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TMI Blog2004 (1) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... m in respect of its receipts and the law recognises such maintenance of accounts in hybrid system under section 145 of the Income-tax Act, 1961, as it was prevailing at the relevant point of time - We find that such hybrid system is fully permissible in law and the only requirement is that the income should be deducible from such accounting system and in the absence of that the authorities of the Revenue can interfere with. But as there is admittedly no finding that the income cannot be deduced from the accounts maintained by the assessee in the present case, we do not find the interference by the Assessment Officer is permissible. - - - - - Dated:- 16-1-2004 - Judge(s) : ALOKE CHAKRABARTI., S. K. GUPTA. JUDGMENT Aloke Chakrabarti J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany Ltd., from whom export handling commission was earned, the amount falling due in a particular year was not considered as its income on mercantile basis in view of uncertainty of realisation as the said M/s. The Ganges Mfg. Company Limited was not carrying on business in a good shape. This explanation was not accepted by the Assessing Officer and the accrued export handling commission of Rs. 1,94,216 due for the year from the said M/s. The Ganges Mfg. Company Limited was treated as the assessee's income during the year on mercantile basis over and above the sum of Rs. 5,67,520 shown by the assessee on receipt on that account during the year. On appeal by the assessee, the Commissioner of Income-tax (Appeals) considered the aforesaid as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be deduced nor is there any finding that the hybrid system was introduced by the assessee for the concerned year altering its earlier accounting system in another form. In support of the contention, reliance was placed on the judgments in the cases of Investment Ltd. v. CIT [1970] 77 ITR 533 (SC); CIT v. E.A.E.T. Sundararaj [1975] 99 ITR 226 (Mad); CIT v. North Arcot District Cooperative Spinning Mills Ltd. [1984] 148 ITR 406 (Mad); G. Padmanabha Chettiar and Sons v. CIT [1990] 182 ITR 1 (Mad); Wood Craft Products Ltd. v. CIT [1993] 204 ITR 545 (Cal); CIT v. Woodcraft Products Ltd. [1996] 217 ITR 862 (Cal); CIT v. Citibank N.A. [1994] 208 ITR 930 (Bom) and CIT v. United Credit Ltd. [2002] 257 ITR 443 (Cal). Mr. Dipak Deb, learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a finding that such hybrid system is not being followed by the assessee for quite some time nor the facts stated as reasons for such hybrid system, have been disbelieved by the authorities. In considering in this regard, we find that in the case of Investment Ltd. [1970] 77 ITR 533 (SC) the following observation was recorded by the apex court: "A taxpayer is free to employ, for the purpose of his trade, his own method of keeping accounts, and for that purpose to value his stock-in-trade either at cost or market price. A method of accounting adopted by the trader consistently, and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping account or of valuation. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounting from which the true profits earned by the assessee could be ascertained ... It is well established that even apart from the two systems of accounting referred to above, there is a possibility of an assessee adopting a hybrid system of accounting if it is possible to ascertain the true profits on the basis of such accounting. In this case, though the assessee has generally adopted the mercantile system of accounting, so far as the transaction of import of plant and machinery from foreign sellers is concerned, it has been regularly showing the payment of interest in the year in which the interest was actually paid and not in the year in which the interest legally fell due." The general principles of accounting including a hybr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner as he may determine." The other judgments cited on behalf of the assessee, do not require detailed discussion. With regard to the cases cited by the Revenue, we find that learned counsel gave much stress on the finding in the case of British Paints India Ltd. [1991] 188 ITR 44 (SC). But considering the said judgments, we do not find any proposition in law which is different from the law as has been upheld in the cases mentioned hereinabove. The finding relied on by the respondent in the case of United Credit Ltd. supports the contention of the assessee. This judgment though has been reversed by the apex court in United Commercial Bank v. CIT [1999] 240 ITR 355 but the above proposition does not appear to have been interfered with. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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