regard to the provisions of section 145 of the IT
Act, the Apex Court, this Court and the Gujarat High
Court have approved the liberty available to the
assessee to follow either of the two systems of
accounting or the hybrid system. As reiterated by
the Apex Court in Taparia Tools Ltd. v. Commissioner
of Income Tax [(2015) 276 CTR 1], the entries in the
books of accounts are not determinative or conclusive
and any matter relevant are to be examined on the
touchstone of provisions contained in the Act. Apart
from arguing that for the sales of newspaper and
advertisement charges, it was not permissible to
adopt accounting on cash basis, it was not even
contended by the Revenue that the taxable income
could not be deduced from the accounts of the
assessee.
In the light of the principles of law deducible from
the statutory provisions and the judgments that we
have referred to, we are of the view that no
illegality can be attributed to the decision of the
Tribunal. In such circumstances, answering the
question of law in favour of the assessee and against
the Revenue, these appeals are dismissed.
IN THE HIGH COURT OF KERALAAT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE ANTONY DOMINIC
&
THE HONOURABLE MR. JUSTICE SHAJI P.CHALY
WEDNESDAY, THE 29TH DAYOF JULY 2015
ITA.No. 119 of 1999 ( )
THE COMMISSIONER OF INCOME TAX,
THIRUVANANTHAPURAM.
Vs
M/S. KERALA KAUMUDI (P) LTD.,
THIRUVANANTHAPURAM.
1.The captioned appeals are filed by the Revenue,
aggrieved by the orders of the Income Tax Appellate
Tribunal, Cochin Bench in ITA.Nos.386/95, 387/95,
620/95 and 679/95 respectively, concerning the
assessment years 1990-91, 1991-92, 1992-93 and 1993-
94 respectively.
2.The respondent assessee is a company which is
publishing the newspaper 'Kerala Kaumudi'. The
assessee is following mercantile system of
accounting. However, as far as sales of newspaper
and advertisement revenue are concerned, the assessee
was following cash system of accounting. Returns
were filed during the assessment years in question.
Taking the view that the assessee, having adopted
mercantile system of accounting, cannot adopt
accounting on cash basis as regards the sale of
newspaper and advertisement charges, the assessing
officer made additions and completed the assessment.
Appeals filed by the assessee before the Commissioner
of Income Tax (Appeals) were allowed partly. Further
appeals filed by the assessee were allowed by the
Tribunal and the assessing officer was directed to
revise the assessments. It is in this background,
the Revenue has filed these appeals.
3.The questions of law framed in these appeals being
common, those framed in ITA.119/99, filed in relation
to the order passed for the assessment year 1990-91,
are extracted below:
"1. Whether, on the facts and in the circumstances
of the case and in the absence of a finding that
there was no difficulty in ascertaining the correct
income for the assessment years 1990-91 and
1991-92, the Tribunal is right in law and fact in
interfering with the assessment of the
advertisement charges and the newspaper sales on
mercantile basis?
2. Whether, on the facts and in the circumstances
of the case and admittedly when "other incomes
and expenses are accounted on the mercantile
system" will not the assessment of advertisement
charges and the newspaper sales on cash system
result in difficulty for the assessing officer in
ascertaining the correct income?
3. Whether, on the facts and in the peculiar
circumstances of the case the assessee is entitled
to have different system of accounting considering
the incomes and the head under which the income
is assessed?
4. Whether, on the facts and in the circumstances
of the case the Tribunal is justified in finding in
the present case that "in respect of the earlier
years there was no difficulty in ascertaining the
correct income" and is not the finding wrong,
unreasonable unsupported by any material and
evidence and hence vitiated and without
jurisdiction?
5. Whether, on the facts and in the circumstances
of the case wen the Tribunal is considering the
appeal for the assessment years 1990-91 and 91-
92, does the Tribunal have jurisdiction much less
evidence (unless there is a finding in the appeal for
the earlier year) to find that "in the present
case ........... in respect of the earlier years there
was no difficulty in ascertaining the correct
income" and is not the finding in the circumstances
of the case wrong based on surmises and
conjectures?
