High Court allows appeal, upholds hybrid accounting system for true profits. Income deduction valid. Export commission deduction overturned.

The appeal was allowed by the High Court, with Judges ALOKE CHAKRABARTI and S.K. GUPTA concurring. The court held that the assessee's hybrid accounting system, though later disapproved by law amendments, was permissible at the relevant time if it accurately reflected the true profits. As the Income-tax Officer did not find any issue with the income deduction from the accounts, interference by the Assessment Officer was deemed impermissible. Consequently, the lower authorities' findings on the export handling commission deduction were overturned in favor of the appellant.

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Issues:
Appeal against judgment and order of Income-tax Appellate Tribunal regarding export handling commission deduction.

Analysis:
The judgment involved an appeal under section 260A of the Income-tax Act, 1961, against the decision of the Income-tax Appellate Tribunal. The assessee-company had multiple sources of income, including export handling commission. The dispute arose when the Assessing Officer treated the accrued export handling commission as income, contrary to the assessee's accounting practice of maintaining accounts on a hybrid system. The authorities rejected the assessee's explanation, leading to successive appeals. The main contention was whether the hybrid accounting system followed by the assessee was permissible under section 145 of the Income-tax Act, 1961.

The appellant argued that the hybrid system was permissible under the law prevailing at the relevant time, despite subsequent amendments disapproving it. The authorities contended that the new law prohibited such accounting practices. The judgment extensively discussed various legal precedents supporting the validity of a hybrid accounting system. The court referenced cases like Investment Ltd., E.A.E.T. Sundararaj, North Arcot District Co-operative Spinning Mills Ltd., and Citibank N.A., which upheld the legitimacy of a hybrid accounting system if it accurately reflected the true profits of the assessee.

The court emphasized that the Income-tax Officer could only interfere with an assessee's accounting method if it failed to deduce the income properly. Since there was no finding that the income could not be deduced from the accounts maintained by the assessee, the court held that the interference by the Assessment Officer was impermissible. Consequently, the appeal was allowed, and the findings of the lower authorities regarding the deduction claimed for export handling commission were quashed. The judgment was delivered by Judge ALOKE CHAKRABARTI, with agreement from Judge S.K. GUPTA.

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