TMI Blog1993 (11) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... 1983, the assessee switched over from mercantile system of accounting to cash system. This change over was only given effect in respect of commission to be received from Majestic Auto Ltd. under the new agreement. As regards commission from other three concerns, namely, M/s Hero Cycles (P.) Ltd., M/s Highway Cycle Industries Ltd. and M/s Rockman Cycle Industries, there was no dispute and the assessee continued to show commission on mercantile system. The Assessing Officer did not accept the claim of the assessee regarding the change in the accounting system and made the addition on the basis of accrual of income. 2. The learned counsel has argued that it was for the assessee to adopt any particular method of accounting in respect of any specific income or class of income. He has contended that it was not a disqualification nor a bar on the assessee that earlier commission was being shown on accrual basis. Since it was a new agreement entered into on 1-10-1983, it was open to the assessee to adopt a particular system which might be different from the earlier one. He has further contended that if the assessee was showing income from commission from other three concerns on accrual b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding sole selling agency. It has, therefore, been submitted by the learned counsel that the new agreement created a new source of income for the assessee and it was distinguishable from the earlier commission received by the assessee @ Rs. 30,000 p.m. On this ground, the change in the method of accounting is said to be justified. 5. The learned D.R. has further urged that there appears to be no justifiable reason for making a change in the method of accounting. It is simply a device by the assessee to avoid the payment of tax on the income which had accrued to it. Since the assessee did not make any change in the system of accounting in respect of commission from three other concerns to whom the assessee was giving the same services under the sole selling agency system as to Majestic Auto Ltd. there was no reasonable cause for making a change in the case of Majestic Auto Ltd. alone. It is said to be a colourable device adopted to avoid the payment of tax. 6. The learned counsel has, in support of his proposition that the assessee had, a right to make a change in the system of accounting, drawn our attention to certain decisions. He has first invited our attention to a decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elped the assessee because it recognised the right of the assessee to adopt a particular system of accounting in respect of a particular part of business. 8. Reliance has further been placed by the learned counsel on a decision of the Allahabad High Court in the case of Juggilal Kamlapat, Bankers v. CIT [1975] 101 ITR 40. That was a case where the assessee owned a factory premises which were leased out to a firm on an annual rent of Rs. 8,000. The assessee did not show in its total income the amount of Rs. 8,000 on the ground that the amount had not been realised from the lessee nor was there any likelihood of its being realised. The ITO, however, included this amount in the total income of the assessee on the ground that the rent had accrued to the assessee and, as the assessee had been following the mercantile system of accounting, it was a part of its taxable income. It was found by the High Court that the assessee had never offered that income on accrual basis, though the Department continued to assess that income on accrual basis. Against this background, it was held that the assessee could decline to show that income in its total income on the basis of his past practice. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of system of accounting followed by the assessee came under examination. There also the assessee was following the mercantile system of accounting but, in the special circumstances of that case, the change adopted by the assessee from accrual to actual basis was held to be justified. 11. Our attention has also been drawn to a decision of the Bombay High Court in the case of CIT v. West Coast Paper Mills Ltd. [1992] 193 ITR 349. In that case, the question of change in the method of accounting was under examination with regard to the payment of bonus. The assessee had made certain payments and had also made a provision for bonus. The change was found to be bona fide from cash to accrual system and, therefore, the provision made with respect to bonus was held to be allowable. At this stage, the ld. D.R. has pointed out that the question of bona fides has to be examined as found in the earlier case. The ld. counsel has, however, submitted that it was for the assessee to find out as to which system of accounting would be appropriate in case of a particular source, so that it is not put to loss unnecessarily. He has, therefore, submitted that the assessee in this case has mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icient and plausible reasons or justification, the change could not be allowed. The assessee must establish that the change was with regard to the specific source of income or in respect of a particular class of customers. In the assessee's case, it is neither a specific source nor a particular class in respect of which change in the method of accounting has been effected. 14. From the facts of the case, it becomes clear that the assessee has been acting as a sole selling agent in respect of four concerns. It is only in respect of one concern, out of those four, that the assessee has chosen to show income from commission on receipt basis. He has not adopted the change in respect of the entire lot of principals which formed a class and, therefore, on this ground the assessee cannot be said to have a right to switch over from mercantile to cash system. From another angle also, we find that the source of income remains the same in respect of all the concerns from whom the assessee is working as a sole selling agent but it is only for a part of source that the change has been adopted. It is only income from Majestic Auto Ltd. which has been subjected to this change. Even if it is acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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