TMI Blog1991 (7) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... rest for same years in the past, it had decided to account for the interest on cash basis. The Assessing Officer rejected this contention of the assessee and brought to tax the interest on the said loan on accrual basis in all the assessment years under reference. 2. The assessee challenged the action of the Assessing Officer before the Commissioner (Appeals) and contended that it was entitled to change the method of accounting in respect of interest income from mercantile to cash as the debtor-company was not paying interest regularly. The assessee further claimed that the above change was bona fide. 3. The Commissioner (Appeals) declined to interfere with the order of the Assessing Officer on this point. 4. The assessee came up in second appeal before the Tribunal. The Tribunal after considering the rival submissions of the parties and the facts of the case held that the assessee was entitled to change the method of accounting regularly followed by it. For this purpose prior approval of the Assessing Officer was not necessary. However, the Assessing Officer was entitled to go into the bona fides of the change. The Tribunal held that the change of method of accounting fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had been following the mercantile system of accounting hitherto and had done so even in the relevant year except for the interest income, that there was no resolution of the Board of directors or the shareholders of the assessee-company supporting the change except for a statement in the annual report, from which it could not be established that the assessee had decided to change its regular method of accounting and had adopted something else as the regular method, that there was no variation in the contracts between the assessee and its debtors in respect of the interest receivable and there being no material on record to show that the debtors were unable to pay interest or that there was no prospect of realisation of such interest, it was not open to the assessee unilater- ally at any time during the relevant accounting year to say that the regular system will not be followed in respect of a particular source and, therefore, rejected the assessee's appeal. In that case it was contended on behalf of the revenue that the change in the method of accounting of the assessee was not bona fide as no evidence was produced in support of the change nor any reason was given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iling in the assessment year 1969-70. The assessee had maintained the change in its method of accounting from 1969-70 onwards. This Court held that the principles of res judicata are not applicable in revenue matters and findings of fact in an earlier year are not binding in the assessments in subsequent years and can be reagitated on new evidence, and, accordingly, held that the Tribunal lost sight of the fact that the assessee was following a regular method of accounting since 1969-70. There a question was also agitated as to whether the change was bona fide or not. In that context it has been observed as follows: The concept of bona fides in the context of a change in the method of accounting appears to have its genesis in Sarupchand v. CIT [1936] 4 ITR 420 (Bom.). Rangnekar, J. of the Bombay High Court observed that an assessee was entitled to change its method of accounting provided he satisfied the Revenue authorities that he was doing so in good faith. This observation does not occur in the judgment of Beaumont, CJ. In Indo-Commercial Bank Ltd. v. CIT [1962] 44 ITR 22 (Mad.), the Madras High Court, following Sarupchand [1936] 4 ITR 420 (Bom.), observed that where an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. CIT [1991] 187 ITR 371 (Cal.), the Division Bench held that- ...Once having chosen and regularly employed the cash system in respect of the transaction in question that is, in the matter of its liability for casual leave payment in the earlier years, the assessee cannot make a departure in the year under consideration to give a go-by to that method and claim the deductions both on payment basis for the earlier year and on mercantile basis for the year under consideration by making a provision in the accounts. The change was only for the year under reference. It was not the case of the assessee that he intended to adopt and in fact had adopted thereafter the changed method of accounting. Although section 145(1) in terms does not require any enquiry into the bona fides but it becomes relevant where the conduct of the assessee shows that such change was not introduced for continuance henceforth but it was a casual departure from the method regularly employed till then. The conduct of the assessee in this case proves the absence of bona fides on its part. We are, therefore, of the view that the Tribunal was justified in negativing the claim of the assessee for deduction of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icated and the change is with no intention or for no collateral purpose of dodging tax. It is only for an even deal to the revenue that the judiciary in the same breath requires that permissibility should go only to the extent the change is bona fide. Therefore, the attempt to have any change pushed through on the plea that bona fide or mala fide, every change is lawful, must fail. The absence of express requirement in the law cannot be capitalised on. The attempt to do so would, in fact, recoil on the case of the assessee. The Revenue could retort likewise saying that the law permits no change and the method once employed has to be followed all the time without variation. 14. The question in the instant case that figures upper-most is that the Tribunal found as a fact that the change-over in the case is not bona fide. This is a finding of fact which has not, however, been challenged in the question which was framed at the assessee's own asking. Therefore, the finding of a fact not being assailed as perverse and the want of bona fides being a proved fact shall hold the field. It is futile for the assessee to say that the Tribunal erred in law in not allowing the change-over. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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