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TMI Blog2015 (8) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... ntile system of accounting, cannot adopt accounting on cash basis as regards the sale of newspaper and advertisement charges, the assessing officer made additions and completed the assessment. Appeals filed by the assessee before the Commissioner of Income Tax (Appeals) were allowed partly. Further appeals filed by the assessee were allowed by the Tribunal and the assessing officer was directed to revise the assessments. It is in this background, the Revenue has filed these appeals. 3.The questions of law framed in these appeals being common, those framed in ITA.119/99, filed in relation to the order passed for the assessment year 1990-91, are extracted below: "1. Whether, on the facts and in the circumstances of the case and in the absence of a finding that there was no difficulty in ascertaining the correct income for the assessment years 1990-91 and 1991-92, the Tribunal is right in law and fact in interfering with the assessment of the advertisement charges and the newspaper sales on mercantile basis? 2. Whether, on the facts and in the circumstances of the case and admittedly when "other incomes and expenses are accounted on the mercantile system" will not the assessment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand, learned senior counsel appearing for the respondent assessee contended that having regard to the provisions of section 145 of the Income Tax Act, 1961, as it stood at the relevant time, the assessee was entitled to adopt either the mercantile system or the cash system or hybrid system. In support, he placed reliance on the judgment of the Apex Court in United Commercial Bank v. Commissioner of Income Tax [(1999) 240 ITR 355] and this Court in Commissioner of Income Tax v. Geo Tech Construction Corporation [(1996) 221 ITR 164]. Learned senior counsel also placed reliance on the judgments of the Apex Court in UCO Bank v. Commissioner of Income Tax [(1999) 237 ITR 889] and of the Gujarat High Court in Commissioner of Income Tax v. Ganga Charity Trust Fund [(1986) 162 ITR 612]. 7.We have considered the submissions made by both sides. Before we deal with the contentions raised by both sides on the merits of the controversy, at the outset, we may state that dispute regarding accounting of newspaper sales and advertisement charges on cash basis, which is the subject matter in these appeals, had been the subject matter of adjudication by the Tribunal on earlier occasions. Dispute ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of the Tribunal, therefore, confirms that the system of accounting adopted by the assessee, viz., accounting on cash basis, was confirmed by the Tribunal in the previous assessment years and the orders of the Tribunal were accepted by the Department. Accordingly, assessments were completed in the subsequent assessment years until the issue was again raised in the assessment years in question. 9.It is true, as contended for the Revenue, in the proceedings under the IT Act, principles of res judicata and estoppel are inapplicable and as held by the Apex Court in its judgment in Toticorin Alkali Chemicals & Fertilizers Ltd. Madras v. Commissioner of Income Tax, Madras [227 ITR 172], acceptance of the method of accounting even for long number of years cannot be treated as sanctioned by law, still, consistency is the hallmark of any system of governance and is required to be maintained by the Income Tax Department also. This is all the more so in a case where the very issue has been decided by the Tribunal and which order has attained finality and was accepted by the Department also. In Radhasami Satsang v. Commissioner of Income Tax [193 ITR 321], the Supreme Court had occasion to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays, may yet differ with the view expressed and refer the matter to a Bench of superior strength or in some cases to a Bench of superior jurisdiction." 11. Admittedly, the orders passed by the Tribunal were in respect of previous assessment years and going by the principles laid down in the judgments referred to above, each assessment year is a separate unit and therefore, an order passed for one assessment year does not operate as res judicata in the succeeding assessment years. However, the issue resolved by the Tribunal and which was accepted by the Department on the basis of which assessments were also finalised in the succeeding assessment years as well, is attempted now to be re-opened. That departure is possible only if the exemptions pointed out in the aforesaid judgments are in existence. For that purpose, the Assessing Officer has mainly relied on the judgment of the Calcutta High Court in Commissioner of Income Tax v. UCO Bank [200 ITR 68] and reference is also made to State Bank of Travancore v. Commissioner of Income Tax [(1986) 158 ITR 102]. In so far as the UCO Bank (supra) is concerned, that judgment has been overruled by the Apex Court in United Commercial Bank v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the method of accounting regularly employed by the assessee. Therefore, section 145 of the IT Act gave liberty to the assessee to compute income chargeable under the heads mentioned in the section in accordance with the method of accounting regularly employed by the assessee itself. However, with the substitution of the section by the Finance Act, 1997, it has been made mandatory that the said computation shall be in accordance with either cash or mercantile system of accounting regularly employed by the assessee. 