TaxTMI 
TaxTMI 
2008 (3) TMI 296
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....was adopted at the fag end of the accounting year and that too half heartedly?" 2. The tax Appeal relates for assessment Year 1984-85 and the reference relates to assessment Year 1985-86. The relevant accounting period is the financial year ended on 31.03.1984 and 31.03.1985 respectively. The common issue arising relates to the change of method of accounting adopted by respondent assessee and rejected by the revenue. In Assessment Year 1984-85 the Assessing Officer has noted that the assessee had changed the method of accounting from mercantile to cash which resulted in reduction of profits. The assessee was therefore called upon to explain why the amount of Rs.21,14,924 should not be added to be taxable income. The explanation tendered by the assessee, that the assessee was acting as indenting agent/commission agent for textile mills and due to deterioration in the financial position of the textile mills the commission was not being received by the assessee the method of accounting had been changed from mercantile to cash bona fidely, was rejected. The reasons advanced by the Assessing Officer for Assessment Year 1984-85 read as under: "4. The assessee's arguments are not ac....
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.... accounting and the only ground for the change in the method of accounting with effect from the Assessment Year 1984-85 is that a substantial part of the commission income was not actually received. In my view, this cannot be a bona fide ground for the change in the method of accounting. Merely because outstanding commission was received by the assessee subsequently over a period of years, it cannot be said that the assessee had become entitled to a change in the method of accounting. I am in full agreement with the view adopted by the learned Commissioner of Income-tax (Appeals) for the Assessment Year 1985-86 and, therefore, I hold that the Assessing Officer was right in rejecting the claim of the assessee company and, therefore, the addition of Rs.21,14,924/- is confirmed." 5. For Assessment Year 1985-86 Commissioner (Appeals) rejected the claim made by the assessee on the ground that: (i) the assessee was not in a position to show that the assessee had taken steps to recover outstanding commission, hence delayed receipt of commission payment may as well be understood to be an offshoot of the close proximity which the assessee company had with the other two companies, (....
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.... and that the said averment has remained undisputed. In support of the submissions made reliance has been placed on three decisions of this Court: (1) C.I.T. v. Advance Construction Co. (P) Ltd. [2005] 275 ITR 30 (Guj.); [2005]193 CTR 127(Guj,). (2) C.I.T. v. Atul Products Ltd. [2002] 255 ITR 85 (Guj.); and (3) C.I.T. v. Ganga Charity Trust Fund [1986] 162 ITR 612 (Guj.). 8. It was further contended that in terms of provisions of section 145 of the Act an assessee was entitled to choose the method of accounting, subject to the said method being consistently followed by the assessee. That an assessee is not expected to pay tax on income which is not received during the year even as per the system of accounting followed by the assessee. He, therefore, urged that the orders of the Tribunal are required to be reversed and the questions answered in favour of the assessee. 9. Mr. M.R. Bhatt, learned Standing Counsel submitted that the Tribunal had recorded six findings, which were findings of fact, and the cumulative effect of those six findings would go to show that the Tribunal was justified in upholding the view adopted by the departmental authorities. That whether a ch....
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....ure was justified or not. The Assessing Officer, the Appellate Authority and the Tribunal held that there was no justification for excluding the overhead expenditure in valuing the stock, that such valuation was not appropriate to the computation of income chargeable under the Act. The High Court had reversed the findings of the Tribunal having regard to the consistent practice of the assessee in valuing the stock-in-trade. While reversing the decision of the High Court the Apex Court held that even if the assessee had adopted a regular system of accounting it was the duty of the Assessing Officer under section 145 of the Act to consider whether correct profits and gains could be deduced from the accounts so maintained. If the Assessing Officer was of the opinion that the correct profits could not be deduced from the accounts, the Assessing Officer was obliged to have recourse to the Proviso to Section 145 of the Act. As already noticed hereinbefore, neither for Assessment Year 1984-85 nor for Assessment Year 1985-86 has the Assessing Officer recorded any finding that due to change in method of accounting the Assessing Officer is not in a position to properly deduce the income of t....
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....rm: Asstt. Year Accrued Rs. Received Rs. 1984-85 30,58,037 9,26,762 1985-86 16,50,590 7,83,255 14. In fact, these figures themselves reflect that only the changed method of accounting would require the assessee to pay tax on real income and not notional income on the basis of accrual simplicitor, considering the fact that the principals were not in a position to discharge their respective liabilities. 15. Furthermore, the finding by the Tribunal regarding the change being "half hearted" is neither here nor there. The phrase "half hearted" in plain language means a person does not fully act and whatever action is taken is not followed-up to the hilt. In the present case it is nobody's case that the change in the method of accounting had not been implemented in full. Similarly merely because the change in the method of accounting was undertaken after having filed estimate of income during accounting period in question on the basis of earlier method of accounting cannot be termed as a half hearted act, nor can it be considered to be a relevant factor for considering the bona fides of the action. The reference to the resolution by the Board of Directors....