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TMI Blog1984 (1) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... uch as no provision for bonus was being made on accrual basis but the actual payments of bonus were being claimed as deduction in the year of payment. During this year, the Directors considered that the aforesaid cash method of claiming bonus deductions did not give a correct picture of the profits of the assessee's business because payment of bonus is a statutory liability which accrues on the last day of the accounting year in respect of the services rendered during the previous year under consideration. The result of the aforesaid change was that the assessee claimed a certain amount as bonus actually paid during the year in respect of the services rendered in the year prior to the previous year under consideration which was allowed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,50,000 as provided by the assessee. He, therefore, allowed a sum of Rs. 1,17,366 only. It may be stated that the assessee has not come in appeal against the reduction of its claim from Rs. 1,50,000 to Rs. 1,17,366 and the ITO himself has allowed the amount paid during the year in accordance with the earlier cash system of accounting. The dispute in this appeal by the Department relates to the sum of Rs. 1,17,366 allowed by the CIT(A) on the ground that the assessee had changed its system of accounting for bona fide reasons and has followed the same consistently in the subsequently years. 4. There is another dispute in this appeal. The assessee had borrowed certain funds for the purpose of its business on which it paid interest whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent found that those loans were doubtful of recovery especially in view of the disputes between the members of the Kamani family which was stated to have begun some time in 1972 and resulted in a family settlement in June, 1975 and because the settlement was not adhered to, a petition for winding up against one of the debtors was filed in 1977. No credit notes were received from the creditor companies because of the aforesaid dispute. It is because of these uncertainties in realising the principal amounts that the Directors changed over the method of accounting from mercantile to cash basis in so far as the interest receivable by the assessee is concerned. As stated earlier, the changed method of accounting namely, the cash basis, was follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore us. The grounds of appeal taken before us cover both the above points, namely, the change of the method of accounting from cash to mercantile in respect of the bonus payments and from mercantile to cash in respect of the interest receivable by the assessee. Shri A. Prasad, the ld. representative for the Department, urged before us that the ld. CIT(A) erred in his decision. He urged that the assessee could not suddenly change the system of accounting without any valid reasons. He referred to the decision in the case of Shiv Prasad Ram Sahai vs. CIT (1966) 61 ITR 124 (All) and drew our attention to the observations at p. 130 to the effect that the choice of choosing a method of accounting is entirely on the assessee but once he has chose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of true profits." Next, he referred to the decision in the case of Snow-White Food Products Co. Ltd. vs. CIT (1982) 29 CTR (Cal) 8 : (1983) 141 ITR 861 (Cal). He drew out attention to the ratio of the said decision appearing at p. 872 of the report, to the effect that "the law appears to be settled that an assessee is entitled to change his regular method of accounting by another regular method and such a change can be effected in respect of a part of the assessee's income. He referred to order dt. 28th June, 1980 of the Tribunal in I.T.A. No. 1660/Bom/1979, which has relied on the aforesaid decision in the case of Sundararaj. Next, he referred to the decision of the Special Bench of the Tribunal in the case of American Express Intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new system is one of the three systems recognised under the accepted accounting principles. He urged that both the changes effected by the assessee during the year under consideration are indeed bona fide and even if any of them is not found to be so, then also the assessee should succeed because he has regularly followed the same in the subsequent years. Alternatively, he urged that if, for any reason, the change in the method of accounting relating to the interest receivable is not found to be acceptable, then also the national interest could not be taxed because of the aforesaid decision of the Special Bench of the Tribunal in the case of American Express. 9. We have considered the contentions of both the parties as well as the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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