9911796707
TMI Blog1986 (5) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to be followed by any assessee and talks only of computing of income from any books maintained by an assessee. The assessee, therefore, made an application to the IAC vide letter dt. 27th Sept., 1980, wherein it was submitted due to serious recovery problems faced by all the financial institutions, it has been decided that for the purposes of income tax, the return shall be submitted on cash basis only for which the approval of the IAC was sought for. This application was made during the accounting year as the year closed on 31st day of March, 1981. It was further contended that the change in method of filing of the return of income has been sought for bona fide reasons, which bears the approval of the Board of Directors and an assessee has the right to make a choice of Method of accounting of income for tax purpose. Reliance was placed on Juggilal Kamlapat Bankers vs. CIT (1975) 101 ITR 40 (All), CIT vs. Eastern Bengal Jute Trading Co. Ltd. (1978) 112 ITR 675 (Cal), CIT vs. Rajasthan Investment Co. P. Ltd. vs. CIT (1978) 113 ITR 294 (Cal), Reform Flour Mills Ltd. vs. CIT (1978) 114 ITR 227 (Cal), Commr. of Agrl, IT vs. Ram Kuvar and Ors. (1983) 141 ITR 85 (Bom), Morvi Industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions of the assessee. The entire emphasis that is laid on s. 5 is the manner in which the business of an assessee is carried on. In the instant case, which is a case of Financial Corporation, the business of financing is carried on the basis of accrual. The meter for charging of interest commences, the moment finances are provided to the customers and similarly the liability to pay on the borrowals made by the Corporation commences from the day it receives advances. The financial institution always follow the system as otherwise they cannot exist on the basis of a cash system which is based on actual receipt of money. In fact, the system that is followed by the financial corporation as already observed above, is to charge interest from the day the loan is advanced to the parties and to charge additional interest when the instalment alongwith the interest which is due on a particular day is not paid by the customers. The emphasis is always on accrual specifying the time by which the amount so advanced to be repaid, the rate of interest charged, the amount of interest payable over the years as well as the date on which the instalments as well the interest are payable. The interv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If in respect of the business carried on by him the real income is based on accrual, then for income tax purpose as well the real income has to be on accrual. Though for business purposes the income may be on accrual but the assessee choose to maintain its books of accounts on cash basis, in that event it would become the duty of the ITO to disregard the books of account as the books of accounts though may be complete in so far as the assessee is concerned, but does not disclose the real and the true income of the assessee. The real and true income of the assessee is the one which he would normally treat while carrying on the business. If for the purpose of business the entire emphasis is on accrual, then the real income is to be computed on the basis of accrual only. The accounts as maintained by the assessee are not sacrosanct, i.e. to say that is not necessary that the accounts as maintained by the assessee should be considered to be fool-proof and in isolation to the general nature of business conducted by the assessee. Their Lordships of the Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC) made a pertinent observation that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ediency. The case laws relied by the assessee only consider the issue of s. 145 in relation of books being not reliable. 5. One of the arguments on the basis of which the assessee sought to support its claim was that the Financial Corporation has to borrow not only to be liquid but also for purpose of payment of taxes, the financial position of the Corporation becomes rather difficult. We have only to observe that there is no denial that in mercantile system of business i.e. accrual at time there are defaults from several of the customers and also the customers are in deep trouble as far as their finance are concerned, thus the recovery of finances is a very serious problem to such financial institution. But, this does not mean that the assessee can choose to have two different standards of evaluating its real income; One for its business and another for tax purposes. Since this is a problem of several financial institutions it would be for all such institutions to come together and evolve a system by which they are able to recover the dues in time and also find such method of making liquid. This argument, to our mind, of the assessee has no force at all. We therefore, reject the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
