1982 (4) TMI 142 - AT - Income Tax

Summary

Issues:
1. Assessment of income using mixed accounting methods.
2. Interpretation of section 145(1) of the Income-tax Act, 1961.
3. Application of case law on accounting methods in taxation.

Analysis:
1. The appeal involved a dispute over the assessment of income for the assessment year 1975-76 by the revenue against the order of the AAC. The assessee, a registered firm, used a mixed accounting method where cash receipts were recorded on a cash basis, while expenditure was recorded on a mercantile basis. The ITO adjusted the income by adding Rs. 53,119 due to the differing methods used by the firm.

2. The revenue contended that the mixed accounting method used by the assessee did not allow for the correct determination of income as per the proviso to section 145(1) of the Income-tax Act, 1961. It was argued that all transactions related to the same business activity should follow a consistent method of accounting. The Tribunal agreed with the revenue's argument, emphasizing that each year's assessment should be treated as a separate unit and that the correct income for the previous year could not be deduced from the mixed accounting method.

3. The Tribunal considered various case laws presented during the hearing to support both sides of the argument. The case of Investment Ltd. v. CIT highlighted the importance of a taxpayer's right to choose a method of accounting, which can only be discarded if it does not properly deduce the income. On the other hand, cases like Fatehchand Chhakodilal v. CIT and CIT v. A. Krishnaswami Mudaliar were cited to emphasize the statutory duty of the ITO to examine the method of accounting employed by the assessee and ensure that income can be correctly deduced from it.

4. Ultimately, the Tribunal upheld the revenue's argument, stating that the correct income for the previous year could not be deduced from the mixed accounting method used by the assessee. The AAC's finding was reversed, and the ITO's adjustment of Rs. 53,119 was restored. The appeal by the revenue was allowed, and the assessment was made in favor of the revenue.

5. The Accountant Member also concurred with the decision, noting that the nature of the assessee's business, involving treatment of indoor patients and the inclusion of costs like medicines, justified the rejection of the mixed accounting method. Professionals like lawyers or chartered accountants, who only provide consultancy services, were deemed incomparable to the assessee's case due to the nature of their services.