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TMI Blog2019 (3) TMI 1410X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Tribunal was right in holding that the assessee is justified in following the sum of digits Method to account the finance charges to arrive at balance sheet and profit and loss statements only? 3. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assesee is justified in following one method of accounting for the income tax purpose to attract lesser tax and other method to show higher income in its balance sheet and profit and loss statement? 4. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is entitled to depreciation on assets, when it has clearly been proved that the invoice on the basis of which depreciation was claimed and bogus, and the manufacturer named therein did not exist? 5.Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is entitled to depreciation on assets in the sale cum lease transaction, which was clearly only a financial transaction, where no title in fact passed to the assessee? 6.Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is entitled to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch of the Hyderabad Tribunal and the assessee's own case in respect of the previous assessment year. Referring to the earlier orders of the Tribunal, which came on reference before this Court and which in turn was also rejected by this Court under judgment dated 12.3.1998, the Tribunal held that the consistency of returning the income for the purpose of income was only on EMI method. This was so, ever since the assessee started its business in this field. The Tribunal further pointed out that in loan transaction, only money is really involved, but in a hire purchase transaction, hiring of asset other than money is involved; the title to the property will pass on to the hirer, when all the instalments are paid and when the hire purchaser exercises his option to purchase. Therefore, given the fact that the character of the transaction was pure and simple a hire purchase agreement and that the transaction had not in any manner undergone any change from the one which was the subject matter of consideration by the Tribunal for the earlier years, in respect of which, reference application filed by the Revenue was dismissed, the Tribunal came to the conclusion that the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting in the Hire Purchase trade must be held to be valid as otherwise the rate of interest under the mercantile system in so far as the later EMIs are concerned would be far higher and contrary to the rate prescribed in the assessee's agreements. The difference between the EMI and SOD method was illustratively explained by the Andhra Pradesh High Court in the following manner: "6. To illustrate the difference in accounting of incomes as per the indexing method and the mercantile system, a hypothetical transaction involving hiring of machinery worth Rs. 100/- is taken, on which hire purchase finance charges recoverable in 5 years is Rs. 70/-. The following are the amounts of recovery shown in the books of account and in the computation of income as per the return filed. Total value of machinery Rs. 100/- Finance charges Rs. 70/- Rs.170/- Year As per books based on Indexing Method As per income tax return based on Mercantile System Principal Finance charges Total Principal Finance Charges Total 1 7 27 34 20 14 34 2 15 19 34 20 14 34 3 22 12 34 20 14 34 4 26 8 34 20 14 34 5 30 4 34 20 14 34 100 70 170 100 70 170 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contrary. Examination of the above judgment reflects that the case before the Madras High Court differed from the present one on crucial factual aspects. The Madras High Court found on facts that the terms of the agreement in that case did not permit adoption of the Indexing System of accounting and therefore, use of the said system in the books of accounts was held to be contrary to the terms of the contract itself. In the present case, however, there is no indication of the assessee's hire purchase agreements reflecting bifurcation of the EMIs into principal and interest components. In the absence thereof, the common and accepted usage of the Indexing system of accounting in the hire purchase trade must be held to be valid as otherwise the rate of interest under the mercantile system in so far as the later EMIs are concerned would be far higher and contrary to the rate prescribed in the assessee's agreements. Further, as the assessee had itself employed this system of accounting in its books of account, applying the law laid down in SANJEEV WOOLEN MILLS (supra), the Department was bound to accept the same for the assessment proceedings. Viewed thus, we are of the opinion t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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