1994 (2) TMI 90

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ssessee is a investment company making investments in equity shares, debentures and advancing loans to other concerns. The assessee is also a partner in two firms viz., M/s Rajkot Industrial Agency and Western India Agency & Trading Co. 3. During the course of assessment proceedings, the learned ITO noted that the assessee had followed a system of accounting by which receipts were accounted for on cash basis and the payments on mercantile basis. He was of the opinion that in view of this system adopted by the assessee the correct profits for the respective assessment years could not be worked out and, therefore, he invoked the provisions of s. 145(1) of the IT Act, 1961 (hereinafter referred to as 'the Act') and adopted the income as well....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....s. British Paints India Ltd. (1991) 91 CTR (SC) 108 : (1991) 188 ITR 44 (SC) (7) IAC vs. I.C. Gandhi Silk Mills Ltd. (1986) 25 TTJ (Ahd) 341 : (1986) 19 ITD 320 (Ahd). The learned counsel for the assessee further invited our attention to the following observations in Kanga and Palkhivala's "The Law and Practice of Income-tax" Eighth Edition, Volume I at page 1162: "The computation of income may be made on the basis of the method of accounting regularly adopted by the assessee, even though the method is neither purely cash nor purely mercantile but is hybrid or a mixture of the two methods. That the regular method if unscientific or anomalous is immaterial for the purpose of this section which only requires the method to be such that t....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....its would have to be computed in accordance with the respective methods, provided the result is a proper determination of the true profits. In this connection it may be noted that s. 10(2)(xi) of the 1922 Act (which granted an allowance in respect of bad debts and corresponded to the present s. 36(1)(vii) plainly contemplated accounts in respect of different parts of the same business being kept on different bases." 7. In the light of the above, the learned counsel for the assessee submitted that the ITO was not justified in invoking the provisions of s. 145(1). Alternatively, he argued that if the system adopted by the assessee is not acceptable, the assessee exercises his discretion to choose cash system of accounting and the ITO may be....