TMI Blog2015 (8) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... be examined on the touchstone of provisions contained in the Act. Apart from arguing that for the sales of newspaper and advertisement charges, it was not permissible to adopt accounting on cash basis, it was not even contended by the Revenue that the taxable income could not be deduced from the accounts of the assessee. In the light of the principles of law deducible from the statutory provisions and the judgments that we have referred to, we are of the view that no illegality can be attributed to the decision of the Tribunal. In such circumstances, answering the question of law in favour of the assessee and against the Revenue - I.T.A.Nos.119 & 124 of 1999 and 10 & 14 of 2000 and 10 & 14 of 2000 - - - Dated:- 29-7-2015 - ANTONY DOMINIC AND SHAJI P. CHALY, JJ. FOR THE APPELLANT : SRI.P.K.R.MENON(SR.), SR.COUNSEL FOR IT, SRI. GEORGE K. GEORGE, SC FOR IT FOR THE RESPONDENT : SRI.GEORGE K. GEORGE, SC FOR IT JUDGMENT Antony Dominic, J. 1.The captioned appeals are filed by the Revenue, aggrieved by the orders of the Income Tax Appellate Tribunal, Cochin Bench in ITA.Nos.386/95, 387/95, 620/95 and 679/95 respectively, concerning the assessment years 1990-91, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he circumstances of the case wen the Tribunal is considering the appeal for the assessment years 1990-91 and 91- 92, does the Tribunal have jurisdiction much less evidence (unless there is a finding in the appeal for the earlier year) to find that in the present case ........... in respect of the earlier years there was no difficulty in ascertaining the correct income and is not the finding in the circumstances of the case wrong based on surmises and conjectures? 6. Whether, on the facts and in the circumstances of the case and in the light of the findings that the assessee had not maintained log books in respect of the vehicles and in the absence of evidence that the telephones were used exclusively for business purpose the Tribunal is right in law and fact in interfering with the disallowance made by the Officer? 4. We heard learned senior standing counsel for the Revenue and the learned senior counsel appearing for the respondent assessee. 5.In sum and substance, the contention raised by the learned senior counsel for the Revenue is that the assessee having adopted mercantile system of accounting, it cannot adopt accounting on cash basis in respect of sales of newspa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have examined the system of accounting followed by the assessee in respect of advertisement receipts and we are satisfied that the assessee is consistently following cash system of accounting for the advertisement charges and followed the same system for the assessment year under consideration. The I.T.O. is not correct in stating that the assessee has suddenly changed its system of accounting with reference to the advertisement receipts. That order was followed by the Tribunal for the subsequent years also. Similarly, the issue regarding newspaper sales was considered by the Tribunal for the first time for the assessment year 1983-84 and held that the assessee was adopting a cash system of accounting. Reference application filed by the department for the assessment years 1977-78, 1978-79 and 1979- 80 were dismissed by the Tribunal by the order in RA Nos.362 to 364 (Coch)/86 dated 25.9.1987. The decision of the Tribunal was accepted by the department evident from the letter C.No.406 RA (1)/20/T/Jcd1/86-87 dated 17.8.1990 from the CIT, Trivandrum addressed to the assessee. It can also be seen from the letter C.No.403/242/J/91-92 dated 15.6.1992 from the CIT, Trivandrum that the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year, (unless there was) any material change justifying the Revenue to take a different view of the matter. 10.Referring to this judgment and various other authorities and answering the very same contention, the Apex Court, in its judgment in Bharat Sanchar Nigam Limited v. Commissioner of Income Tax [282 ITR 273] summarised the legal position thus: The decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why the courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of prec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the system of accounting on cash basis adopted by the assessee and which has been found by the Tribunal in favour of the assessee. The parties have also allowed that position to be sustained by not challenging the order. In such a case, as held by the Apex Court in Radhasami Satsang (supra) and Bharat Sanchar Nigam Limited (supra), it would not at all be appropriate to allow the position to be changed in subsequent years. 13.Such being the situation, in our view, it was not open to the Income Tax Officer or the Commissioner of Income Tax (Appeals) to have ignored the binding orders of the Tribunal and to complete the assessments in the manner it has been done. Further, the Revenue has no case that the accounting disabled it from quantifying the taxable income or that the Tribunal's orders in the previous years are vitiated for any illegality. Therefore, we are in complete agreement with the senior counsel for the assessee that the view taken by the Tribunal in these cases, which is consistent with the orders passed by it for the previous assessment years, deserves to be upheld. 