Consistent tax accounting, amalgamation recoveries, and revenue deduction claims shaped the tribunal's mixed ruling.

Hire-purchase income was recognised on the consistently followed EMI/ESM basis, as the tax method regularly employed by the assessee prevailed despite a change in book accounting; the claim was allowed. Provision for non-performing assets and broken period interest required fresh verification of the amounts and the true character of the securities, so both matters were remanded. Recoveries from bad debts written off by amalgamating companies were taxable as business receipts in the hands of the amalgamated company and the addition was sustained. Business origination cost was allowed as revenue expenditure, capital loss claims on mutual fund transactions were accepted on the facts, and the bad debt write-off disallowance was deleted.

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Issues: (i) whether hire-purchase income was to be recognised on the consistently followed EMI/ESM basis instead of the IRR method; (ii) whether provision for non-performing assets required fresh examination; (iii) whether recoveries from bad debts written off by amalgamating companies were taxable in the hands of the amalgamated company; (iv) whether the balance business origination cost was allowable as revenue expenditure; (v) whether the capital loss claims on mutual fund transactions were to be reduced or disallowed; (vi) whether the issue of broken period interest on government securities required reconsideration; and (vii) whether the bad debt write-off disallowance was sustainable.

Issue (i): whether hire-purchase income was to be recognised on the consistently followed EMI/ESM basis instead of the IRR method.

Analysis: The assessee had consistently adopted the EMI/ESM method for tax purposes even after shifting to IRR/SOD in its books to comply with accounting standards. The earlier High Court decision in the assessee's own case had already approved the consistent tax treatment of hire-purchase finance charges on the EMI basis, and the change in book accounting did not alter the tax position. The principle applied was that income recognition for tax follows the regularly and consistently employed method unless law requires otherwise.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): whether provision for non-performing assets required fresh examination.

Analysis: The claim depended on verification of the amounts reversed and the treatment adopted in the earlier years. The matter was not finally concluded on merits and was sent back for fresh examination with opportunity to the assessee.

Conclusion: The issue was remanded for reconsideration and was partly in favour of the assessee.

Issue (iii): whether recoveries from bad debts written off by amalgamating companies were taxable in the hands of the amalgamated company.

Analysis: The amalgamating companies had transferred their business, assets, liabilities, and attendant rights to the amalgamated company. The recoveries were made by the successor out of rights acquired on amalgamation and were therefore business receipts in its hands. The reasoning was supported by the principle that a transferred debt and its recovery retain tax character in the hands of the successor.

Conclusion: The issue was decided against the assessee.

Issue (iv): whether the balance business origination cost was allowable as revenue expenditure.

Analysis: The expenditure was incurred wholly for business procurement and the assessee had claimed it as revenue expenditure for tax purposes. The treatment in the books did not bar the claim in law, and the expenditure was allowable in the year of incurrence. The Supreme Court authority on deduction of revenue expenditure supported allowing the claim.

Conclusion: The issue was decided in favour of the assessee.

Issue (v): whether the capital loss claims on mutual fund transactions were to be reduced or disallowed.

Analysis: On the dividend-option transaction, the holding period condition under the relevant anti-avoidance provision was not met and the exempt dividend could not be reduced from the capital loss. On the bonus-option transaction, the assessee's investment was insignificant in relation to the scheme size and the allegation of a colourable device was not accepted. The tribunal followed the governing precedent on loss recognition in such investment transactions.

Conclusion: The issues were decided in favour of the assessee and against the Revenue.

Issue (vi): whether the issue of broken period interest on government securities required reconsideration.

Analysis: The assessee treated the securities as investments, but the tax treatment of broken period interest depended on the true character of the securities and the nature of the transactions. The earlier approach adopted by the first appellate authority required re-examination in light of the correct legal and factual position, including whether the securities were in substance stock-in-trade.

Conclusion: The issue was remanded for fresh adjudication and was partly in favour of the Revenue.

Issue (vii): whether the bad debt write-off disallowance was sustainable.

Analysis: The assessee had written off the debts in its books, and the first appellate authority had followed the tribunal's earlier order in the assessee's own case. In the absence of any distinguishing feature, the write-off claim was allowable on the settled principle applied in the assessee's case.

Conclusion: The issue was decided in favour of the assessee.

Final Conclusion: The appeals were disposed of by granting relief to the assessee on the core income-recognition and deduction issues, sustaining the addition on recoveries from amalgamating companies, and remanding the verification-based issues for fresh consideration.

Ratio Decidendi: Consistently followed accounting treatment may govern tax recognition where the law does not compel a different method, but receipts arising from rights acquired on amalgamation are taxable as business receipts in the successor's hands, while verification-dependent deduction claims may be remanded for fresh adjudication.

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