1982 (11) TMI 37 - HC - Income Tax

Assessment switch to cash basis for royalty income lacked bona fides. Tribunal to reevaluate. Parties bear own costs.

Dr. Ishwari Prasad Versus Commissioner Of Income-Tax

Dr. Ishwari Prasad Versus Commissioner Of Income-Tax - [1983] 143 ITR 789, 33 CTR 48, 12 TAXMANN 302 Issues:1. Whether the assessee was entitled to be assessed on a receipt basis and was liable to tax on an accrual basis only.2. Whether the assessee was required to obtain permission from the Income-tax Officer before switching from accrual basis to receipt basis.3. Whether one application for assessment years 1968-69 and 1969-70 was maintainable when the appeals for the two years were disposed of by a consolidated order.Analysis:The judgment delivered by the High Court of Allahabad pertained to an Income-tax Appellate Tribunal reference involving the assessment year 1968-69. The primary issue revolved around the assessee's attempt to switch from accrual basis to cash basis for royalty income received from Indian Press. The Income Tax Officer (ITO) disagreed with the switch, asserting that the assessee could not unilaterally change the accounting system. The Appellate Authority Commissioner (AAC) also found discrepancies in the assessee's accounting methods. The Tribunal concluded that the assessee did not maintain a consistent accounting system, leading to the rejection of the switch from accrual to cash basis.Regarding the third question raised, the court deliberated on whether the assessee's single application for both assessment years was maintainable. The Revenue contended that multiple appeals disposed of by a consolidated order did not entitle the assessee to submit only one application under the relevant section. However, the court did not provide a definitive answer to this question, suggesting that it did not fall within the purview of the court's advisory jurisdiction and could potentially be addressed through other remedies available to the assessee.The court focused primarily on addressing the second question, emphasizing that while there is no explicit provision barring an assessee from changing accounting systems, such alterations must be made in good faith. The court cited previous judgments highlighting the importance of bona fides in accounting system changes. It was emphasized that the decision to switch accounting methods should not be a casual departure from the regular system. The court noted that in the present case, authorities had not assessed the bona fides of the assessee's switch to the cash system, indicating a fundamental oversight. Consequently, the court refrained from deciding on the first question and left it open for the Tribunal to reevaluate after establishing the bona fides of the accounting system switch.In conclusion, the High Court of Allahabad disposed of the reference, with each party bearing their own costs. The judgment underscored the significance of bona fides in accounting system changes and highlighted the necessity for thorough examination by tax authorities before rejecting such modifications.