14.Turning to the merits, as we have already stated, the short question raised is whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of customers. It is also held that if he employs such different methods regularly and consistently, the profits would have to be computed in accordance with the respective methods. 17.Having thus seen the difference between the mercantile system and cash system and also the liberty that an assessee has in opting for the system of accounting he regularly adopts, we shall now address the controversy raised before us. 18.As we have already seen, the issue raised is whether the assessee having opted for mercantile system of accounting in respect of its activities, could have adopted cash system in respect of sale of newspaper and advertisement charges. A reading of the assessment orders show that the assessing officer held this issue against the assessee mainly relying on the judgment of the Calcutta High court in Commissioner of Income Tax v. UCO Bank [200 ITR 68]. This judgment, as rightly pointed out by the learned counsel for the assessee, has since been overruled by the Apex Court in its judgment in United Commercial Bank v. Commissioner of Income Tax [(1999) 240 ITR 355]. In that judgment, referring to the judgment in Investment Ltd. v. Commissioner of Income Tax [(1970) 77 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been income or not, but, in every case, it must be applied with care and within their recognised limits. (5) Whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation. (6) Under section 145 of the Act, in a case where accounts are correct and complete but the method employed is such that in the opinion of the Income-tax Officer, the income cannot be properly deduced therefrom, the computation shall be made in such manner and on such basis as the Income-tax Officer may determine. 21.Again at page 367, the Apex Court held thus: In our view, as stated above, consistently for 30 years, the assessee was valuing the stock-in- trade at cost for the purpose of statutory balance sheet, and for the income-tax return, valuation was at cost or market value, whichever was lower. That practice was accepted by the Department and there was no justifiable reason for not accepting the same. Preparation of the balance-sheet in accordance with the statutory provision would not disentitle the assessee in submitting he income-tax return on the real taxable income in accordance with the method of accounting adopted by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in State Bank of Travancore (supra), which again was relied on by the assessing officer. This was a case where the appellant, which had adopted mercantile system of accounting, had credited amounts by way of interest to suspense account since recovery of the said amount was doubtful. On that basis, the assessee excluded the said amount from computing the total income. Though the Commissioner of Income Tax held the exclusion to be erroneous, the Tribunal allowed the appeal of the assessee. The matter went to the High Court and the High Court answered the reference in favour of the Revenue, following the judgment in State Bank of Travancore (supra). The appeal filed by the assessee was considered by the Apex court and the judgment shows that a mixed method of accounting was followed in as much as the assessee had made credit to the suspense account as mentioned above. In this judgment, approving the mixed system of accounting adopted by the assessee, the Apex Court held that the very fact that the assessee, although generally adopted the mercantile system of accounting, keeps such interest amounts in a suspense account and does not bring these amounts to the Profit and Loss account, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to their Lordships, the assessee was entitled to change his method of accounting unilaterally. In Snow White Food Products Co. Ltd. v. CIT [1983] 141 ITR 861, the Calcutta High Court reiterated that an assessee is entitled to change his regular method of accounting by another regular method and such a change can be effected even in respect of a part of the assessee's income. According to their Lordships, a recognised method of accounting followed regularly would necessarily result in a proper computation of the assessee's real income. Even if one regular method of accounting is substituted by another regular method, the same result will follow. It is only in a case where the assessee changes his regular method of accounting by another method and does not follow the changed method regularly thereafter that it may be possible to say that by introducing successive changes in his method of accounting, he proposes to exclude certain items in the computation of his total income. In such a case, the bona fides of the assessee may be doubted. Unless there is material on record to hold that the assessee's action is not bona fide, the change in the method of accounting mush be a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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