TMI Blog2008 (3) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee? 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the change was such that it disabled the officer to deduce properly the income? 3. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the change was for convenience only and was not bona fide as it was adopted at the fag end of the accounting year and that too half heartedly?" 2. The tax Appeal relates for assessment Year 1984-85 and the reference relates to assessment Year 1985-86. The relevant accounting period is the financial year ended on 31.03.1984 and 31.03.1985 respectively. The common issue arising relates to the change of method of accounting adopted by respondent assessee and rejected by the revenue. In Assessment Year 1984-85 the Assessing Officer has noted that the assessee had changed the method of accounting from mercantile to cash which resulted in reduction of profits. The assessee was therefore called upon to explain why the amount of Rs.21,14,924 should not be added to be taxable income. The explanation tendered by the assessee, that the assessee was acting as indenting agent/commission agent f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion agency of the assessee company was terminated at the end of the previous year relevant to Assessment Year 1985-86, and (ii) the outstanding commission was received by the assessee during subsequent Assessment Years. Commissioner (Appeals) thereafter held that: "6.1 Right from the beginning the appellant company has been following the mercantile system of accounting and the only ground for the change in the method of accounting with effect from the Assessment Year 1984-85 is that a substantial part of the commission income was not actually received. In my view, this cannot be a bona fide ground for the change in the method of accounting. Merely because outstanding commission was received by the assessee subsequently over a period of years, it cannot be said that the assessee had become entitled to a change in the method of accounting. I am in full agreement with the view adopted by the learned Commissioner of Income-tax (Appeals) for the Assessment Year 1985-86 and, therefore, I hold that the Assessing Officer was right in rejecting the claim of the assessee company and, therefore, the addition of Rs.21,14,924/- is confirmed." 5. For Assessment Year 1985-86 Commissioner ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neither relevant nor germane in light of settled legal position. It was submitted that despite the assessee having categorically pleaded that the change in the method of accounting was not casual or temporary as it had been regularly followed in the subsequent years not only the tax authorities but even the Tribunal has failed to deal with the said issue, and that the said averment has remained undisputed. In support of the submissions made reliance has been placed on three decisions of this Court: (1) C.I.T. v. Advance Construction Co. (P) Ltd. [2005] 275 ITR 30 (Guj.); [2005]193 CTR 127(Guj,). (2) C.I.T. v. Atul Products Ltd. [2002] 255 ITR 85 (Guj.); and (3) C.I.T. v. Ganga Charity Trust Fund [1986] 162 ITR 612 (Guj.). 8. It was further contended that in terms of provisions of section 145 of the Act an assessee was entitled to choose the method of accounting, subject to the said method being consistently followed by the assessee. That an assessee is not expected to pay tax on income which is not received during the year even as per the system of accounting followed by the assessee. He, therefore, urged that the orders of the Tribunal are required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal, whether on facts or on law, are open for consideration. 12. In the case of CIT v. British Paints India Ltd. [1991] 188 ITR 44 (SC) the Apex Court was called upon to determine as to whether the method of accounting followed by the assessee therein for valuing the goods in process and finished products exclusively at cost of raw materials totally excluding overhead expenditure was justified or not. The Assessing Officer, the Appellate Authority and the Tribunal held that there was no justification for excluding the overhead expenditure in valuing the stock, that such valuation was not appropriate to the computation of income chargeable under the Act. The High Court had reversed the findings of the Tribunal having regard to the consistent practice of the assessee in valuing the stock-in-trade. While reversing the decision of the High Court the Apex Court held that even if the assessee had adopted a regular system of accounting it was the duty of the Assessing Officer under section 145 of the Act to consider whether correct profits and gains could be deduced from the accounts so maintained. If the Assessing Officer was of the opinion that the correct profits coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds reduced in a particular year, can by no stretch of imagination, be treated as a factor that the said action was undertaken with an intention to deliberately reduce the tax burden. An assessee is not expected to pay tax on a notional income. Commissioner (Appeals) in his order for Assessment Year 1984-85 has set out the figures for the two years under consideration in the following tabular form: Asstt. Year Accrued Rs. Received Rs. 1984-85 30,58,037 9,26,762 1985-86 16,50,590 7,83,255 14. In fact, these figures themselves reflect that only the changed method of accounting would require the assessee to pay tax on real income and not notional income on the basis of accrual simplicitor, considering the fact that the principals were not in a position to discharge their respective liabilities. 15. Furthermore, the finding by the Tribunal regarding the change being "half hearted" is neither here nor there. The phrase "half hearted" in plain language means a person does not fully act and whatever action is taken is not followed-up to the hilt. In the present case it is nobody's case that the change in the meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the change has been consistently followed after adopting the cash method of accounting, as already noticed hereinbefore, none of the authorities or the Tribunal have dealt with, much less brought any contrary evidence on record to disprove the said statement. Therefore also the finding of the Tribunal that the change was not bona fide does not merit acceptance. 17. The learned Senior Standing Counsel also raised additional contention at this stage that if the Tribunal has not dealt with the pleading of the assessee that the changed method of accounting had been consistently followed in subsequent years the matter be restored to the file of the Tribunal for recording a finding because it would not be open to the Court to assume that the averment made by the assessee is correct. This submission requires to be stated only to be rejected. The Tribunal has in terms noted the submission made by the representative of the asseseee in paragraph No. 4 of the impugned order. If the Tribunal has thereafter failed in its duty neither the Revenue can be given second innings nor can the Tribunal be given a chance to buttress its order. The assessee, who putforth its case in no uncertain ..... X X X X Extracts X X X X X X X X Extracts X X X X
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