2002 (2) TMI 78 - HC - Income Tax

Tribunal upholds change in accounting system for interest income assessment.

Commissioner of Income Tax Versus Punjab State Industrial Development Corporation Ltd.

Commissioner of Income Tax Versus Punjab State Industrial Development Corporation Ltd. - [2002] 255 ITR 351, 176 CTR 434, 132 TAXMANN 637 Issues Involved:The judgment addresses the issue of whether the Income-tax Appellate Tribunal was correct in allowing a change in the system of accounting of interest income from mercantile to hybrid system for the assessment years 1988-89 and 1991-92.Analysis:The State Industrial Development Corporation, the assessee, had been following the mercantile system of accounting until 1987-88, after which it switched to a hybrid system for interest income. The Assessing Officer disallowed this change, resulting in additions to the assessee's income for the relevant years. The Commissioner accepted the assessee's appeal, and the Tribunal upheld this decision.Legal Interpretation:Section 145 of the Income Tax Act allows income computation based on the method of accounting regularly employed by the assessee. In this case, the assessee had valid reasons for the change in accounting method, as it faced challenges in realizing interest income in a timely manner from loan recipients. The Tribunal found the change to be legitimate and bona fide, with no evidence of malafide intentions.Conclusion:The Tribunal's decision to permit the change in the accounting system from mercantile to hybrid was deemed valid and in accordance with the law. The judgment emphasized that the term 'regularly' in section 145 does not imply permanency, and a change in accounting method can be warranted by circumstances. As the assessee, a Government company, had carefully considered and implemented the new accounting procedure, the court ruled in favor of the assessee, rejecting the Revenue's appeal.