2002 (10) TMI 230 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of a sum of Rs. 27,89,216 for the assessment year 1998-99.
2. Method of accounting followed by the assessee (cash vs. mercantile).
3. Eligibility for deduction under section 80-O of the Income-tax Act.
4. Validity of the revised return filed by the assessee.

Issue-wise Detailed Analysis:

1. Taxability of a sum of Rs. 27,89,216 for the assessment year 1998-99:
The primary issue in this appeal concerns the taxability of Rs. 27,89,216, which the assessee argued should be taxed in the year 1997-98. The Assessing Officer (AO) treated the same as taxable for the assessment year 1998-99. The assessee received the fees in two installments during the previous year 1997-98. The AO concluded that since the income was received during the previous year relevant to assessment year 1998-99 and the assessee was following a cash system of accounting, it should be taxed in the assessment year 1998-99.

2. Method of accounting followed by the assessee (cash vs. mercantile):
The AO found that the assessee had not filed the report under section 44AB for the assessment years 1997-98 and 1998-99 until 30-10-2000. The reports certified that the assessee was following a cash system of accounting. The AO noted that the books of account did not show the amount of Rs. 28 Lakhs as "receivable" as on 31-3-1997, indicating that the claim of following a mercantile system was not tenable. The AO concluded that the claim of having changed the method of accounting was false and aimed at claiming deduction under section 80-O.

3. Eligibility for deduction under section 80-O of the Income-tax Act:
The CIT(A) confirmed the AO's action, holding that the change in the method of accounting was an afterthought to claim the deduction under section 80-O, which was no longer available from the assessment year 1998-99. The CIT(A) further held that even under the mercantile system, the amount of Rs. 28 Lakhs was not taxable in the assessment year 1997-98 since the income had not accrued to the assessee. The bill dated 11-2-1997 was considered an advance and not a final bill.

4. Validity of the revised return filed by the assessee:
The assessee's counsel argued that the revised return for the assessment year 1997-98 was filed within the time limit prescribed under section 139(5) due to a change in the method of accounting. The counsel contended that the change was bona fide and consistently followed thereafter, thus the income should be taxed in the assessment year 1997-98. However, the Departmental Representative argued that the change in the method of accounting was not bona fide and was made only after the Finance Bill 1998, which withdrew the benefit under section 80-O. The Tribunal held that the change in the method of accounting was not bona fide and the revised return did not fall in line with the intention prescribed in section 139(5) of the Act.

Conclusion:
The Tribunal upheld the orders of the authorities below, concluding that the assessee's claim of changing the method of accounting was not bona fide and aimed at availing the deduction under section 80-O. The income was rightly taxable in the assessment year 1998-99 based on the cash system of accounting followed by the assessee. The revised return filed by the assessee was not valid as it did not align with the provisions of section 139(5) of the Income-tax Act.