6. Whether, on the facts and in the circumstances
of the case and in the light of the findings that the
assessee had not maintained log books in respect
of the vehicles and in the absence of evidence that
the telephones were used exclusively for business
purpose the Tribunal is right in law and fact in
interfering with the disallowance made by the
Officer?"
4. We heard learned senior standing counsel for the
Revenue and the learned senior counsel appearing for
the respondent assessee.
5.In sum and substance, the contention raised by the
learned senior counsel for the Revenue is that the
assessee having adopted mercantile system of
accounting, it cannot adopt accounting on cash basis
in respect of sales of newspaper and advertisement
revenue alone. In other words, according to the
Revenue, in respect of all the activities of the
assessee, the accounting of income and expenditure
should be under the same system. This contention was
sought to be substantiated relying on the judgments
of the Apex Court in Keshav Mills Ltd. v.
Commissioner of Income Tax, Bombay [(1953) 23 ITR
230] and G.Padmanabha Chettiar & Sons v.
Commissioner of Income Tax [(1990) 182 ITR 1].
6.On the other hand, learned senior counsel appearing
for the respondent assessee contended that having
regard to the provisions of section 145 of the Income
Tax Act, 1961, as it stood at the relevant time, the
assessee was entitled to adopt either the mercantile
system or the cash system or hybrid system. In
support, he placed reliance on the judgment of the
Apex Court in United Commercial Bank v. Commissioner
of Income Tax [(1999) 240 ITR 355] and this Court in
Commissioner of Income Tax v. Geo Tech Construction
Corporation [(1996) 221 ITR 164]. Learned senior
counsel also placed reliance on the judgments of the
Apex Court in UCO Bank v. Commissioner of Income Tax
[(1999) 237 ITR 889] and of the Gujarat High Court in
Commissioner of Income Tax v. Ganga Charity Trust
Fund [(1986) 162 ITR 612].
7.We have considered the submissions made by both
sides. Before we deal with the contentions raised by
both sides on the merits of the controversy, at the
outset, we may state that dispute regarding
accounting of newspaper sales and advertisement
charges on cash basis, which is the subject matter in
these appeals, had been the subject matter of
adjudication by the Tribunal on earlier occasions.
Dispute arising out of similar assessment orders
passed for the assessment years 1977-78, 1978-79 and
1979-80 were adjudicated by the Tribunal and the
system of accounting adopted by the assessee was
upheld. This has been stated in paragraph 5 of the
order of the Tribunal, which reads thus:
"5. Admittedly, the issue relating to the accounting
of the newspaper sales and the advertisement
charges had been considered by the Tribunal in
respect of the earlier years. The Tribunal
considered the issue for the first time in respect
of the assessment years 1977-78 and 1978-79 in
the order in ITA Nos.240 & 241 (Coch)/84 dated
29.8.1986. In that order the Tribunal observed-
"On merits also the appeals have to be dismissed
because we have examined the system of
accounting followed by the assessee in respect of
advertisement receipts and we are satisfied that
the assessee is consistently following cash system
of accounting for the advertisement charges and
followed the same system for the assessment year
under consideration. The I.T.O. is not correct in
stating that the assessee has suddenly changed its
system of accounting with reference to the
advertisement receipts." That order was followed
by the Tribunal for the subsequent years also.
Similarly, the issue regarding newspaper sales was
considered by the Tribunal for the first time for
the assessment year 1983-84 and held that the
assessee was adopting a cash system of accounting.
Reference application filed by the department for
the assessment years 1977-78, 1978-79 and 1979-
80 were dismissed by the Tribunal by the order in
RA Nos.362 to 364 (Coch)/86 dated 25.9.1987.
The decision of the Tribunal was accepted by the
department evident from the letter C.No.406 RA
(1)/20/T/Jcd1/86-87 dated 17.8.1990 from the
CIT, Trivandrum addressed to the assessee. It
can also be seen from the letter
C.No.403/242/J/91-92 dated 15.6.1992 from the
CIT, Trivandrum that the decision of the CIT
(Appeals) on this point in favour of the assessee in
ITA No.58T/91-92 dated 9.10.1991 was accepted
by the department."
