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TMI Blog1994 (2) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... nts in equity shares, debentures and advancing loans to other concerns. The assessee is also a partner in two firms viz., M/s Rajkot Industrial Agency and Western India Agency Trading Co. 3. During the course of assessment proceedings, the learned ITO noted that the assessee had followed a system of accounting by which receipts were accounted for on cash basis and the payments on mercantile basis. He was of the opinion that in view of this system adopted by the assessee the correct profits for the respective assessment years could not be worked out and, therefore, he invoked the provisions of s. 145(1) of the IT Act, 1961 (hereinafter referred to as 'the Act') and adopted the income as well as expenditure on mercantile basis. The ITO f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 CTR (SC) 108 : (1991) 188 ITR 44 (SC) (7) IAC vs. I.C. Gandhi Silk Mills Ltd. (1986) 25 TTJ (Ahd) 341 : (1986) 19 ITD 320 (Ahd). The learned counsel for the assessee further invited our attention to the following observations in Kanga and Palkhivala's "The Law and Practice of Income-tax" Eighth Edition, Volume I at page 1162: "The computation of income may be made on the basis of the method of accounting regularly adopted by the assessee, even though the method is neither purely cash nor purely mercantile but is hybrid or a mixture of the two methods. That the regular method if unscientific or anomalous is immaterial for the purpose of this section which only requires the method to be such that the real income, profits and gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with the respective methods, provided the result is a proper determination of the true profits. In this connection it may be noted that s. 10(2)(xi) of the 1922 Act (which granted an allowance in respect of bad debts and corresponded to the present s. 36(1)(vii) plainly contemplated accounts in respect of different parts of the same business being kept on different bases." 7. In the light of the above, the learned counsel for the assessee submitted that the ITO was not justified in invoking the provisions of s. 145(1). Alternatively, he argued that if the system adopted by the assessee is not acceptable, the assessee exercises his discretion to choose cash system of accounting and the ITO may be directed to compute income on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are fortified by the judgment of the Madras High Court in the case of G. Padmanabha Chettiar Sons vs. CIT (1989) 77 CTR (Mad) 107 : (1990) 182 ITR 1 (Mad). Accordingly we do not find any merit in the first contention of the learned counsel for the assessee. 10. As regards the alternative contention of the learned counsel for the assessee that assessee be allowed to adopt cash system for receipts as well as for payments, we find merit in the same in view of the ratio laid down by the Hon'ble Supreme Court in the case of Investment Ltd. vs. CIT and other cases, where it has been held that the choice of method of accounting is to be left to the assessee and the same cannot be imposed by the ITO. We accordingly, restore the matter to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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