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TMI Blog2003 (1) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... crual system from the assessment year 1990-91 onwards in pursuance to an amendment made in the Companies Act, 1956. The Assessing Officer therefore, found that as the assessee had complied with the provisions of the Companies Act by preparing its accounts on accrual basis, the income should have been considered and computed on the basis of the accrual system and therefore to that extent income has escaped assessment for the said assessment years. Another ground raised by the assessee flowing out of the above ground is that the Assessing Officer was not justified in revising the income on the basis of income computed on accrual basis. 9. The learned Chartered Accountant appearing for the assessee submitted that right from inception for more than 20 years ago, the assessee-company has been maintaining accounts on cash basis only, being a service organisation and not trading or manufacturing. After the amendment in the Companies Act in June, 1988 requiring obligatory maintenance of accounts under the mercantile system, limited companies were required to observe the same and file annual returns before the Registrar of Companies on mercantile basis. But the company continued to mainta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act overrides section 145 of the Income-tax Act. The Tribunal observed that the provisions of General Law cannot override the specific provision like section 145 of the Income-tax Act. These provisions are under two different enactments. They are parallel provisions and do not intersect as such. The learned Chartered Accountant relied on the decision of the Income-tax Appellate Tribunal Chennai Bench in the case of Ashok Leyland Finance Ltd. v. Asstt. CIT [2002] 80 ITD 560, where it was held that an assessee is at liberty to adopt one method of accounting for interest earned for income-tax purposes, while at the same time adopting a different method for its day-to-day accounts. The learned Chartered Accountant therefore submitted that preparing the year end financial statements on mercantile basis for compliance with the Companies Act does not amount to maintenance of day-to-day accounts on mercantile basis. He contended that section 145 of the Act has not been amended in accordance with section 209 of the Companies Act and therefore the assessee had the right to maintain day-to-day accounts on cash basis. 11. Shri M. Narayanan, the learned Departmental Representat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an issue relating to the method of accounting employed by the assessee. The Hon'ble Court was examining the limited question of the valuation of investments. The valuation of investments as trading stock or investments is only an item reflected in the final accounts. The standard practice is to value the stock either at cost or the market value, whichever is lower. In that context, the question was whether the investments held by the assessee in that case could be treated as stock in trade eligible for annual valuation, or it should be considered as investment always to be considered at cost. Therefore, the ratio of the decision of the Hon'ble Supreme Court in United Commercial Bank's case was rendered in an entirely different context. 13. The learned Departmental Representative further pointed out that the reliance placed by the learned Chartered Accountant on the decision of the ITAT, Hyderabad Bench in the case of Chenai Finance Co. Ltd. is also on a little different footing. In the said case, what the Tribunal held was that as two views are possible on the question of the overriding effect of section 209(3) of the Companies Act, 1956, with reference to section 145 of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Hon'ble Madras High Court in Subramaniam Chettiar's case is that it is not permissible for an assessee to adopt the mercantile basis of accounting for purposes of its business and insist on a cash basis for arriving at the profits for purposes of assessment to Income-tax. The learned Departmental Representative submitted that this decision also squarely covers the issue in hand. 16. We considered the matter in detail. As the facts speak for themselves, the assessee-company has changed its method of accounting from cash to accrual system from assessment year 1990-91 onwards to comply with the amendment brought in the Companies Act, 1956. The assessee is a limited company, It is therefore bound to follow the mandates provided in the Companies Act in the matter of preparing accounts statements. The accounts of the company are audited and the auditors' reports are delivered on the basis of the accounts maintained by the assessee-company on mercantile system. The income or loss reflected in the profit and loss account is certified to be fair and true by the Auditors again on the basis of the statements prepared on mercantaile basis. It is not the case that the assessee-company i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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