15.The concept of mercantile system of accounting and cash system has been explained by the Apex Court in its judgment in Keshav Mills Ltd. v. Commissioner of Income Tax, Bombay [(1953) 23 ITR 230]. In this judgment, it was held that the mercantile system of accounting or what is otherwise known as the double entry system is opposite to cash system of book keeping under which a record is kept for actual receipts and actual cash payments, entries being made only when money is actually collected and disbursed. It is also stated that mercantile system brings into credit what is due, immediately it becomes legally due and before it is actually received and it brings into deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the Revenue and noticed at page 362 of the report is that since the assessee had finalised his accounts as per the statutory provisions, thereafter, it is not permissible to adopt for income tax purposes a method different from the one on the basis of which the final accounts were prepared. This contention was sought to be substantiated by relying on the judgment in State Bank of Travancore v. Commissioner of Income Tax [(1986) 158 ITR 102]. The Apex Court has specifically held that the contention does not have any substance and has finally concluded thus: "Hence for the purpose of income tax whichever method is adopted by the assessee a true picture of the profits and gains, that is to say, the real income is to be disclosed. For determining the real income, the entries in a balance sheet require to be maintained in the statutory form, may not be decisive or conclusive. In such cases, it is open to the income Tax Officer as well as the assessee to point out the true and proper income while submitting income tax return." 20.Thereafter, the principles were summarised thus: "From the decisions discussed above, it can be held: (1) That for valuing the closing stock, it is ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ybrid system of accounting, the Division Bench held thus: "The accounting process is the individual function of the assessee to know his position of accounts and in this context if it is found that the assessee has maintained accounts according to his system, may be based on convenience to adopt one known system, it has always been understood that the assessee who maintains his own accounts has the liberty to employ his system for the purpose of maintaining accounts in respect of his transactions. The courts and even those engaged in the ancillary field have sought to introduce and stamp labours in regard thereto and, as is common, a ready phrase from the field of horticulture gets introduced to describe such system as a hybrid system of accounting, really leading to one fundamental fact of life that account consciousness gets reflected in the process of system of keeping accounts which have to be understood and appreciated in the context of the person or assessee concerned." 23.Reading of this judgment also shows that the Division Bench had distinguished the judgment of the Madras High Court in G.Padmanabha Chettiar and Sons v. Commissioner of Income Tax [(1990) 182 ITR 1], whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Gujarat High Court held thus: "On the second question regarding the change of system of accounting, we find that when the assessee-trust experienced difficulty in the assessment year 1971-72, because of non- receipt of income from interest from two parties with which it had placed its funds by way of deposits, it decided to switch over to cash system of accounting, so that it may not be required to pay income-tax on notional income as on earlier occasions. There is nothing in the Act which precludes the assessee, who bona fide desires to switch over to another system of accounting, from doing so. There is no finding of fact that the switch over to the cash system of accounting in the previous year relevant to the assessment year 1972-73 was not bona fide. Besides, it is not shown by the Revenue that this change lacked durability or regularity and was merely a stop-gap arrangement to avoid payment of tax. In such fact situation, we fail to understand, why a bona fide assessee should be precluded from switching over to another system of accounting which he finds convenient and which would reflect his real income. In CIT v. Rajasthan Investment Co. (P) Ltd. [1978] 113 ITR 294, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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