TMI Blog1996 (6) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 1974-75 being the commission amount received by the assessee-firm subsequent to the dissolution ? 2. Whether the Appellate Tribunal's finding that the assessee was following only cash system of accounting with regard to the commission receipts is based on valid and relevant materials and is sustainable in law ? " The assessee, Revathi Agencies, was a firm of four partners which carried on business in the purchase and sale of electrical goods. It had also acted as a distributing agent for electrical manufacturers and received commission. The said partnership firm was evidenced by a deed of partnership entered into on April 1, 1962. On February 24, 1974, the four partners agreed to dissolve the firm by a deed of dissolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Assistant Commissioner. The Appellate Assistant Commissioner was of the view that the assessee was following the method of accounting on receipt basis for commission and due basis for disbursement since its inception, and held that the commission which was received during (sic) the assessment year under consideration cannot be taxed in the assessment since the assessee was following the accounting method on cash basis. He accepted the assessee's contention that it followed a mixed system of accounting. He, therefore, held that it is not open to tax the sum of Rs. 1,52,807 on due basis in the current assessment year even though the business was dissolved at the end of the accounting year. On the question whether it would be still assessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee was regularly following the mercantile system of accounting. Therefore, the commission due to the assessee amounting to Rs. 1,52,807 accrued during the accounting year relevant to the assessment year under consideration, viz., 1974-75, should be treated as income of the firm for the assessment year 1974-75. The Income-tax Officer after going through the earlier assessment orders demonstrated that the assessee was accounting for the commission due to it on accrual basis. Therefore, according to the Income-tax Officer, the assessee is not entitled to change the method of accounting for the present assessment year under consideration from the mercantile system of accounting to cash system of accounting. However, the Appellate As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer after going through the assessment order relating to the earlier assessment years came to the conclusion that the assessee was following the mercantile system of accounting, without assigning any reason to differ with the finding given by the Income-tax Officer, the Tribunal, mainly on the basis of the balance-sheet and the statement showing the amounts received from Bijlee Products, came to the conclusion that the assessee is following the cash system of accounting. It was further submitted that the assessee itself admitted that it was following the mercantile system of accounting for expenditure and cash system of accounting for receipt of commission. So, it was submitted that it was not open to the assessee to follow two methods of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash system of accounting, and, therefore, the impugned addition cannot be sustained for the assessment year under consideration. Therefore, it is only after considering the sufficient materials on record, both the Appellate Assistant Commissioner as well as the Tribunal came to the conclusion that the addition is not sustainable. We have heard learned standing counsel appearing for the Department as well as learned counsel appearing for the assessee. We have already set out the facts in detail. The assessee was a partnership firm under a partnership deed dated April 1, 1962. It was dissolved by a deed of dissolution dated February 24, 1974, with effect from March 31, 1974. Subsequent to the dissolution, the assessee received a sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the commission receipts in the balance-sheet during the assessment year under consideration. Therefore, the assessee was not following the mercantile system of accounting. In a statement filed before the Tribunal it was shown that the assessee was doing major business with Bijlee Products and the commission received from Bijlee Products was shown on receipt basis. Therefore, the assessee was following the cash system of accounting according to the Tribunal. We have also given our anxious thought over this matter. We have gone through the entire records relating to the assessee. It remains to be seen that the Income-tax Officer on a perusal of the earlier assessment orders came to the conclusion that the assessee was following the mercantile ..... X X X X Extracts X X X X X X X X Extracts X X X X
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