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TMI Blog2001 (10) TMI 1197X X X X Extracts X X X X X X X X Extracts X X X X ..... income on the said basis. For the assessment years 1991-92 and 1992-93 also, consistent with its earlier practice, assessee maintained its books of account on cash basis and filed its returns on the same basis. The Assessing Officer completed the assessments under Section 143(3), without making any major additions. Subsequently, the Commissioner noticed that the practice followed by the assessee, i.e., the maintenance of accounts on cash basis and returning income on that basis is not consistent with the provisions of Section 209(3) of the Companies Act because of the amendment brought about by Companies (Amendment) Act, 1988 with effect from 15-6-1988 in that section. The said Section 209, to the extent relevant for our purpose reads as under- 209(1) Every company shall keep at its registered office proper books of account with respect to- (a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place; (b) all sales and purchases of goods by the company; (c) the assets and liabilities of the company; * * * (3) For the purposes of Sub-sections (1) and (2), proper books of account shall not be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner, in which it admitted that on accrual basis, its income had to be enhanced by ₹ 28,493 for the assessment year 1991-92 and ₹ 1,07,884 for the assessment year 1992-93, as accrued interest on Hundies and Debentures, but it was claimed that as it has been following cash system of accounting consistently, there is no prejudice to the interests of the Revenue and the action proposed under Section 263 was not called for. The relevant portion of the written submissions for the assessment year 1991-92 read as under- We respectfully submit that the Assessing Officer has correctly completed the assessment after due consideration of the' factual and legal position. The Assessing Officer did not commit any error in the assessment. The interpretation that the interest accrued on loans amounting to ₹ 28,493 has not been considered by the Assessing Officer by not following the provisions of Section 209(3) of the Companies Act, 1956 is erroneous. The Companies Act, 1956 stipulated the method of preparation and presentation of the accounts to the shareholders of the company. The learned Commissioner may kindly note that under the Companies Act, 1956, a Company c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ignore its own method of accounting and its own book results and recompute its income in accordance with another method for income-tax purposes.... 5. Before us, the learned counsel for the assessee reiterated the contentions made out before the CIT. He admitted that under Section 209(3) of the Companies Act, it is mandatory that a company follows mercantile method of accounting. When that is not done, the statutory auditor has to qualify the report, and that is what is done in the present case. For the assessment year 1991-92, the statutory auditor has made a note in the Auditors Report, which may be seen at page 7 of the assessee's paper-book. The said note for the assessment year 1991-92 reads as under- ... 4. (a) In respect of Hundi Loans and Debentures the interest income is accounted on receipt basis and accordingly income accrued ₹ 28,493 has not been accounted for.... Similar note is left for the assessment year 1992-93 as well. While conceding that the mercantile system of accounting is mandatory under the Companies Act, the learned counsel for the assessee pleaded that the assessee has a clear choice under Section 145 to select any acceptable meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntile system of accounting, it was liable to be taxed on the amount of ₹ 28,493 for the assessment year 1991-92 and ₹ 1,07,884 for the assessment year 1992-93, even though they were not accounted for in the books of the assessee. It is also pleaded that the choice in the matter of selection of the method of accounting granted under Section 145 is available only to non-corporate assessees because a company under the provisions of Section 209(3) of the Companies Act, has no choice in the matter, and is under an obligation to follow the mercantile system of accounting. So, it is pleaded that the order of the CIT passed under Section 263 deserves to be upheld because, otherwise, it would mean that the assessee would get away with the violation of the law of the land as reflected in the provisions of Section 209(3) of the Companies Act. In other words, it is alleged that the provisions of Section 209(3) of the Companies Act should be read harmoniously with the provisions of Section 145 of the Income-tax Act. Such a reading would lead to the conclusion that the choice in the matter of method of accounting to be followed, given under Section 145 is not available to corporate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 144. The admitted position is that before 1-4-1997, the assessee had a clear choice in the matter of selecting the method of accounting. The assessee could select cash basis or mercantile basis or even a hybrid system. The choice in the matter of following hybrid system is taken away after 1-4-1997, and the present position is that the assessee has to follow either the cash or the mercantile systems of accounting. In the matter of the choice, when the assessee under Section 145, the commentary of the learned authors, Chaturvedi Pithisaria (5th Edition, Volume 3; P. 4972) may be seen. They have quoted a number of decisions, which lay down the principle that the choice of the method of accounting lies with the assessee. We need not flutter this order with all those cases, but we would only refer to the decisions of the Apex Court in Investment Ltd. v. CIT [1970] 77 ITR 533 and in CIT v. A. Krishnaswami Mudaliar [1964] 53 ITR 122. It is also the legal position that if an assessee's method of accounts has been accepted regularly for a number of years as basis for his assessment, the Assessing Officer shall not be justified if he, for any particular year, refuses to acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the pre-amended provisions of Section 145, as they stood during the relevant assessment years, viz., 1991-92 and 1992-93. Under the pre-amended provisions of Section 145, which we have extracted above, we see no reason for circumscribing the freedom of the assessee to choose any method of accounting, which is clearly granted by the provisions of Section 145. We cannot assume that the provisions of Section 209(3) of the Companies Act override the provisions of Section 145. The plea of the learned Departmental Representative that the provisions of the Income-tax Act should be read harmoniously with those of Company Law seems attractive, but we do not see any reason for superseding the provisions of Section 145 of the Income-tax Act, in the name of harmonious interpretation. These provisions, to our mind, under two different enactment are parallel provisions and they do not intersect each other. 9. The decision of the Allahabad High Court in Hira Lal Mittal Son 's case (supra) is also distinguishable. It applies in a different situation, where a receipt is not accounted for in the books, though it has legally accrued to the assessee. The assessee in that case, was maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law and it has resulted in loss of Revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue-Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). Since two views are possible on the overriding nature of the provisions of Section 209(3) of the Companies Act, the ratio laid down by the Apex Court in the above decision clearly applies, and the provisions of Section 263 are not attracted. 12. For the above reasons, we set aside the impugned order of the Commissioner passed under Section 263 , and restore the assessments made by the Assessing Officer for both the years. 13. In the result, both the appeals of the assessee are allow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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