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TMI Blog1983 (12) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... ssity to revise the return. There was also no need to reverse an entry relating to the receipt of commission. Holding that the assessee, thus, had acted on an after-thought, the ITO did not accept the assessee's case for adopting the commission income on the receipt basis as required under a cash system. He estimated the commission receivable at Rs. 50,000 for the assessment year 1977-78 and completed the assessment. For the assessment year 1978-79 likewise, the ITO estimated the commission at Rs. 80,000. 2. On appeal, the AAC upheld the ITO's order to the extent he rejected the alleged cash system adopted by the assessee but she did not accept the ITO's estimate of commission income for both these years, since, according to her, the estimate involved an element of guess and bare suspicion and had not been arrived at on a proper and just basis. She, therefore, directed the ITO to make a fresh assessment on the basis of necessary facts and details which the assessee offered to furnish. The assessee has come up on appeal against the order of the AAC for both the years before the Tribunal. 3. The learned counsel for the assessee, taking us through the details of the case, has poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second year represented the correct returns. No omissions, etc., have been found in the accounts on the basis of the system of accounting followed by the assessee. Relying on the decisions in Raja Mohan Raja Bahadur v. CIT [1967] 66 ITR 378 (SC), Indermani Jatia v. CIT [1959] 35 ITR 298 (SC), Keshav Mills Ltd. v. CIT [1953] 23 ITR 230 (SC) and CIT v. K. R. M. T. T. Thiagaraja Chetty Co. [1953] 24 ITR 525 (SC), the learned counsel has pointed out that the ITO was bound to accept the assessee's method of accounting and compute its income from commission on that basis. The estimates made by the ITO for both the years, therefore, were also not justified. 4. For the department stress is laid on the order of the ITO. Here was a clear case where the ITO was informed about accounts being originally maintained on the accrual basis by filing a return. The revised return consequent on change over to the cash system clearly indicated, as a matter of fact, that the assessee has adopted the new system rejecting the old. The ITO in such circumstances was entitled to reject the books and work out the profit for the year on an acceptable basis. It is also pointed out that the assessee received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see started maintaining books of account allegedly on the accrual basis and a return was also filed. Subsequently it would appear since the foreign party did not send the statement of accounts on time or remit any money towards commission, the assessee altered its method of accounting to the cash system and on this revised method of accounting filed a revised return. Apparently this latter return also has been filed before the ITO looked into the matter or proceeded to make an assessment. The first controversy between the parties relates to a change of method of accounting followed by the assessee. In fact, the ITO had decided the matter against the assessee on this ground. In our view, on the facts of the present case, this view of the authorities cannot be accepted. Following a method of accounting would be relevant for computing the profit and income for the purpose of making an assessment. Final accounts are made on the basis of primary and subsidiary books and entries. Making of final accounts is only a process followed long after the transactions have taken place. If, therefore, from the primary material and books an assessee were to make out his final books of account on one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain Government bonds. The value of the bonds brought to tax was claimed by the assessee as not realised interest at all and could be treated as realised only on their sale. Their Lordships of the Supreme Court held that the bonds were convertible in terms of money and, therefore, income was received by the assessee when the bonds were received and not when he sold them. In the course of the judgment their Lordships referred to the nature of accounts maintained on the accrual and the cash basis but this case cannot be regarded as an authority for the actual determination of liability in the case of a particular assessee as in the appeals before us. 8. Indermani Jatia's case discussed the nature of the mercantile and cash systems of book-keeping and dealt with a situation where interest on capital invested in a shop in a native State was credited in the accounts. The question was one of receipt and in fact the Court held against the assessee in that case. The general discussion on the method of accounting in that case does not help the assessee. 9. In Keshav Mills Ltd.'s case the Supreme Court held that section 13 of the Indian Income-tax Act, 1922, is an integral part of comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee's claim of not having received the commission amounts for the purposes of cash system of accounting cannot be accepted. As the agreement shows, the assessee is in receipt of amounts from the foreigner under several heads. The assessee expends amounts mainly through the limited company partner to meet some of the requiremdrits of the foreigner. There is, thus, a current account continuous between the assessee and the foreigner in which several transactions involving large amounts figure. The assessee claims that it has not received the commission only because the foreigner has not designated any amount received by the assessee or sent to the assessee as on account of commission. While on the one hand, under the agreement, the assessee is entitled to regular receipt of accounts and commission amounts from the foreigner from time to time, on the other, the assessee is in receipt through its current account of several amounts from the foreigner. Only specific amounts have not been allocated as relating to the commission. Against such state of affairs, it would not be even possible to say, as a matter of fact, that the assessee has not received the commission so that i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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