8. It is also seen from this order that the same
controversy was repeated in the assessment years
1980-81 and 1981-82, when also, the appeals filed by
the assessee before the Commissioner (Appeals) were
allowed and which orders were affirmed by the
Tribunal in ITA. 507 & 508(Coch)/85 as per order
dated 27.3.1991. These findings in the order of the
Tribunal, therefore, confirms that the system of
accounting adopted by the assessee, viz., accounting
on cash basis, was confirmed by the Tribunal in the
previous assessment years and the orders of the
Tribunal were accepted by the Department.
Accordingly, assessments were completed in the
subsequent assessment years until the issue was again
raised in the assessment years in question.
9.It is true, as contended for the Revenue, in the
proceedings under the IT Act, principles of res
judicata and estoppel are inapplicable and as held by
the Apex Court in its judgment in Toticorin Alkali
Chemicals & Fertilizers Ltd. Madras v. Commissioner
of Income Tax, Madras [227 ITR 172], acceptance of
the method of accounting even for long number of
years cannot be treated as sanctioned by law, still,
consistency is the hallmark of any system of
governance and is required to be maintained by the
Income Tax Department also. This is all the more so
in a case where the very issue has been decided by
the Tribunal and which order has attained finality
and was accepted by the Department also. In
Radhasami Satsang v. Commissioner of Income Tax [193
ITR 321], the Supreme Court had occasion to consider
the question of applicability of the principles of
res judicata to income tax proceedings. This
judgment has been followed by the Apex Court in its
subsequent judgment in Municipal Corporation of City
of Thane v. Vidyut Metallics Ltd. [(2007) 8 SCC 688].
In Radhasami Satsang (supra), the Supreme Court
considered the issue and held thus:
"We are aware of the fact that strictly speaking
res judicata does not apply to income tax
proceedings. Again, each assessment year being a
unit, what is decided in one year may not apply in
the following year but where a fundamental aspect
permeating through the different assessment
years has been found as a fact one way or the
other and parties have allowed that position to be
sustained by not challenging the order, it would
not be at all appropriate to allow the position to be
changed in a subsequent year, (unless there was)
any material change justifying the Revenue to take
a different view of the matter."
10.Referring to this judgment and various other
authorities and answering the very same contention,
the Apex Court, in its judgment in Bharat Sanchar
Nigam Limited v. Commissioner of Income Tax [282 ITR
273] summarised the legal position thus:
"The decisions cited have uniformly held that
res judicata does not apply in matters pertaining
to tax for different assessment years because res
judicata applies to debar courts from entertaining
issues on the same cause of action whereas the
cause of action for each assessment year is
distinct. The courts will generally adopt an earlier
pronouncement of the law or a conclusion of fact
unless there is a new ground urged or a material
change in the factual position. The reason why the
courts have held parties to the opinion expressed
in a decision in one assessment year to the same
opinion in a subsequent year is not because of any
principle of res judicata but because of the theory
of precedent or the precedential value of the
earlier pronouncement. Where facts and law in a
subsequent assessment year are the same, no
authority whether quasi-judicial or judicial can
generally be permitted to take a different view.
This mandate is subject only to the usual gateways
of distinguishing the earlier decision or where the
earlier decision is per incuriam. However, these
are fetters only on a coordinate Bench which,
failing the possibility of availing of either of these
gateways, may yet differ with the view expressed
and refer the matter to a Bench of superior
strength or in some cases to a Bench of superior
jurisdiction."
11. Admittedly, the orders passed by the Tribunal were
in respect of previous assessment years and going by
the principles laid down in the judgments referred to
above, each assessment year is a separate unit and
therefore, an order passed for one assessment year
does not operate as res judicata in the succeeding
assessment years. However, the issue resolved by the
Tribunal and which was accepted by the Department on
the basis of which assessments were also finalised in
the succeeding assessment years as well, is attempted
now to be re-opened. That departure is possible only
if the exemptions pointed out in the aforesaid
judgments are in existence. For that purpose, the
Assessing Officer has mainly relied on the judgment
of the Calcutta High Court in Commissioner of Income
Tax v. UCO Bank [200 ITR 68] and reference is also
made to State Bank of Travancore v. Commissioner
of Income Tax [(1986) 158 ITR 102]. In so far as the
UCO Bank (supra) is concerned, that judgment has been
overruled by the Apex Court in United Commercial Bank
v. Commissioner of Income Tax [(1999) 240 ITR 355].
