 7,19,598 in the total income. Though the assessee filed an appeal, the CIT(A) concurred with the AO that it was not a bona fide change in the method of accounting but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 616 (Mad). It was pointed out that in those cases the High Court had held that the principle adopted by the assessee was a proper method for determining the profit of the assessee. 5. On behalf of the Department, Shri K. Harilal Naick, Senior Departmental Representative, submitted that the assessee had been going on changing its method of accounting from year to year and that too only in respect of the particular item among various receipts. It was pointed out that first the assessee had been accounting for the cash incentive on receipt basis, and then changed to accrual basis, or mercantile method for the asst. yr. 1987-88 and that the change was also accepted by the Department. For the asst. yr. 1988-89 the assessee wanted gain to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 814 (Cal) for the contention that the AO was justified in rejecting a change in the method of accounting which was not bona fide. 6. Considering the rival submissions, we are of the view that the Departmental authorities are justified in not allowing the assessee's claim of change of the method of accounting in respect of the cash incentive. The assessee becomes entitled to the cash incentive on the basis of the exports. Previously the assessee was accounting for the cash incentive on cash basis but during the previous year relevant to the asst. yr. 1987-88 it was changed to due basis on the mercantile system. This was accepted by the AO and the assessment for the asst. yr. 1987-88 was completed on that basis. The assessee became enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ystem would not be followed in respect of a particular source of income. The Calcutta High Court held that the Tribunal was right in holding that the assessee-company was not entitled to change its method of accounting from the cash system in respect of its interest income. Even bona fide changes, if too frequent would disentitle the assessee to have his yearly income computed in accordance with his own changing methods. In the case of CIT vs. PLSM Concern (1934) 2 ITR 417 (Rang) it was observed : "The intention of the legislature in enacting s. 13 was that for IT purposes the assessee should be entitled to make use of any method of accounting that he chooses to adopt, but he must follow the selected method regularly and is not to be allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee during the assessment years in question, the assessee could not be permitted to adopt the mercantile basis for payment of interest by it and claim the benefit of cash system in respect of interest receivable by it. 10. In the case of Carborandum Universal Ltd., relied on by the assessee's representative, the Madras High Court has upheld the change of the method of valuation of the closing stock from the total cost to direct cost method. That was not a case of changing the method of valuation of stock too frequently but a bona fide change and a permanent arrangement with the intention to follow year after year. In the case of CIT vs. Sankarpandia Asari Sons referred to by the learned representative of the assessee, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ystem of accounting. The Tribunal had held in that case that a prudent businessman would not unnecessarily inflate his profit by showing fictitious income and that the assessee had acted in response to the call of commercial expediency and sound business methods in changing over to the cash system of accounting insofar as the interest and commission income receivable from the debtor company were concerned, and accordingly accepted the assessee's contention. In the light of that decision, it is to be held that only if there is reasonable justification, the change of method of accounting could be approved, and not in a case to suit the assessee's convenience only. 11. Having regard to the facts of the case before us, we find that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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