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TMI Blog2024 (3) TMI 1414X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) failed to appreciate that adopting a mixed or Hybrid System of accounting is prohibited u/s. 145 of the Act. When in the instant case, the assessee has adopted cash system for the purpose of accounting of accrued interest only whereas mercantile system for the purpose of benefit of section 11, thereby having an inconsistent / hybrid method of accounting within the financial year itself? 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of accrued interest rightly made during the assessment on account of inconsistent accounting method, when section 145 of the Act clearly stipulates that there should be a consistent method of either cash or mercantile system to be followed?" 2. The assessee is a registered charitable organization under section 12A of the Income Tax Act, 1961 (the Act) with DIT(E), Mumbai. The assessee filed the return of income for AY 2012-13 on 28.09.2012 declaring a total income of Nil. The assessee's case was selected for scrutiny and the statutory notices were duly served on the assessee. The Assessing Officer (AO) noticed from the Notes to the Financial Statements where it was mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to rebut the appellant's contention that the appellant being a trust, was free to follow the hybrid system of accounting. In his order the AO ought to support this contention by pointing out that the other specific provisions in section 11, which takes care of situation where the income accrued but not received by a trust. I have considered the contention of the AO. The mere fact that the provision has been made to overcome certain situation that may arise in case of a trust following the mercantile system of accounting does not mean Page 27 of 31 AAATV3207A- VAIBHAV MEDICAL AND EDUCATION FOUNDATION A.Y. 2012-13 ITBA/NFAC/S/250/2023- 24/1052978217(1) that all trusts are bound to follow the mercantile system of accounting. I therefore, hold that the AO erred in making the addition of interest income of Rs. 3,82,40,749/- on accrual basis. I therefore direct the AO to delete the addition of Rs. 3,82,40,749/-. In the result, the ground of appeal no. 2 is allowed 5. Aggrieved by the order of the CIT(A), the Revenue is in appeal before the Tribunal. 6. The ld. DR submitted that the assessee for the purpose of books is following mercantile system of accounting whereas for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has been consistently offering the interest income on receipt basis since inception and the same has been accepted by the Revenue till AY 2010-11. The ld. AR submitted a table containing way in which the interest income is offered to tax by the assessee from AY 2011-12 to AY 2014-15 to submit that from perusal of the said table it would become clear that the assessee is adding the interest income claimed as deduction in the previous year since it was not received and the same is offered to tax in the year under consideration on receipt basis. The ld. AR therefore argued that in any case there is no loss to the revenue and that there is only a timing difference in offering the income to tax. The ld. AR drew our attention to the fact that the assessee has offered more interest income to tax for AY 2012-13 than interest accrued in the books of accounts to reiterate the fact that there is no loss to the revenue. 8. The ld. AR made a without prejudice submission that if the contention of the revenue is to be accepted that the interest income should be taxed on accrual basis then the effect for the same should be given in all the AYs in which the assessee has offered intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ources" should be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. In the given case, we notice that the assessee has been offering Income from Other Sources by following cash system of accounting i.e. on receipt basis consistently from inception. Therefore, in our view there is merit in the contention there is no violation of section 145 since for the purpose computing income from Other Sources the assessee is not following hybrid system of accounting but has been consistently following cash system of accounting. In the case law relied on by the Revenue in the case of Delhi International Airport Ltd (supra), the findings of Hon'ble Karnataka High Court which is extracted in the earlier part of this order is with regard to assessee offering income on cash basis and expenditure on the mercantile method which the Court held to be not in accordance with the standard accounting practice and that there should be proper matching between income and expenditure. However the facts in assessee's case are clearly distinguishable for the reason that the assessee while offering income under the head "Income from Other Sources" has do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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