TaxTMI 
TaxTMI 
2011 (2) TMI 52
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....the instant appeal, by order dated 6-12-2000, this court while admitting the same, framed the following question of law for adjudication :- "Whether the Tribunal was justified in disallowing the claim of assessee of Rs. 5,85,428 being advertisement income accrued but not received, on the background of absence of corresponding amendment in the Income-tax Act vis-a-vis section 209 of the Companies Act, 1956?" 4. In order to appreciate the issue at hand, it may be relevant to detail out the relevant facts in that regard :- 4.1 The assessee is mainly in the business of publishing. The assessee is, evidently involved in the printing of two magazines pertaining to the field of computers namely, Data Quest and PC World. The business of the assessee enables it to earn income broadly from following sources : (i) subscription received in respect of the magazines published by it; (ii) sale of magazines through agents; (iii) advertisement space sold in the aforementioned magazines; (iv) income earned from carrying out research and preparation of survey reports; and (v) lastly, income earned from software development. 4.2 It appears that the assessee was showing income received from....
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....500.00 Total 2,33,690.00 4.5 In the background of these circumstances, the assessee filed its return on 31-12-1989 declaring an income of Rs. 64,610 under the provisions of section 115J of the I.T. Act; though the assessee otherwise had returned a loss of Rs. 3,94,421. In the return, in respect of the said deduction, the assessee had appended the following note :- "To comply with the amendments in the Companies Act, 1956 which made it mandatory for the company to maintain the books of account on accrual basis Rs. 5,85,428 was shown as advertisements income accrued and due. And since, the method accepted by the Company is Hybrid system of accounting, i.e., where income has been accounted for on cash basis, the same being yet to receive is hereby deducted." 4.6 A notice was issued by the Assessing Officer under section 143(2) of the Income-tax Act. After carrying out a scrutiny and giving an opportunity to the assessee by order dated 28-2-1991, an order of assessment was passed whereby, the deduction in issue was disallowed. 4.7 Aggrieved by the order of the Assessing Officer, an appeal was preferred before the Commissioner of Income-tax (A) [hereinafter, ....
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....t erroneously went on to sustain the disallowance of deduction. Mr. Bhatia contended that it was open to the assessee to follow any of the three methods of accounting available to it in the relevant assessment year; the only caveat being that it had to be followed regularly. Therefore, according to the learned counsel, the revenue could not have first proceeded to reject the system of accounting followed by it i.e., hybrid system of accounting and followed it up disallowing the deduction claimed. 6. On the other hand, Mr. Sabharwal, who appeared for the revenue relied upon the line of reasoning adopted by the Assessing Officer. He submitted that since the mismatch in the expenditure and income was created by the hybrid method of accounting followed by the assessee, the Assessing Officer had rightly disallowed the deduction in issue. This apart, Mr. Sabharwal largely relied upon the view taken in the impugned judgment. 7. We have heard the learned counsels for the parties and also perused the record of the case including the orders and the judgment passed by the authorities below. 8. On consideration of the material on record, what emerges is that: (i) the assessee had been....
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....e not refuted by the ld. DR. While the decisions relied upon by the ld. AR support the assessee's contention, the decision of Hon'ble Madras High Court in 182 ITR Page 1 in the case of G. Padmanabha Chettiar & Sons v. CIT is distinguishable on facts. In the aforesaid case, the assessee has adopted different methods in respect of income from the same head i.e. interest. It is not so in the case of the assessee." [Emphasis supplied] 9. Similarly, with regard to the issue as to whether the change in the method of accounting from 'hybrid' to 'mercantile' system was "bona fide", the Tribunal observed as follows :- "As per section 145(1) of the Act, as it was there on the Statute at the relevant period of time, the income chargeable under the head 'Profits and gains of business or profession' is to be computed as per method of accounting regularly followed. As stated earlier, the assessee has changed its method of accounting from hybrid to mercantile system. This is stated to be on account of amendment brought to Companies Act. There could be no two opinions that change has been affected for a bona fide reason. This apart, the system of accounting to which the assessee has shifted ....