1978 (1) TMI 37

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..... any adopted the mercantile system of accounting. Up to the assessment year 1963-64, the interest receivable from the debtor-company was shown in the assessee's books on mercantile basis. For the assessment year 1964-65, the assessee did not show the receipt of any interest and commission on the footing that it had not received interest or commission even in the year 1962, much less during the period of accounting which was October 26, 1962, to November 14, 1963. The assessee took up the case that for purposes of this transaction of loan it adopted cash system of accounting for the assessment year 1964-65 onwards. The ITO, however, rejected the claim of the assessee. He held that there was no justifiable reason for changing the accounting .....

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..... 963, and March 15, 1965, clearly show that the appellant has been claiming the interest and commission from the Bhopal company on accrual basis. It is, therefore, obvious that the appellant has kept alive the contract and its rights therein and there has been no change in the original agreement on the basis of which interest and commission were due from the Bhopal company. (vi) The liability to pay interest and commission was not denied by the Bhopal company till at least April 10, 1965, i.e., long after the end of the previous year relevant to the present assessment." The AAC relied upon a decision of this court in Shiv Prasad Ram Sahai v. CIT [1966] 61 ITR 124 (All). This court had emphasized that once the assessee has chosen the mer .....

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..... assessee acted in response to the call of commercial expediency and sound business methods in changing over to the cash system of accounting in the year under consideration in so far as the interest and commission income receivable from the debtor-company were concerned. The interest and commission as and when received by the assessee would be duly reflected in the books of account and naturally will be brought to tax as income." On this view, the addition was deleted by the Tribunal. At the instance of the department, the following question of law has been referred to this court: " Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 46,567 representing interest and .....

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