9911796707
TMI Blog1995 (5) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the accounting for interest on receipts from hybrid system to cash system for and from the asst. yr. 1989-90 onwards, the Assessing Officer declined to accept the change in the system of accounting so far as interest income that is interest receipts is concerned and proceeded to compute the interest on an accrual basis whereby the interest income on advances considered good as well as on sticky advances were all taken into account whether received or not. Thus, the addition was made. 3. The assessee carried the matter in appeal. It was contended that s. 209 of the Companies Act was amended w.e.f. 15th June, 1988 making it mandatory for all the companies to follow the actual method of accounting. Immediately the Council of State Industrial Development Investment Corporation of India moved the Central Government explaining the difficulties which the State Corporations would face with regard to the liquidity of the funds if the above amendment was intended to cover the State Corporations engaged in making loans and advances. It also referred to the discussion with the Government and among the Member Corporations regarding the proposed amendment. Under letter dt. 3rd J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame into force w.e.f. 15th June, 1988. Further, by the time accounts were placed before the general body meeting, the notification had come into force. Unless and until the accounts are approved by the general body meeting, it cannot be said that the accounts had become final, as has been held in the case of CIT vs. National Industrial Corpn. (1982) 30 CTR (Del) 339 : 52 Comp. Cas. 535. Therefore, it was submitted that the Assessing Officer erred in computing the interest on accrual basis in respect of the loans and advances made by the assessee to the industrial units. 4. The learned CIT(A) on a consideration of the submissions of the assessee, amendment to sub-s. (3) of s. 209, the deliberations that have gone into the issue pursuant to the amendment, the fact that notification proposed to exempt Government Corporations like the assessee from the provisions of s. 209(3) of the Companies Act so far interest income is concerned, and the ultimate notification issued by the Government in the Month of May, 1989, held that the change effected by the assessee in respect of the accounting for the interest income on cash basis was for bona fide reasons and had the sanction of the law a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervened and passed a notification dt. 16th May, 1989 exempting the Government companies engaged in industrial finance and development from keeping the accounts on accrual basis in respect of the interest income on loans and advances. The amended s. 209 had come into force within the previous year. The notification exempting the Government companies from the provisions of s. 209 in specified cases was placed before the Parliament in November, 1988, i.e. within the previous year. The gazetting of the notification took place in the month of May, 1989 but it was with reference to the amendment effected to the provisions of s. 209(3) of the Companies Act w.e.f. 15th June, 1988. Therefore, the CIT(A) rightly held that the notification though published latter was effective for and from the previous year ending on 31st March, 1989. The change in the system of accounting as done by the assessee was in consonance with the thinking of the legislature on the subject as exemplified in the notification cited supra. The change is for bona fide reasons. Now s. 145 permits the assessee to have the system of accounting either on cash basis or accrual basis or to have a combination of both. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and advances from public and borrowed funds for industrial development of the State. In the process it has to make huge loans and advances. Some of the loans become bad or doubtful of recovery. If the assessee is forced to account for its income on accrual basis, the chances are that the assessee would be called upon to pay tax on income not realised. Therefore, for genuine reasons, the assessee has adopted the cash system of accounting in respect of its interest receipts. State owned corporations like the assessee engaged in the business of financing have all urged for the adoption of the cash basis in respect of the interest income, as seen from the letters and other materials found in para 3 (1 to 8) of the order of the CIT(A) for the asst. yr. 1989-90. Thus, we hold that the consensus in the trade is to have the cash system for practical considerations. Therefore, the change effected by the assessee was for bona fide reasons. 10. Since the receipts of a particular source, namely, interest in this case has been accounted for on cash basis, the assessee is not entitled to have any other basis in respect of the expenditure pertaining to that particular source of receipt. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X
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