Consistent accounting method for reimbursement claims upheld where it reflects real income and Section 145 substitution is not justified.

A consistently adopted cash basis for reimbursement claims may be accepted for income-tax purposes even where the assessee otherwise follows the mercantile system, if it reflects real income and has been accepted by the Department in later years. The Tribunal applied the principle that a regular method of accounting cannot be rejected merely because another method might be preferable, and noted that substitution under Section 145 is warranted only where the accounts, though correct and complete, do not permit proper computation of income. On that reasoning, the cash basis for reimbursement claims was upheld and the Revenue's contention failed.

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Issues: Whether the assessee was entitled to account for reimbursement claims on a cash basis despite generally following the mercantile system of accounting.

Analysis: The assessee had consistently followed the cash system for the relevant receipts in subsequent years, and the Department had accepted that method. The Tribunal relied on the principle that for income tax purposes the real income must be ascertained, and a method of accounting consistently and regularly adopted cannot be disregarded merely because another method might have been preferable. It also applied the rule that where accounts are correct and complete, but the method employed does not enable proper deduction of income, the computation may be made as the Income Tax Officer determines under Section 145.

Conclusion: The Tribunal was right in accepting the cash basis for the reimbursement claims, and the question was answered against the Revenue.

Ratio Decidendi: A consistently followed method of accounting cannot be rejected merely on the ground that a different method could have been adopted, so long as the method adopted reflects the real income and the statutory conditions for substitution under Section 145 are not satisfied.

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