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TMI Blog2001 (10) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... nt with its earlier practice, assessee maintained its books of account on cash basis and filed its returns on the same basis. The Assessing Officer completed the assessments under section 143(3), without making any major additions. Subsequently, the Commissioner noticed that the practice followed by the assessee, i.e., the maintenance of accounts on cash basis and returning income on that basis is not consistent with the provisions of section 209(3) of the Companies Act because of the amendment brought about by Companies (Amendment) Act, 1988 with effect from 15-6-1988 in that section. The said section 209, to the extent relevant for our purpose reads as under-- "209(1) Every company shall keep at its registered office proper books of account with respect to-- (a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place; (b) all sales and purchases of goods by the company; (c) the assets and liabilities of the company; ** (3) For the purposes of sub-sections (1) and (2), proper books of account shall not be deemed to be kept with respect to the matters specified therein-- (a) if there are not kep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1991-92 and Rs.1,07,884 for the assessment year 1992-93, as accrued interest on Hundies and Debentures, but it was claimed that as it has been following cash system of accounting consistently, there is no prejudice to the interests of the Revenue and the action proposed under section 263 was not called for. The relevant portion of the written submissions for the assessment year 1991-92 read as under-- "We respectfully submit that the Assessing Officer has correctly completed the assessment after due consideration of the factual and legal position. The Assessing Officer did not commit any error in the assessment. The interpretation that the interest accrued on loans amounting to Rs.28,493 has not been considered by the Assessing Officer by not following the provisions of section 209(3) of the Companies Act, 1956 is erroneous. The Companies Act, 1956 stipulated the method of preparation and presentation of the accounts to the shareholders of the company. The learned Commissioner may kindly note that under the Companies Act, 1956, a Company can close the accounts not necessarily for the financial year ended by 31st March of each year, but can adopt any other date fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Before us, the learned counsel for the assessee reiterated the contentions made out before the CIT. He admitted that under section 209(3) of the Companies Act, it is mandatory that a company follows mercantile method of accounting. When that is not done, the statutory auditor has to qualify the report, and that is what is done in the present case. For the assessment year 1991-92, the statutory auditor has made a note in the Auditors Report, which may be seen at page 7 of the assessee's paper-book. The said note for the assessment year 1991-92 reads as under-- "... 4. (a) In respect of Hundi Loans and Debentures the interest income is accounted on receipt basis and accordingly income accrued Rs.28,493 has not been accounted for...." Similar note is left for the assessment year 1992-93 as well. While conceding that the mercantile system of accounting is mandatory under the Companies Act, the learned counsel for the assessee pleaded that the assessee has a clear choice under section 145 to select any acceptable method of accounting. The choice given under section 145 to select any acceptable method of accounting is not taken away by section 209(3) of the Companies Act. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even though they were not accounted for in the books of the assessee. It is also pleaded that the choice in the matter of selection of the method of accounting granted under section 145 is available only to non-corporate assessees because a company under the provisions of section 209(3) of the Companies Act, has no choice in the matter, and is under an obligation to follow the mercantile system of accounting. So, it is pleaded that the order of the CIT passed under section 263 deserves to be upheld because, otherwise, it would mean that the assessee would get away with the violation of the law of the land as reflected in the provisions of section 209(3) of the Companies Act. In other words, it is alleged that the provisions of section 209(3) of the Companies Act should be read harmoniously with the provisions of section 145 of the Income-tax Act. Such a reading would lead to the conclusion that the choice in the matter of method of accounting to be followed, given under section 145 is not available to corporate assessees. 7. We are of the view that the assessee deserves to succeed. We have already reproduced the provisions of section 209(3) of the Companies Act. We may now repro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis or mercantile basis or even a hybrid system. The choice in the matter of following hybrid system is taken away after 1-4-1997, and the present position is that the assessee has to follow either the cash or the mercantile systems of accounting. In the matter of the choice, when the assessee under section 145, the commentary of the learned authors, Chaturvedi Pithisaria (5th Edition, Volume 3; P. 4972) may be seen. They have quoted a number of decisions, which lay down the principle that the choice of the method of accounting lies with the assessee. We need not flutter this order with all those cases, but we would only refer to the decisions of the Apex Court in Investment Ltd. v. CIT 1970] 77 ITR 533 and in CIT v. A. Krishnaswami Mudaliar [1964] 53 ITR 122. It is also the legal position that if an assessee's method of accounts has been accepted regularly for a number of years as basis for his assessment, the Assessing Officer shall not be justified if he, for any particular year, refuses to accept such method as the basis of assessment for that year. In this context, the decision of the Gujarat High Court in the case of Balapur Vibhag Jungle Kamdar Mandali Ltd. v. CIT [1982 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave extracted above, we see no reason for circumscribing the freedom of the assessee to choose any method of accounting, which is clearly granted by the provisions of section 145. We cannot assume that the provisions of section 209(3) of the Companies Act override the provisions of section 145. The plea of the learned Departmental Representative that the provisions of the Income-tax Act should be read harmoniously with those of Company Law seems attractive, but we do not see any reason for superseding the provisions of section 145 of the Income-tax Act, in the name of harmonious interpretation. These provisions, to our mind, under two different enactment are parallel provisions and they do not intersect each other. 9. The decision of the Allahabad High Court in Hira Lal Mittal Son's case is also distinguishable. It applies in a different situation, where a receipt is not accounted for in the books, though it has legally accrued to the assessee. The assessee in that case, was maintaining books on mercantile basis, but has not accounted for a particular receipt which has accrued to him. The Court held in that situation that notwithstanding the absence of entry in the books, such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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