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Issues:
1. Change in accounting method from mercantile to cash system. 2. Entitlement to file a revised return based on the changed accounting method. 3. Taxability of commission income under different accounting systems. 4. Legality of accrued income for taxation purposes. 5. Charging of interest under section 139. Analysis: Issue 1: Change in accounting method from mercantile to cash system The appellant, a partnership firm, changed its accounting method from mercantile to cash system during the assessment year 1976-77. The appellant argued that the change was necessary due to the realization of commission only upon the realization of bills from the customers. However, the Income Tax Officer (ITO) rejected the change, stating that it was an attempt to avoid tax on already accrued commission. The Commissioner (Appeals) upheld the ITO's decision, emphasizing that the change was not justified before the completion of assessment. Issue 2: Entitlement to file a revised return based on the changed accounting method The appellant contended that it was entitled to file a revised return based on the cash system of accounting. However, the tribunal noted that the original return was correct and complete, reflecting the true state of affairs in line with the mercantile system initially chosen by the appellant. The tribunal held that the appellant was not entitled to file a revised return as there was no omission or wrong statement in the original return. Issue 3: Taxability of commission income under different accounting systems The appellant argued that under the cash system, no real income accrued during the assessment year as the commission was payable only upon bill realization. The appellant cited various legal precedents to support this argument. The department, however, maintained that income accrues when the right to receive it is acquired, irrespective of the accounting method used. The tribunal agreed with the appellant on this issue and remitted the matter to the ITO for further examination. Issue 4: Legality of accrued income for taxation purposes The tribunal acknowledged the need to determine whether the commission income legally accrued to the appellant before taxing it. The tribunal emphasized that income must be legally payable and constitute a enforceable debt against the payer to be considered taxable. This aspect was deemed crucial and required a detailed examination by the ITO. Issue 5: Charging of interest under section 139 The tribunal upheld the decision of the Commissioner (Appeals) regarding the charging of interest under section 139. The appellant's argument against the interest charge was dismissed as it did not deny its liability to pay interest. The tribunal relied on legal precedent to support this decision. In conclusion, the tribunal partly allowed the appeal for statistical purposes, remitting the matter of accrued income taxation to the ITO for further examination while upholding the decision on interest charges under section 139.
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