9911796707
TMI Blog1991 (5) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... icy of the Government of India that the stocks taken on loan were returned in kind within a reasonable time to the loaner company. There is a penalty for non-return of the stock within three months and such penalty is in the form of forfeiture or reduction of news print quota granted to the consumer under the News Print Control Act. The provisions entailing the penalty are observed more in their breach than in actual practice. The accounting entries that used to be made at the time the news print is borrowed, is to debit the news print consumption account with the value of the stock of the news print at the prevailing market price and credit the loaner company with an equivalent amount. When the news print is returned in kind, its market price as on the date of return, is determined. The difference between the amounts debited to the consumption account and the market price as on the date of return is debited or credited to the Profit Loss account of the year in which the return of news print took place. Such was the practice, followed by the assessee up to the assessment year 1981-82. In the immediately preceding year there appeared to be a change in the method followed by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that no interest was charged by the assessee on the debit balances of the group companies. Assessee is aggrieved. 4. At the time of appeal hearing, assessee has raised a preliminary objection that the order passed by the CIT, since it was not based on the record available at the time the AO had passed his order, was ab initio void. The contention of the assessee in this regard is that the record to which a mention has been made in section 263, refers to the record as it existed at the time of passing of the assessment order. According to the learned counsel for the assessee, materials which were not in existence at the time when the order was passed, would be irrelevant in initiating action under section 263. It is pointed out that the material which form the basis for issue of a notice under section 263 was collected by the IAC by issue of a letter dated 9-6-87 to the assessee. The material that was collected by the IAC could not form part of the records. This would be evident from the amendment brought about by the Finance Act, 1988, to the provisions of section 263. The word " record " has been redefined and as per the new definition the same shall include and shall be dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of news print loan as on the last date of the accounting period. The earlier procedure was found to be totally unscientific. It was for that reason that the same was substituted by a more scientific method. It is open to an assessee to follow any recognised method of accounting and the AO has to accept the same. There is no statutory bar against making a departure from the method of accounting that was regularly followed. The law only insists that one recognised method of accounting is substituted by another recognised method of accounting and the revised method of accounting is followed by the assessee consistently thereafter. It is only a casual departure that has been frowned upon. This is a consistent refrain of the court's decisions. The CIT has not pointed out that the revised method of accounting was not scientific. He has also not adduced any material to show that the amount that was debited, which he described as notional debit in his notice and in his order under section 263, was in the nature of contingent liability. This liability is real, according to the sound accountancy principle. Adverting to the guidelines on accounting standards published by the Institute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss account by way of provision in respect of an obligation which arose on account of borrowal of the raw material which was returnable and which remained to be returned at the end of the accounting year. The ITO disallowed the claim but it was allowed in appeal by the CIT(A) and the Tribunal. The Tribunal observed that the provision made for definite obligation was in accordance with the method of accounting consistently followed by the assessee and would be permissible deduction in computing taxable profits. As regards non-charging of interest, assessee contends, that except on 2 or 3 occasions, assessee has not made any advances to the members of the group. The debit balances occurred on account of inter corporate transactions. In the case of the business of the assessee, collections on account of advertisement and circulations are made by the various centres all over India. The revenue so collected, might pertain partly to the receiving company and partly to the associate company. Such revenues are also allocable on the basis of circulation. Each of the group companies pass appropriate entries in its books of account for share of revenue belonging to the other companies and on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim this year, which is in the nature of notional debit, represents merely a contingent liability. It is only when the news print taken on loan is returned, a debit could be made in the Profit Loss account. This is a sound accounting principle and was in fact followed consistently by the assessee in the past. A departure, according to the Departmental Representative, would not lead to the determination of the true profits and gains of business. The learned Departmental Representative thereafter contends, that the decision of the Supreme Court in Calcutta Co. Ltd.'s case on which reliance has been placed by the assessee, has no relevance in deciding the issue before the Tribunal. Our attention is invited to the decision in Indian Molasses Co. (P.) Ltd. v. CIT [1959] 37 ITR 66 (SC) which according to the Departmental Representative, should clinche the issue in dispute. In that case, the Supreme Court has observed that expenditure is what is paid out or away and is something which is gone irretrievably. Expenditure, which was deductible for income-tax purposes, according to the court, was one which is towards a liability actually existing at the time, but the putting aside of mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO was erroneous being prejudicial to the interest of the revenue, cannot be faulted on the facts and circumstances of the case. 8. We have heard the parties to the dispute and we are of the view that the order passed by the CIT cannot be upheld. Assessee has been following a method of accounting in respect of the news print taken on loan from group companies. The method followed resulted in a debit to the consumption account of the value of the news print taken on loan. The news Print taken on loan had to be returned in kind and when this was done the difference between the market value of the news print returned determined at the prevailing market price and the value of such news print as debited to the consumption account, is claimed as a deduction if there was an increase in the price of the news print and created to the profit loss account if the price had fallen. The return of news print sometimes involved delay. It was for that reason the assessee decided to value the outstanding news print in the loan account at the prevailing market price as on the end of the accounting year and adjust the difference by means of suitable accounting entries. In our opinion, the revise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udice contemplated under section 263 is a prejudice to the tax administration. Then again, the grounds on which the CIT took the view that interest on the debit balances should have been brought to tax is not at all tenable. Probably, if the CIT had proceeded on the basis that there were few instances where assessee had advanced interest free loans to the sister concern out of its borrowed funds and, therefore, a part of the interest paid by the assessee had to be disallowed, a favourable view could have been taken. Here, as observed earlier, the CIT had proceeded on an entirely different footing and as the premises on which order under section 263 has been passed do not exist, there could be no case for upholding such order. In this connection, it would be worthwhile to refer to the decision re-ported in 140 ITR 490. In that case the court has held that jurisdiction vested in the CIT under section 263(1) of the Act is of a special nature and the CIT alone has exclusive jurisdiction under the Act to revise orders of the ITO which are erroneous insofar as they were prejudicial to the interest of the revenue. The court has added that if the assessee could satisfy the Tribunal that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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