9911796707
TMI Blog1989 (1) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The brief facts pertaining to the issue under consideration are that undoubtedly the appellant-company is an investment company. The appellant-company followed the mercantile system of accounting for all its activities. However, the appellant-company changed its system of accounting so far as the item of interest is concerned. The cash system is adopted by the appellant-company for the interest received while in respect of other items of income it followed the mercantile system of accounting. The ITO asked the appellant-company to explain the change in the method of accounting so far as the realisation of interest is concerned. The appellant-company by its letter dated 28-9-1982 stated the difficulty it faced in realising interest. It further stated its difficulty in claiming the credit for tax deducted at source in income-tax proceedings. The ITO did not consider the explanation satisfactory and held that there was no proof that the appellant-company had not realised any interest receivable by it from the debtors even after efforts having been taken in this regard. The ITO has further held that the difficulty in claiming the credit for tax deducted at source in income-tax pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5. In the light of the facts narrated above the only question which has arisen for our consideration is whether the change of the method of accounting from mercantile system to cash system in respect of realisation of interest alone is allowable, whether the difference between the interest received and the interest receivable by the appellant-company should be added to its income and whether the bona fide of the appellant-company plays any important role in giving findings on the said question. 6. The appellant-company's contention for the change of the method of accounting regarding the interest item is that due to difficulties faced by it in realising interest and claiming credit for taxes deducted at source it started to maintain its books of account with regard to interest income on cash basis. There is no doubt that the appellant-company did not obtain securities from the debtors. The Board of Directors passed a resolution to change the method of accounting from mercantile system to cash system. According to the ITO, this change is to avoid tax. There is no dispute that the change of the method of accounting has been consistently followed from year to year. The appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant-company. Shri Poddar also cited the Judgment of the Madras High Court in the case of CIT v. Standard Triumph Motor Co. Ltd. [1979] 119 ITR 573. In that case, the assessment of royalty was involved. When the royalty accrued but not received, the Madras High Court has held that the royalty amounts should be assessed on cash basis for all the assessment years if the books of account are found to be maintained on cash basis. In the instant appeals, the appellant-company has continued to follow changed method of accounting year after year and maintained books of account on the basis of cash system of accounting. 9. Shri Poddar has cited another Judgment of the Calcutta High Court in the case of CIT v. Rajasthan Investment Co. (P.) Ltd. [1978] 113 ITR 294. In that case, the Calcutta High Court has upheld the finding of the Tribunal that the change of the method of accounting of the assessee was done bona fide and in consonance with the real state of affairs of its business and, such, the change of the method of accounting was proper. This Judgment also supports the appellant-company's change of the method of accounting from mercantile system to cash system in respect of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase that detriment to revenue is no ground to reject the method of account. It has further held that the reduction of the tax liability is also no ground to reject the claim. 12. The learned Departmental Representative, Shri S.C. Sen has argued at a great length. He has contended that the appellant-company has not taken proper steps to collect interest. According to him, the change of the accounting system regarding the interest income is not bona fide. He has also brought to our notice that the debtors have claimed deduction of interest in their books of account on the basis of mercantile system. Therefore, the appellant-company is not entitled to claim to be assessed on the interest income by adopting the cash system of accounting. According to him, the appellant-company has advanced loans to those debtors who had not paid the earlier debts. It is the appellant-company's affairs to advance loans or not in spite of non-realisation of interest on the earlier loans. It would be incorrect to say that no fresh loans should be advanced to the debtors who have not paid interest on the earlier loans. It is also contended that if the appellant-company did not have any control over Bagla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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