1982 (1) TMI 5 - HC - Income Tax

High Court Criticizes Tribunal's Accounting Method Review

The High Court found that the Tribunal failed to properly examine the method of accounting adopted by the assessee, particularly in relation to sales tax. ... Sales Tax Issues:1. Tribunal's consideration of method of accounting without proper examination.2. Justification of Tribunal's decisions regarding addition of sales tax, provision of sales tax liabilities, and refugee tax.3. Examination of method of accounting in relation to deductions claimed by the assessee.Analysis:The judgment pertains to a reference made under section 256(1) of the Income Tax Act, 1961, involving four questions of law. The primary issue revolves around the Tribunal's justification in considering the method of accounting without a thorough examination. The assessee contended that it maintained accounts according to the mercantile system and was entitled to deductions of sales tax and refugee tax. The Income Tax Officer (ITO) did not accept this, stating the method of accounting was mixed. The Appellate Assistant Commissioner (AAC) ruled in favor of the assessee, but the Tribunal restored the ITO's order. The crucial question was whether the assessee maintained accounts on a mercantile or cash basis, with the Tribunal failing to properly address this aspect.Regarding the specific decisions made by the Tribunal, the judgment highlights that the Tribunal was not justified in setting aside the AAC's order on the addition of Rs. 36,405 in sales tax, Rs. 1,936 in provision of sales tax liabilities, and Rs. 766 in refugee tax without a correct examination of the method of accounting. The judgment references the Supreme Court's decision in Kedarnath Jute Mfg. Co. Ltd. v. CIT, emphasizing the importance of maintaining accounts on a consistent basis for different sources of income. The Tribunal's failure to delve into whether the method of accounting for sales tax was mercantile or not led to an incomplete analysis of the case.In conclusion, the High Court found that while the Tribunal was justified in considering the method of accounting, it failed to adequately address the crucial question of the method adopted by the assessee in relation to sales tax. The Tribunal's decisions on the specific items in question were deemed unjustified due to the lack of a proper examination of the method of accounting. The judgment did not award costs for the reference, closing the matter without additional financial implications.