1987 (3) TMI 139 - AT - Income Tax

Assessment Year Best Judgment Assessment Cash System Financial Year Mercantile System Revised Return Tax Liability

Issues Involved:
1. Validity of the revised return filed by the assessee under section 139(5).
2. Change of accounting method from mercantile to cash basis.
3. Disallowance of specific expenses by the authorities.
4. Audit of accounts under section 142(2A) for the assessment year 1982-83.
5. Jurisdictional issue under section 129.
6. Allowance of deductions under section 36(1)(viii).

Detailed Analysis:

1. Validity of the Revised Return Filed by the Assessee under Section 139(5):
The assessee filed a revised return showing a loss, claiming a change in the accounting method from mercantile to cash basis. The ITO rejected this revised return, stating that it did not meet the conditions under section 139(5), which allows for a revised return only in case of an omission or wrong statement in the original return. The CIT(A) upheld this decision, noting that the original return was filed based on the mercantile system that had been consistently followed. The tribunal agreed, concluding that there was no omission or mistake in the original return that warranted a revised return.

2. Change of Accounting Method from Mercantile to Cash Basis:
The assessee argued that the change to the cash system was necessary to reflect the true income, as the mercantile system resulted in showing hypothetical income. The ITO and CIT(A) rejected this change, stating that it was done retrospectively and unilaterally, without prior approval, and primarily to avoid tax liability. The tribunal upheld this view, emphasizing that the change was not bona fide and was intended to defer tax liability.

3. Disallowance of Specific Expenses by the Authorities:
The assessee contested the disallowance of listing fees, leave salary, and salary of an employee. The tribunal restored these issues to the Assessing Officer for fresh consideration, directing that they be reviewed in light of the tribunal's decisions on the other grounds of appeal.

4. Audit of Accounts under Section 142(2A) for the Assessment Year 1982-83:
The ITO directed an audit under section 142(2A) due to the complexity of the accounts, which was upheld by the CIT(A). The assessee's writ petition against this direction was dismissed by the High Court. The tribunal found that the ITO had exceeded his jurisdiction by directing the assessee to recast the accounts on a mercantile basis, which was not authorized by the CIT. The tribunal directed the Assessing Officer to recommence the proceedings afresh in accordance with the law.

5. Jurisdictional Issue under Section 129:
The assessee argued that a new officer should have provided a fresh hearing under section 129. The tribunal restored this issue to the Assessing Officer for simultaneous consideration with the audit issue, ensuring that natural justice was not violated.

6. Allowance of Deductions under Section 36(1)(viii):
The assessee claimed a deduction of Rs. 38,99,410 under section 36(1)(viii), which was initially disallowed by the ITO but allowed by the CIT(A). The tribunal upheld the CIT(A)'s decision, noting that the deduction was allowable on a mercantile basis, as the assessment was based on the original return filed under the mercantile system.

Conclusion:
The appeals by the assessee were partly allowed for statistical purposes, with directions for fresh consideration on specific issues. The appeal by the revenue was dismissed. The tribunal emphasized the importance of adhering to statutory provisions and ensuring that changes in accounting methods are bona fide and consistently applied.

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