The judgment in the case of State Bank of Travancore
(supra) was not followed by the Apex Court itself in
its judgment in UCO Bank v. Commissioner of Income
Tax [(1999) 237 ITR 889]. Therefore, these later
judgments of the Apex Court render the very basis on
which the Assessing Officer has proceeded non
existent.
12.As we have already stated, the method of accounting
on cash basis which is now objected by the Revenue
has been upheld by the Tribunal in its orders and
these orders of the Tribunal have become final and
were accepted and acted upon by the Revenue. This,
therefore, shows that the fundamental aspect
permeating though the assessment orders is the system
of accounting on cash basis adopted by the assessee
and which has been found by the Tribunal in favour of
the assessee. The parties have also allowed that
position to be sustained by not challenging the
order. In such a case, as held by the Apex Court in
Radhasami Satsang (supra) and Bharat Sanchar Nigam
Limited (supra), it would not at all be appropriate
to allow the position to be changed in subsequent
years.
13.Such being the situation, in our view, it was not
open to the Income Tax Officer or the Commissioner of
Income Tax (Appeals) to have ignored the binding
orders of the Tribunal and to complete the
assessments in the manner it has been done. Further,
the Revenue has no case that the accounting disabled
it from quantifying the taxable income or that the
Tribunal's orders in the previous years are vitiated
for any illegality. Therefore, we are in complete
agreement with the senior counsel for the assessee
that the view taken by the Tribunal in these cases,
which is consistent with the orders passed by it for
the previous assessment years, deserves to be upheld.
14.Turning to the merits, as we have already stated,
the short question raised is whether the assessee is
entitled to maintain the accounts regarding the sales
of newspaper and advertisement charges on cash basis,
instead of mercantile basis adopted by it in respect
of its other areas of operation. Section 145 of the
IT Act provides for method of accounting. Prior to
its substitution by Finance Act, 1997, section 145
(1) provided that "income chargeable under the head
"Profits and gains of business or profession" or
"Income from other sources" shall be computed in
accordance with the method of accounting regularly
employed by the assessee. Therefore, section 145 of
the IT Act gave liberty to the assessee to compute
income chargeable under the heads mentioned in the
section in accordance with the method of accounting
regularly employed by the assessee itself. However,
with the substitution of the section by the Finance
Act, 1997, it has been made mandatory that the said
computation shall be in accordance with either cash
or mercantile system of accounting regularly employed
by the assessee.
15.The concept of mercantile system of accounting and
cash system has been explained by the Apex Court in
its judgment in Keshav Mills Ltd. v. Commissioner of
Income Tax, Bombay [(1953) 23 ITR 230]. In this
judgment, it was held that the mercantile system of
accounting or what is otherwise known as the double
entry system is opposite to cash system of book
keeping under which a record is kept for actual
receipts and actual cash payments, entries being made
only when money is actually collected and disbursed.
It is also stated that mercantile system brings into
credit what is due, immediately it becomes legally
due and before it is actually received and it brings
into debit expenditure the amount for which a legal
liability has been incurred before it is actually
disbursed. In mercantile system, the profits or
gains of the business which are thus credited are not
realised but having been earned are treated as
received though in fact there is nothing more than an
accrual or arising of the profits at that stage.
16.It has been held in Bhagwandas Jagdishprasad & Co.
v. Commissioner of Income Tax [(1983) 144 ITR 845]
that an assessee may employ different methods of
accounting for different sources of income, or one
method of accounting for one part of his business or
one class of customers and a different method for
another part of his business or another class of
customers. It is also held that if he employs such
different methods regularly and consistently, the
profits would have to be computed in accordance with
the respective methods.
