TMI Blog1996 (5) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... icial to the Revenue for the Commissioner of Income-tax to invoke his powers under section 263 of the Income-tax Act, 1961 ? " The facts of the case as found by the Tribunal are that there was a footnote in the printed report of the directors disclosing that the accumulated interest accrued on amounts decreed or under litigation amounting to Rs. 21,43,395 had not been taken into consideration for the purpose of arriving at the income. This amount included a sum of Rs. 9,85,821 relating to the assessment year 1977-78. The Income-tax Officer did not include the amount of Rs. 9,85,821 in the income of the assessee while passing the assessment order. The Commissioner of Income-tax issued notice under section 263 as to why the amount should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest on other advances were accounted for on accrual basis, the interest was not being accounted for on the mercantile system and the hybrid system had been followed since last number of years. Reliance was placed on the Board's Circular No. 41(V-6)-D of 1962, dated October 6, 1962, which was subsequently withdrawn on June 20, 1978. The Tribunal found that the assessee followed the hybrid system from the beginning and no reason has been shown for the departure in the assessment year 1977-78. The decision in the case of CIT v. Motor Credit Co. P. Ltd. [1981] 127 ITR 572 (Mad) was also taken into consideration and it was found that in that case, the assessee was doing the business of financiers for purchase of motor vehicles on hire purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of accounts in a hybrid system is (i) consistently followed by the assessee, and (ii) bona fide action, and (iii) the system is recognised on the basis of accounting principles. The entire action has been taken on the basis of the order passed by the Commissioner under section 263 of the Income-tax Act wherein it was found that the assessee is a financial corporation and derives income mainly from interest on moneys advanced. The interest payable on loans and deposits is calculated on the basis of the mercantile system or on double entry basis. The interest is said to be credited to the profit and loss account, but in respect of those cases where litigation proceedings have been initiated the interest is not credited to the profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there cannot be a tax, even though in book-keeping, an entry is made about a 'hypothetical income', which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be pay able. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account." If the assessee has continued with the system of accountancy which is a recognised one and has consistently been followed and even accepted by the Revenue and has not been found lacking in bona fides ..... X X X X Extracts X X X X X X X X Extracts X X X X
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