TMI Blog1998 (2) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... oid ab initio." 2. Briefly stated, the facts are that the assessee is a company which derives income from underwriting commission. It entered into agreement with M/s Ansal Properties Industries Ltd., M/s Pragati Construction Co. and M/s Kailash Nath Associates (hereinafter referred to as 'Builders') for underwriting number of their projects. It was to receive commission for the services so rendered against which the commission was claimed in bookings of the area done by the different brokers. For the assessment year 1987-88, it was found by the Assessing Officer that the assessee received underwriting commission of Rs. 29,82,001. Against this, deduction of Rs. 26,84,434 was claimed on commission payable to the brokers. It was found that while the income earned from underwriting commission was shown on receipt basis, deduction to the brokers was claimed on mercantile basis. The claim was justified on the ground of hybrid system of accounting followed by the assessee. The method of accounting so adopted was stated to have been followed from year to year and had been accepted in the past. The Assessing Officer while framing the assessment held that as two different methods of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the Assessing Officer to examine the correctness of the contention of the assessee as made. According to her, there did not appear to be any privity of contract between the sub-brokers and Ansals. However, since the aforesaid factor weighed with the Assessing Officer while rejecting the assessee's accounts, the same had to be verified according to the learned CIT(Appeals). Thus, the setting aside of the assessment was on limited issue, namely, ascertainment of facts whether there was any privity of contract between the sub-brokers and the Ansals. In this context, reference was made to the affidavits of the sub-brokers affirming that there was no privity of contract with Ansals. As per Shri Syali, the Assessing Officer travelled beyond the directions of the ld. CIT(Appeals). The directions as given were clear and specific and as such have to be adhered to as held by their Lordships of Rajasthan High Court in the case of CIT v. Mahindra Co. [1995] 215 ITR 922/80 Taxman 361. On pages 926-927, it has been held that in a case where the matter has travelled before the appellate authority, the ITO is bound by the directions given by such authority. To similar effect is the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and what was attempted to be achieved by the department. In the circumstances, it was argued that the ratio of the decision of McDowell Co.Ltd. v. CTO [1985] 154 ITR 148/22 Taxman 11 (SC) was not applicable to the case of the assessee. According to Shri Syali, the foremost proposition for consideration is whether there was transgression of jurisdictional parameters on the part of the Assessing Officer or not. In case of assessee it was so. 5. Shri P.K. Sahu, the learned DR, on the other hand, submitted that from the order of the ld. CIT(Appeals), unmistakable conclusion emerges that issue was set aside to the file of the Assessing Officer to be examined afresh. Relevant observations as made in the order of CIT(Appeals) on page 35 of the paper book were read. Emphasis was laid on the expression 'de novo'. It was submitted that while there is no dispute in regard to the acceptance of hybrid system of accounting in general it is so in the case of assessee where the same has not been followed in the letter and spirit it has been so recognised. Though the two contracts stand on different footings, but what has been envisaged is that the expenditure was made out of the commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gular system of accounting, it is the duty of the Assessing Officer to consider whether or not the books disclosed the true state of accounts and the correct income deducible therefrom. Relying on the decision of the Madras High Court in the case of G. Padmanabha Chettiar Sons v. CIT [1990] 182 ITR 1/[1989] 45 Taxman 90, it was argued that the assessee cannot adopt mercantile system to claim deduction of amounts payable by it and cash system in respect of amounts due to it. To similar effect was the decision of the Tribunal, Hyderabad Bench 'B' in the case of Amulya Oils Chemicals v. Dy. CIT [1996] 57 ITD 50. As per the arguments advanced, since the income and expenditure related to the same item having same character, two different methods cannot be followed for the reason than it is not possible to deduce correct profits from the same. 6. Responding to the arguments of the learned DR, Shri M.S. Syali stated that the Tribunal is not a Court of investigation. There may be continuation of proceedings before it yet it is not the forum where the party could ask for investigation of the issue which has already been considered by the first appellate authority. The pleadings could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held by the Assessing Officer. The sub-broker could not, as a matter of right, correspond directly with the Ansals as independent contract existed between Ansals and the assessee on one hand and between the assessee and sub-brokers on the other. The terms and conditions of both the contracts were different. The thrust of the arguments was that hybrid system of accounting was not adopted for the same item but for different items. It was in this context that the ld. CIT(A) required the Assessing Officer to ascertain this aspect of the issue. In ascertainment of facts so required lay the answer vital to the determination of issue in question. On the latter is dependent the applicability of provisions of section 145(1) of the Act if facts so warrant. Reference to the order of the Assessing Officer made in this context revealed that the resort to the provisions of section 145(1) was made by the Assessing Officer while framing the assessment originally. Thus, insofar as these issues are concerned, the ITO has not travelled beyond its jurisdiction as in the case of the ld. AR. It is, however, true that there was never ever the question of application of ratio of McDowell Co. Ltd.'s ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held by their Lordships of Supreme Court in the case of A. Krishnaswami Mudaliar. It has also been held by the various Courts that the assessee may employ one method of accounting for one part of business or one class of customers and a different method for another part of his business or another class of customers. The accounts in respect of different parts of the same business can also be kept on different basis. Such different methods, if employed regularly and consistently and the profits computed thereof are not in accordance with the respective methods which result in proper determination of true profits, the same are in order. To quote a few amongst the decisions, these are: CIT v. E.A.E T. Sundararaj [1975] 99 ITR 226, 231 (Mad.); Bhagwandas Jagdishprasad Co. v. CIT [1983] 144 ITR 845/[1982] 11 Taxman 68 (MP), Snow White Food Products Co. Ltd. v. CIT (No. 1) [1983] 141 ITR 847, 859 (Cal.). Thus, there is no dispute in regard to the proposition pertaining to the hybrid system of accounting to be followed in general. 10. The dispute is whether the method followed by the assessee falls in any one of the categories as mentioned above. The Assessing Officer while reframi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the date of Balance Sheet." Thus, the assessee's case falls in the category where the method followed is the same as recognised by the accounting practice and sanctioned by the commercial practice. 12. As to the proviso to section 145(1) of the Act, the same can be resorted to in case it is found that by following a particular method of accounting, the assessee has not exhibited true and fair view of profits. This, however, cannot mean to understand that by showing lesser profits in a particular year, the method has resulted in depicting untrue and incorrect profits. One has to look at the substance of the situation and decide the matter in such a manner that neither the Revenue is put to some unreasonable loss nor the assessee is subjected to any unreasonable hardship. This is as held by their Lordships of Punjab Haryana High Court in the case of Salig Ram Kanhaya Lal v. CIT [1982] 133 ITR 915/[1981] 5 Taxman 173. In the case of the assessee, it was not demonstrated that by following the method of accounting the assessee has shown unreasonable loss or postponement of tax liability. Though the chart in regard to payments received and amount paid to the sub-brokers was made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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