17.Having thus seen the difference between the
mercantile system and cash system and also the
liberty that an assessee has in opting for the system
of accounting he regularly adopts, we shall now
address the controversy raised before us.
18.As we have already seen, the issue raised is whether
the assessee having opted for mercantile system of
accounting in respect of its activities, could have
adopted cash system in respect of sale of newspaper
and advertisement charges. A reading of the
assessment orders show that the assessing officer
held this issue against the assessee mainly relying
on the judgment of the Calcutta High court in
Commissioner of Income Tax v. UCO Bank [200 ITR 68].
This judgment, as rightly pointed out by the learned
counsel for the assessee, has since been overruled by
the Apex Court in its judgment in United Commercial
Bank v. Commissioner of Income Tax [(1999) 240 ITR
355]. In that judgment, referring to the judgment in
Investment Ltd. v. Commissioner of Income Tax
[(1970) 77 ITR 533], the Apex Court held that a
method of accounting adopted by the trader
consistently and regularly cannot be discarded by the
departmental authorities on the view that he should
have adopted a different method of accounting and
that the method of accounting regularly employed may
be discarded only if, in the opinion of the taxing
authorities, income of the trader cannot be properly
deduced therefrom.
19.In United Commercial Bank (supra), one of the
contentions raised by the learned counsel for the
Revenue and noticed at page 362 of the report is that
since the assessee had finalised his accounts as per
the statutory provisions, thereafter, it is not
permissible to adopt for income tax purposes a method
different from the one on the basis of which the
final accounts were prepared. This contention was
sought to be substantiated by relying on the judgment
in State Bank of Travancore v. Commissioner of
Income Tax [(1986) 158 ITR 102]. The Apex Court has
specifically held that the contention does not have
any substance and has finally concluded thus:
"Hence for the purpose of income tax whichever
method is adopted by the assessee a true
picture of the profits and gains, that is to say,
the real income is to be disclosed. For
determining the real income, the entries in a
balance sheet require to be maintained in the
statutory form, may not be decisive or
conclusive. In such cases, it is open to the
income Tax Officer as well as the assessee to
point out the true and proper income while
submitting income tax return."
20.Thereafter, the principles were summarised thus:
"From the decisions discussed above, it can be
held:
(1) That for valuing the closing stock, it is open
to the assessee to value it at the cost or market
value, whichever is lower;
(2) In the balance-sheet, if the securities and
shares are valued at cost but from that no firm
conclusion can be drawn. A taxpayer is free to
employ for the purpose of his trade, his own
method of keeping accounts and for that purpose,
to value stock-in-trade either at cost or market
price.
(3) A method of accounting adopted by the
taxpayer consistently and regularly cannot be
discarded by the departmental authorities on the
view that he should have adopted a different
method of keeping accounts or of valuation.
(4) The concept of real income is certainly
applicable in judging whether there has been
income or not, but, in every case, it must be
applied with care and within their recognised
limits.
(5) Whether the income has really accrued or
arisen to the assessee must be judged in the light
of the reality of the situation.
(6) Under section 145 of the Act, in a case
where accounts are correct and complete but the
method employed is such that in the opinion of the
Income-tax Officer, the income cannot be
properly deduced therefrom, the computation
shall be made in such manner and on such basis as
the Income-tax Officer may determine."
21.Again at page 367, the Apex Court held thus:
"In our view, as stated above, consistently for
30 years, the assessee was valuing the stock-in-
trade at cost for the purpose of statutory
balance sheet, and for the income-tax return,
valuation was at cost or market value, whichever
was lower. That practice was accepted by the
Department and there was no justifiable reason
for not accepting the same. Preparation of the
balance-sheet in accordance with the statutory
provision would not disentitle the assessee in
submitting he income-tax return on the real
taxable income in accordance with the method of
accounting adopted by the assessee consistently
and regularly."
