TMI Blog2010 (9) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... said accounting system has been followed for a number of years and there is no proof that there has been any material change in the activities of the assessee as compared to the earlier years. Nothing has been brought on record to show that there has been distortion of profit or the books of account did not reflect the correct picture in the absence of any reason whatsoever, there was no warrant or justification to depart from the previous accounting system which was accepted by the department in respect of the previous years. - Decided in favor of assessee - 848/2010 - - - Dated:- 6-9-2010 - CORAM: HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE MANMOHAN Mrs.Prem Lata Bansal, Advocate Ms. Satyen Sethi, Advocate DIPAK MISRA, CJ The present appeal preferred under Section 260A of the Income Tax Act, 1961 (for brevity "the Act‟) was admitted on the following substantial question of law: "Whether ITAT was correct in law in deleting the addition applying Rule of consistency holding that such a practice was adopted by the assessee and accepted by the Department in past?" 2. The facts that have been depicted are that the respondent-assessee is engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure was incurred. 3. Considering the submissions of the assessee, the Assessing Officer held that the nature of the expenses was such that they had occurred and crystallized during the earlier years. It was further held that as the same had been crystallized during the relevant year, the same could not be allowed in the later years. Being of this view, the Assessing Officer came to hold that the assessee had claimed Rs.13,46,299/- as expenditure of prior period allowable in the current year and, accordingly, disallowed the same. After disallowing the same, he initiated a proceeding under Section 271(1)(c) of the Act on the ground that the assessee had furnished inaccurate particulars of income. 4. Being dissatisfied with the aforesaid order, the assessee preferred an appeal before the CIT(A) forming the subject matter of appeal No.523/06-07 wherein the first appellate authority came to hold that the assessee-appellant was maintaining the mercantile system of accounting and it had different offices spread throughout the country and hence, at the end of the financial year, it was not possible to account for all the expenditure incurred by the ITA No.848/2010 Page 4 of 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note with profit that there is no dispute that the assessee was following the mercantile system of accounting. There is also material on record that as per the past business practice the expenditure spilled over to the next year and was debited in the second year which was allowed by the assessing officer. The tribunal, as is evincible, has followed the principle of consistency. 9. The submission of Mrs. Prem Lata Bansal, learned counsel for the revenue, is that the assessing officer had dealt with the issues by ascribing cogent and germane reasons but the CIT(A) as well as the tribunal, without appreciating the same from proper perspective and without dwelling upon the relevant aspects, have adopted a laconic approach which immensely exposits the perversity of approach. It is canvassed by her that had the approach been different and had there been a detailed discussion by way of proper and apposite advertence to the facts by the tribunal, the conclusion would have been different. Mr. Sethi, learned counsel for the assessee/respondents sounding a contra note, has contended that both the first appellate authority as well as the tribunal have kept themselves abreast with the factu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod for a period of years, there is no provision of law which prevents him from changing to any other method, provided the change-over is not made in the same assessment year." 12. In CIT V. Guttoffnungashutto Sterkrado, [1992] 197 ITR 66 (Orissa), it has been ruled thus:- "We have heard learned counsel for the Department. From the records, we find that a similar dispute, i.e., whether the income has to be assessed on "complete contract" basis, was before the Tribunal for the assessment years 1965-66 and 1966-67. The Tribunal recorded a categorical finding that no defect in the accounts maintained by the assessee was pointed out by the Assessing Officer and, on the contrary, the profits of the assessee can be correctly determined from the method of accounting adopted by it. With these conclusions, the orders of the Commissioner of Income-tax passed under section 263 of the Act were set aside, and the orders of the Income-tax Officer were restored. It is not in dispute that the Revenue has not assailed the correctness of the conclusions of the Tribunal. The fact situation being identical, the Tribunal followed its earlier judgment and observed that the "complete contract" basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as well as actual receipt. If for want of necessary material crystallizing the expenditure is not in existence in respect of which such income or expenses relate, the mercantile system does not call for adjustment in the books of account on estimate basis. It is actually known income or expenses, the right to receive or the liability to pay which has come to be crystallized, which is to be taken into account under the mercantile system of maintaining books of account. An estimated income or liability, which is yet to be crystallized, can only be adjusted as a contingency item but not as an accrued income or liability of that year. To illustrate, we find from the details of the expenses that certain expenses related to the fees paid to the experts, out-of-pocket expenses incurred by the consultation firm and discharge of liability on account of demurrage claimed by the port authorities. Such items without investigation into the facts about the crystallization of such dues cannot be disallowed merely on the ground that they relate to transactions pertaining to an earlier accounting year " [Underlining is ours] 14. In CIT V. Bilahari Investment P. Ltd., [2008] 299 ITR 1 (SC), whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to interfere with the impugned judgment of the High Court." [Emphasis added] 15. In CIT v. Kataria Road Lines, [2009] 316 ITR 115 (Raj), the Division Bench came to hold as under:- "9. It is not in dispute that the mercantile accounting system was adopted by the assessee and was permitted by the Revenue for several years. By virtue of the said accounting system, the assessee was claiming benefit of finance commission in the year of hire purchase agreement itself irrespective of the fact that the amount of instalments as per the hire-purchase agreement was actually paid in the subsequent years. Answer to the question whether such an accounting system was permissible or not, is not before us, further the Department itself was permitting the said accounting system according to which, the assessee was accounting the entire finance commission in the year of hire purchase itself irrespective of the fact that the instalment pursuant to the hire-purchase agreement was actually paid in the subsequent years. The assessment on the aforesaid basis was continued for years together and it is only for the assessment years 1980-81 and 1981-82 that the said system was not accepted by the Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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