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TMI Blog1982 (5) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... partnership deed dated 27-9-1974. The assessee took up the selling agency of Trac Industries and Components Ltd. ('Trac Industries'), Madras, with effect from 4-10-1974. During the previous year under consideration, the assessee earned a commission of Rs. 1,36,231 under the selling agency agreement. After debiting overhead expenses, an income Rs. 1,04,947 was returned by the assessee on 17-12-1976. This return was based on the books of account, which were duly closed on 30-6-1975, following the mercantile basis of accounting. Subsequently, on 26-7-1977, the assessee filed a revised return showing a net loss of Rs. 27,010. It was explained by the assessee that the original return showing a profit was filed on the basis of the mercantile syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge in the system of accounting regularly employed, but only with a view to avoid payment of tax on the commission which had already accrued due. Hence, the ITO rejected the assessee's request to change over from the mercantile system of accounting as reflected in the original return, to the cash system of accounting as reflected in the revised return. He observed that if for any reason, the assessee was not able to recover the whole or any part of the commission which had already accrued due, then it was entitled to claim the same as bad debt in future. With these remarks, be completed the assessment on the basis of the original return. 4. The assessee appealed to the Commissioner (Appeals), and contended that its claim before the ITO sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounting regularly employed by him. Then he referred to page 872 of Kanga and Palkhivala's Commentary on Income-tax, Seventh Edition, for the proposition that a bonafide change of the regular basis of accounting must be accepted by the department, and may be given effect to, on such terms as may be necessary for preventing escapement from taxation or double taxation. He urged that the account books were merely recasted, and it need not be viewed as a change in the method of accounting. Without prejudice to the above contention, Shri Y.P. Trivedi raised an alternative contention, namely, that even under the mercantile system of accounting, no real income accrued to the assessee. His point was that under the agreement between the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade the payment of tax. He referred to page 873 of Kanga and Palkhivala's commentary referred to earlier, and pointed out that even bonafide changes, if too frequent, would disentitle the assessee to have his yearly income computed in accordance with his own changing methods and to justify an assessment under section 143(3) of the Income-tax Act, 1961 ('the Act'), because the assessee's method of accounting becomes acceptable only if it is regularly employed. Referring to page 171 of the same commentary, he stated that the income accrued to assessee when it acquired a right to receive the same, and made entries in its books, accordingly. Hence, he urged that the assessee was not entitled to change the method of accounting on the ground on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g all the facts relating to the aforesaid agreement. Having chosen one method, it cannot change the same except for bonafide reasons. The reasons explained by the assessee in support of the change of the method of accounting from mercantile to cash and re-writing the books, accordingly, do not appeal to us to be bona fide. It appears to us that the assessee had an after-thought after filing the original return showing a positive income, and wanted to replace the original return by another, showing a lower income or a loss. This can hardly be a reason for changing the method of accounting. We, therefore, agree with the revenue authorities, and reject the assessee's arguments on this point. 8. However, coming to the alternative contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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