9911796707
TMI Blog2024 (3) TMI 1414X X X X Extracts X X X X X X X X Extracts X X X X ..... from Other Sources the assessee is not following hybrid system of accounting but has been consistently following cash system of accounting.
As noticed that for the purpose of maintenance of books of accounts, the assessee is following mercantile system of accounting since the assessee is mandatorily required to do so under the Companies Act. Therefore in our view the contention of the AO is that the assessee is following hybrid system of accounting which is not accordance with section 145 is factually incorrect and not sustainable. Therefore, in our considered view the addition made by the AO on the basis that the assessee is following hybrid system of accounting is not correct and therefore, we hold that the addition made towards interest income be deleted. Appeal of the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequently passed an order under section 154 dated 30.06.2015 rectifying the mistake by deleting the addition of Rs. 3,82,40,749/- since the same is part of the overall amount of Rs. 6,60,47,102/- that was disallowed. 3. Aggrieved, the assessee filed appeal before the CIT(A). The assessee submitted before the CIT(A) that the assessee has been consistently following the cash basis of accounting from the time of inception of the trust for income tax purposes. The assessee further submitted that it is registered under section 25 of the Companies Act and therefore the accounts are mandatorily required to be prepared on accrual basis. The assessee also submitted that in the computation of income makes the necessary adjustments towards income accrued but not received so that interest income is taxed on actual basis. The assessee accordingly submitted that the interest income accrued but not received for the previous year ended 31.03.2011 amounting to Rs. 5,51,16,611/- was added to the income of the assessee and a sum of Rs. 3,82,40,749/- which was not received for the year under consideration is reduced from the income offered to tax. The assessee also submitted that the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Hon'ble Karnataka High Court in the case of Delhi International Airport Ltd. Vs. PCIT [2022] 138 taxmann.com 541 (Karnataka) where it has been held that "27. The assessee has recognized only the expenditure on mercantile method. The assessing officer has held that the assessee has to follow consistent method of accounting as per the accounting standards and the expenditure has to be brought to tax. As per the Accounting Standard of Accountancy, expenditure has to be matched with the income offered. The assessee has claimed the expenditure for offering services to M/s National Aviation Company of India Limited (NACIL) but failed to offer the corresponding income for the period from October 2011 to March 2012 amounting to Rs. 69.04 crores and accordingly, the said amount has been brought to tax as income from business. However, the assessing officer has noticed the contentions of the assessee that the said income has been offered to tax on receipt basis for the assessment year 2013-14, as such, it has been considered and observed that if this income is brought to tax for the assessment year 2012-13, the same has to be excluded for the assessment year 2013-14." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not bound to follow mercantile system of accounting. The main contention of the is that the emphasis should be given to the words used in section 145 that "the system of accounting regularly employed by the assessee" and that the assessee has been consistently following the cash system of accounting since inception in the year 1988 which has been accepted by the Revenue until AY 2010-11. It is also contented that the assessee is not following hybrid system as claimed by the AO as in violation of section 145 of the Act. Before proceeding further we will look at the relevant provisions of Section 145 of the Act which reads as under - Section 145 Method of accounting. 145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year under consideration is reduced Particulars (Amount in Rupees) AY 2011-12 AY 2012-13 AY 2013-14 AY 2014-15 Interest income as per Financial Statement 2,78,54,824 6,60,47,102 6,99,96,295 6,47,56,485 Add: Accrued interest of previous year and received in current year 2,81,42,396 5,51,16,611 3,82,40,749 67,98,483 Sub - Total 5,59,97,220 12,11,63,713 10,82,37,044 7,15,54,968 Less: Accrued interest of current year and not received in current year 5,51,16,611 3,82,40,749 67,98,483 Interest income offered to tax in Return of Income 8,80,609 8,29,22,964 10,14,38,561 7,15,54,968 12. The above table also substantiates the fact that the the assessee for the purpose of computation of income under head income from Other Sources is following cash system of accounting. It is noticed that for the purpose of maintenance of books of accounts, the assessee is following mercantile system of accounting since the assessee is mandatorily required to do so under the Companies Act. Therefore in our view the contention of the AO is that the assessee is following hybrid system of accounting which is not accordance with section 145 is factually incorrect and not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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