TMI Blog2011 (2) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... at having effected a change in the method of accounting, and having recorded its income on the basis of mercantile system, it could not go back to the cash system and hence, proceeded to sustain the order of the Assessing Officer disallowing the deduction. Appeal is allowed - 67/1999 - - - Dated:- 7-2-2011 - SANJAY KISHAN KAUL AND RAJIV SHAKDHER AND, JJ. Rajan Bhatia for the Appellant. Sanjeev Sabharwal for the Respondent. JUDGMENT Rajiv Shakdher, J. - This is an appeal preferred under section 260A of the Income-tax Act, 1961 (hereinafter, referred to as the I.T. Act ) against the judgment of the Income-tax Appellate Tribunal, Delhi Bench, New Delhi (hereinafter referred to as the Tribunal ) dated 11-5-1999 passed in I.T.A. No. 207/D/92, pertaining to the assessment year 1989-90. 2. The assessee, who is appellant before us, is aggrieved by the impugned judgment inasmuch as the authorities below have disallowed the deduction claimed by the assessee in a sum of Rs. 5,85,428 towards advertisement income accrued but not received in cash. The assessee sought deduction of the aforementioned income predicated on the fact that the method of accounting regularl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ybrid system of accounting while, that for the latter period i.e., 1-9-1988 to 31-3-1989 were prepared on accrual basis i.e., mercantile system of accounting. The necessary consequences of which was that: income from advertisement carried in the assessee s magazines were accounted for on accrual basis as against cash basis. 4.4 It may be pertinent to note at this stage that the assessee had also received during the relevant assessment year, a portion of the income in advance which was accounted for on cash basis. The said income amounted to Rs. 2,33,690, which comprised of the sources of income tabulated hereinbelow. We have referred to this aspect, in particular, because the Assessing Officer has taken exception to this sum, which was received in advance, being shown on cash basis. According to the Assessing Officer this demonstrated inconsistent accounting method being followed by the assessee even with respect to income from advertisement. S.No. Particular Amount (Rs.) 1. Advance against advertisement, which was to be published at a latter date 24,440.00 2. Market research and survey to be carried out in subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch mandated the assessee to follow a mercantile system of accounting as against hybrid system of accounting being followed by it for the purposes of ascertainment of taxable income. 5.2 Mr. Bhatia further contended that the observation of the Assessing Officer to the effect that, it was not possible to properly deduce the income of the assessee based on the method employed by it; was erroneous. The learned counsel submitted that the Assessing Officer s view was based on the fact that expenditure on printing, publishing, block designing, etc., connected with insertion of advertisements in the magazines had been accounted for on accrual basis, while the income received from advertisements and publicity had been accounted for on cash basis - had created an imbalance; violating evidently, the principle of matching expenses to income adhered to while, preparing accounts. The learned counsel submitted that in respect of this finding, the Assessing Officer has also observed that the system of accounting i.e., cash basis for advertisements was also not followed consistently since, advances received in cash in the relevant assessment year had not been accounted for. Our attention was draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e department till assessment year 1988-89. As per the uncontroverted submissions, the aforesaid method has been regularly employed and accepted by the department till assessment year 1988-89. The method so deployed was never questioned on the ground that the same did not result in proper determination of income. The objections against the aforesaid method as mentioned by the Assessing Officer and reiterated by the ld. DR in his argument is that not accounting for advances and income from advertisements and publicity after having been accrued resulted in imbalance leading to improper determination of income. While no basis for arriving at the aforesaid conclusions was given we agree with the explanation offered by the assessee in this regard. As mentioned earlier major part of advances flowed from market research and survey work, which was carried out in the subsequent assessment year. As mentioned earlier while no expenditure was incurred against the aforesaid advances, the income was accounted for when the research work was carried out. Similar was the case in respect of advertisement to be published subsequently. Car advances did not constitute income and as such could not have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stem and hence, proceeded to sustain the order of the Assessing Officer disallowing the deduction. 11. In our view, this last limb of the conclusion does not follow from what was observed and found by the Tribunal in the earlier part of its judgment. Once, the Tribunal accepts that the assessee had regularly employed a hybrid system of accounting for Income-tax purposes and it was only to adhere to procedure under the Companies Act that it switched bona fidely to a mercantile system - it erred in concluding that the assessee s income for the purposes of Income-tax proceedings could not hark back to the hybrid system. It is not unknown to Income-tax that the assessees income determined in the normal course in the books of account is adjusted to fall in line with the provisions of the IT Act; some of which are even non-cash expenses. The example which easily comes to our minds is depreciation. Under the Income-tax Act, depreciation is calculated on the Written Down Value (WDV) of the asset, while in books of account, under the regime set out in the Companies Act, an assessee can calculate depreciation on the basis of Straight Line Method or Written Down Value (see section 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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