1989 (3) TMI 73 - HC - Income Tax

Company permitted to switch accounting method to avoid double taxation, Court rules no violation, unanimous decision.

The High Court of Calcutta allowed a company to change its accounting method from mercantile to cash system, with the Income-tax Officer directed to ... Change of method of accounting - mercantile system to cash system - bona fide change in accounting method - power to impose conditions to prevent loss of revenue - accounts to be maintained in accordance with the Companies ActChange of method of accounting - mercantile system to cash system - bona fide change in accounting method - The change by the assessee of its method of accounting from the mercantile system to the cash system was allowable. - HELD THAT: - The Tribunal found the change to be bona fide and the Appellate Assistant Commissioner had reversed the assessing officer's disallowance. The High Court, applying the Tribunal's findings and relying on precedent cited by the Tribunal, held that a bona fide change in accounting method should be permitted. The Court did not find error in the Tribunal's conclusion that the change could be recognised for assessment purposes.Change of accounting method allowed in favour of the assessee.Power to impose conditions to prevent loss of revenue - bona fide change in accounting method - The Tribunal was entitled to direct that the change be allowed subject to such conditions as would prevent double deduction or double taxation and ensure no loss of revenue. - HELD THAT: - The Tribunal observed that while permitting a bona fide change, it was open to the Revenue to ensure that the change did not result in loss of revenue. The Court upheld the Tribunal's approach of restoring the case to the assessing officer with directions to allow the change while imposing necessary conditions, noting the assessee's willingness to accept reasonable conditions.Tribunal's direction to permit the change subject to conditions to protect revenue upheld.Accounts to be maintained in accordance with the Companies Act - Compliance with the Companies Act's requirements for maintenance of accounts was noted but no violation was established and did not invalidate the change in accounting method. - HELD THAT: - The Court observed that the assessee, being a company, must maintain accounts as required by the Companies Act. However, there was no finding or establishment of any contravention of those statutory requirements in the Tribunal's determination. Consequently, the asserted breach of the Companies Act did not warrant interference with the Tribunal's decision permitting the change.No breach of Companies Act shown; requirement to maintain accounts under that Act does not defeat the allowed change.Final Conclusion: Reference answered affirmatively in favour of the assessee: the bona fide change from mercantile to cash system was allowable, subject to conditions to prevent loss of revenue, and no violation of the Companies Act was established. The High Court of Calcutta addressed a question regarding a company's change in accounting method from mercantile to cash system. The Tribunal allowed the change, citing a bonafide reason and directing the Income-tax Officer to impose necessary conditions to prevent double taxation. The Court found no violation of the Companies Act and ruled in favor of the assessee. The judgment was agreed upon by both judges.