2010 (1) TMI 498 - HC - Income Tax

Method of accounting - Assessment - The conflict between the parties had arisen in relation to allocation of certain expenses which are not incurred directly for any particular activity. The case of the assessee has been that the matter of allocation adopted in respect of the assessment years in question has been the same as it was during the past years. Held that - Tribunal had found that the method of accounting adopted by the assessee in relation to accounting of income two different activities had been the same, as it was during the past year and the method had been consistently accepted. It could not be changed in the assessment year 203-04 and 2004-05.

Summary

Issues:
1. Consistency in methodology for accounting of income.
2. Application of the principle of consistency in income tax proceedings.

Analysis:
1. The judgment pertains to the assessment years 2003-04 and 2004-05, where the Tribunal considered the method of accounting adopted by the assessee for two different activities - financing industrial units and developing industrial estates. The conflict arose over the allocation of certain expenses not directly related to any specific activity. The assessee maintained that the allocation method remained consistent over the years and had been accepted previously. The Commissioner of Income-tax (Appeals) and the Tribunal found no grounds to depart from the established methodology, emphasizing the principle of consistency.

2. The Tribunal's decision was based on the principle of consistency, supported by the Supreme Court's ruling in Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC). The Supreme Court's stance on maintaining a consistent approach across assessment years, unless challenged, was highlighted. The judgment emphasized that once a fundamental aspect has been established and sustained over time without challenge, it should not be altered in subsequent years. This principle has been widely accepted and applied in various judgments, including Municipal Corporation of City of Thane v. Vidyut Metallics Ltd. [2007] 8 SCC 688.

3. The High Court concurred with the Tribunal's decision, finding it in line with the principle of consistency and the Supreme Court's precedent. After thorough consideration and hearing arguments, the Court concluded that no legal question, let alone a substantial one, warranted the admission of the appeal. The appeals were deemed meritless and dismissed accordingly.