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TMI Blog2012 (7) TMI 590X X X X Extracts X X X X X X X X Extracts X X X X ..... nt method to account the finance charges for the income tax purposes only? 2. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is justified in following Sum Of Digits Method to account the finance charges to arrive at balance sheet and profit and loss statements only? 3. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is justified in following one method of accounting for the income tax purpose to attract lesser tax and other method to show higher income in its balance sheet and profit and loss statement? 4. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is justified in changing the method of accounting?" T.C.(A)No.2626 of 2006: "1. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is justified in following the Equated Monthly Instalment method to account the finance charges for the income tax purposes only? 2. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is justified in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... palli Mercantile Pvt. Ltd. V. ACIT reported in 45 ITD 386, the Assessing Authority viewed that the assessee was prohibited from adopting a different method of accounting for the purpose of returning the income. 6. Aggrieved by the assessment for the assessment year 1991-92, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), who, agreeing with the view of the Assessing Officer, pointed out that while Section 145(1) leaves the choice to the assessee to adopt any system of accounting, it is, however, open to the Assessing Officer to compute the income and profits and gains, in the event, the system of accounting employed by the assessee did not reveal the true income. Referring to the decisions reported in 33 ITR 172 (CIT V. Manomillan & Co.) and 53 ITR 122 (CIT V. A.Krishnaswamy Mudaliar), the Commissioner of Income Tax (Appeals) held that it was necessary that the method of accounting regularly employed by the assessee shall be consistently followed by the assessee. Thus the Commissioner pointed out that the Assessing Officer has the duty to consider whether or not the books disclosed the true state of accounts and correct income to be reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng this aside for a moment, if we go through the order of the Tribunal, we find that the Revenue placed reliance on the decision of the Special Bench of Hyderabad Income Tax Appellate Tribunal in the case of Deputy Commissioner of Income Tax V. Nagarjuna Investment Trust Ltd.) reported in (1998) 62 TTJ (Hyd) (SB) 33. On going through the said decision, the Tribunal held that the facts in that reported decision of the Special Bench of the Tribunal was distinguishable one. The Tribunal pointed out to the specific finding of the Special Bench that for import of machinery, the assessee therein had given a loan, hence, essentially it was a finance transaction. In contrast to this, in the present case of the assessee before the Tribunal, which are subject matter of appeals before us, the Tribunal held that the agreement was essentially one of a hire purchase agreement and the hire purchaser became owner only when he exercised his option finally. In the course of the discussion, it also referred to the order of the Tribunal in the assessee's own case for the assessment years 1989-90 and 1990-91 and pointed out that in that case, the Assessing Officer himself had accepted the EMI method, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the decision reported in (2009) 181 Taxmann 197 (Ker) (Commissioner of Income Tax V. Muthoot Leasing & Finance Ltd). He also placed reliance on the Tribunal's Special Bench, Hyderabad order in the case of Deputy Commissioner of Income Tax V. Nagarjuna Investment Trust Ltd.) reported in (1998) 62 TTJ (Hyd) (SB) 33. 14. Per contra, learned Senior Counsel appearing for the assessee pointed out that the Revenue had accepted the finding of fact by the Tribunal that the nature of transactions dealt with by the assessee are hire purchase transactions only. The agreement really pointed out equated monthly instalments payable to the assessee. When the Department had not questioned the findings of the Tribunal as to the nature of transaction, the true income in the case of hire purchase transaction could only be arrived at under EMI method. Thus, when the character of transaction had not been challenged and the agreement stands as it is, the terms of payment schedule has to be accepted for the purpose of computing the income. In any event, the Tribunal had rightly considered the effect of the Circular dated 13.5.1943, even though this was given in the case of hire purchaser and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the character of the transaction was pure and simple a hire purchase agreement and that the transaction had not in any manner undergone any change from the one which was the subject matter of consideration by the Tribunal for the earlier years, in respect of which, reference application filed by the Revenue was dismissed, the Tribunal came to the conclusion that the Assessing Officer had committed a serious error in ignoring the EMI method, to adopt SOD method. 19. We are in agreement with the reasoning of the Tribunal in this regard that when once the Revenue had accepted the character of the transaction as hire purchase transaction, the income that flows from the transaction has to necessarily follow the treatment that is given under the hire purchase agreement. Secondly, when the Revenue had not disputed the fact that on all the earlier years, the Revenue had treated the income as per the hire purchase agreement on EMI basis, there are no materials available as on record to show that following such method had really resulted in suppression of income, in other words, there was no true reflection of the income that has to be assessed under the Act. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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