Bona fide change in accounting method may be allowed if revenue is protected and no statutory violation is shown.

A bona fide change in an assessee's method of accounting from mercantile to cash basis may be permitted where protective conditions are imposed to prevent loss of revenue or double taxation. The High Court found no error in the Tribunal's approach and held that the change was allowable because no violation of the Companies Act, 1956 was established. The reference was answered in favour of the assessee.

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Issues: Whether the assessee's bona fide change in method of accounting from the mercantile system to the cash system was allowable, subject to protective conditions to safeguard revenue and without violation of the Companies Act, 1956.

Analysis: The Tribunal found the change to be bona fide and accepted that a genuine change in the system of accounting could be permitted if reasonable conditions were imposed to prevent loss of revenue or double taxation. The Court found no error of law in that approach and noted that the assessee was bound to maintain accounts in accordance with the Companies Act, but no violation of that Act was established.

Conclusion: The change in the method of accounting was allowable, subject to appropriate conditions, and the answer to the reference was in the affirmative, in favour of the assessee.

Ratio Decidendi: A bona fide change in an assessee's method of accounting may be permitted if it does not result in loss of revenue and no statutory violation is shown.

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