TaxTMI 
TaxTMI 
2005 (2) TMI 81
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....ncome was accordingly assessed. But for the previous years 1986-87, 1987-88 and 1988-89, the Assessing Officer took a different view. The Assessing Officer held that the hybrid system of accounting could not be permitted. The Commissioner of Income-tax (Appeals) reversed the said orders holding, inter alia, that section 145 permitted maintaining of hybrid system of accounting provided the accounts were complete and accurate. Therefore, he set aside the addition. The learned Tribunal also upheld that the hybrid system of accounting was permissible. But, however, according to it, in this case the cash system in respect of the receipt of interest earned on the financing of vehicles represented a distorted picture of the income inasmuch as, the income shown was less than that what would have been shown under the mercantile system of accounting. Therefore, it reversed the order of the Commissioner of Income-tax (Appeals) and restored that of the Assessing Officer; and hence the appeal. The appellant's submission: Mr. J.P. Khaitan, learned counsel for the appellant, pointed out from the materials that there was no inaccuracy or incompleteness in the hybrid system of accounting. One par....
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....ties to determine the income in any of the manners of accounting system, as they might deem fit and proper. In the present case, Mr. Deb pointed out from para. 10 of the decision of the learned Tribunal, that such a finding was arrived at due to which the proviso to section 145 became applicable. Mr. Shom, learned counsel for the Department, in the other appeal, adopted the submissions made by Mr. Deb and, in his usual eloquence, added that it is the opinion of the authorities under the Act, which is relevant. The authority is free to act on the basis of his opinion, which he might form on the basis of the accounts maintained. It is not a question of the system nor is it a question of conversion of the system but it is the method of accounting, which is relevant. If the method presents a distorted picture of the accounts, the authorities are free to adopt a method for finding out the correct picture of the income. He referred to the decision in G. Padmanabha Chettiar and Sons v. CIT [1990] 182 ITR 1 (Mad), particularly to the last paragraph in order to support his contention. Section 145: Before amendment: Hybrid accounting: Whether permissible: Section 145 was amended and repla....
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....system could not be ignored in the absence of any finding that the income could not be deduced from the accounts maintained by the assessee. The proposition is well-settled. The language employed in section 145 and the proviso, as it stood for the previous years concerned, permits acceptance of hybrid system of accounting provided the same was followed over a long period of time and was accurate and complete, and that income was possible to be deduced therefrom. Therefore, once the hybrid system was accepted, its consequences could not be avoided or ignored and so long as the income could be deduced from the system of accounting, the income-tax authorities could not interfere with the system of accounting, when it is accurate and complete and the income is deducible. The Income-tax Department could not object to the system of maintaining accounts by the assessee so long as it was permissible under section 145 before its substitution in 1997, under which a hybrid system was acceptable, as was held by the different High Courts in various decisions on which reliance was placed in the decision in Juggilal Kamlapat Udyog Ltd. v. CIT [2005] 278 ITR 52 (Cal). Section 145 and the proviso....
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....37 (SC), dealing with section 13 of the Indian Income-tax Act, 1922, corresponding to section 145 of the 1961 Act, wherein it was held that it is not the question of correctness but it is a question whether there was material to support the findings of the learned Tribunal involving the applicability of the proviso to section 13 of the 1922 Act. It is a question of fact, namely, whether the profits and gains can or cannot be properly deduced from the method of accounting regularly employed by the assessee. The question is whether there is any material to form such an opinion. In fact, the question is not dependent on whether the accounts are correct or not, whether the regularly applied method should be discarded or not, it is the question whether the Assessing Officer could compel the assessee to change the method of accounting, admittedly, when the assessee was free to adopt one or the other method or a mixed method, which he employed regularly. The authorities under the Act could not compel the assessee to switch over to a method different from the method regularly employed by him. But, it was only a question of forming an opinion as to whether the income could be deduced from ....
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.... related to the evaluation of the stock-in-trade, which was prepared on expert advice in the interest of efficient administration of the company. In arriving at the valuation of the stock-in-trade, all costs other than the cost of raw materials for the goods-in-process and finished products were excluded. This system of evaluation of the stock-in-trade was held likely to result in a distorted picture of the true sight of the business for the purpose of computing the chargeable income and such a system had produced a comparatively lower valuation of the opening stock and the closing stock showing a comparatively low difference between the two. It was found by the learned Tribunal that in a period of rising turnover and rising prices, the system adopted by the assessee was apt to diminish the assessment of the taxable profit of that year and that the profit of one year was likely to be shifted to another year which was held to be an incorrect method of computing profits and gains for the purpose of assessment, since each year is a self-contained unit and the taxes of a particular year are payable with reference to the income of that year as computed in terms of the Act. It was only w....
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.... be shifting of income by reason of such system. If we accept such a proposition, then an assessee would not be entitled to follow a mixed/hybrid method of accounting. Such an absolute proposition cannot be laid down which has since been recognized in law over such a long period of time and has been done away with by virtue of the amendment brought about by substituting section 145 with effect from April 1, 1997. Mr. Deb's attempt to distinguish United Credit Ltd. [2002] 257 ITR 443 (Cal) simply on the ground that it has not given any reason does not seem to be sustainable by reason of the unreported decision in Juggilal Kamlapat Udyog Ltd. v. CIT- since reported in [2005] 278 ITR 52 (Cal) by the other Division Bench of this court. This decision was sought to be distinguished by Mr. Deb on the ground that there was no finding by the revenue authority that the income could not be deduced. In our view, it would not be a distinguishing feature. Inasmuch as in the present case, it is not a finding that the income cannot be deduced. On the other hand, the learned Tribunal had found that the income, which was capable of being deduced from the method employed, resulted in shifting of the....