22.Learned senior counsel for the assessee invited our
attention to the Division Bench judgment of this
Court in Commissioner of Income Tax v. Geo Tech
Construction Corporation [(1996) 221 ITR 164]. That
was the case of a contractor whose system of
accounting showed that the receipts were accounted on
cash basis and expenses on mercantile basis. In this
judgment, upholding the system of accounting of the
assessee and recognising the liberty available to an
assessee to maintain the hybrid system of accounting,
the Division Bench held thus:
"The accounting process is the individual
function of the assessee to know his position of
accounts and in this context if it is found that the
assessee has maintained accounts according to his
system, may be based on convenience to adopt one
known system, it has always been understood that
the assessee who maintains his own accounts has
the liberty to employ his system for the purpose
of maintaining accounts in respect of his
transactions. The courts and even those engaged
in the ancillary field have sought to introduce and
stamp labours in regard thereto and, as is common,
a ready phrase from the field of horticulture gets
introduced to describe such system as a hybrid
system of accounting, really leading to one
fundamental fact of life that account
consciousness gets reflected in the process of
system of keeping accounts which have to be
understood and appreciated in the context of the
person or assessee concerned."
23.Reading of this judgment also shows that the
Division Bench had distinguished the judgment of the
Madras High Court in G.Padmanabha Chettiar and Sons
v. Commissioner of Income Tax [(1990) 182 ITR 1],
which was relied on by the learned standing counsel
for the Revenue, in order to substantiate the
contention that the assessee cannot be permitted to
adopt the hybrid system of accounting. Similarly,
this Court has also referred to the judgment of the
Apex Court in Commissioner of Income Tax v. Central
India Industries Ltd. (1971) 82 ITR 555], which
contained the undisputed principle that no one gets a
vested right in an erroneous order.
24.The other judgment of the Apex Court relied on by
the counsel for the assessee is UCO Bank v.
Commissioner of Income Tax [(1999) 237 ITR 889].
Reading of this judgment shows that the Apex Court
declined to follow the judgment in State Bank of
Travancore (supra), which again was relied on by the
assessing officer. This was a case where the
appellant, which had adopted mercantile system of
accounting, had credited amounts by way of interest
to suspense account since recovery of the said
amount was doubtful. On that basis, the assessee
excluded the said amount from computing the total
income. Though the Commissioner of Income Tax held
the exclusion to be erroneous, the Tribunal allowed
the appeal of the assessee. The matter went to the
High Court and the High Court answered the reference
in favour of the Revenue, following the judgment in
State Bank of Travancore (supra). The appeal filed
by the assessee was considered by the Apex court and
the judgment shows that a mixed method of accounting
was followed in as much as the assessee had made
credit to the suspense account as mentioned above.
In this judgment, approving the mixed system of
accounting adopted by the assessee, the Apex Court
held that the very fact that the assessee, although
generally adopted the mercantile system of
accounting, keeps such interest amounts in a suspense
account and does not bring these amounts to the
Profit and Loss account, goes to show that the
assessee was following a mixed system of accounting
by which such interest is included in its income only
when it is actually received.
25.The judgment of Gujarat High court in Commissioner
of Income Tax v. Ganga Charity Trust Fund [(1986)
162 ITR 612] was also relied on by the counsel for
the assessee. This judgment shows that though the
assessee had initially followed the mercantile system
of accounting for the assessment year 1972-73, it had
switched over to accounting on cash basis. Approving
this, the Gujarat High Court held thus:
"On the second question regarding the
change of system of accounting, we find that
when the assessee-trust experienced difficulty
in the assessment year 1971-72, because of non-
receipt of income from interest from two
parties with which it had placed its funds by way
of deposits, it decided to switch over to cash
system of accounting, so that it may not be
required to pay income-tax on notional income as
on earlier occasions. There is nothing in the Act
which precludes the assessee, who bona fide
desires to switch over to another system of
accounting, from doing so. There is no finding
of fact that the switch over to the cash system
of accounting in the previous year relevant to
the assessment year 1972-73 was not bona fide.
Besides, it is not shown by the Revenue that
this change lacked durability or regularity and
was merely a stop-gap arrangement to avoid
payment of tax. In such fact situation, we fail
to understand, why a bona fide assessee should
be precluded from switching over to another
system of accounting which he finds convenient
and which would reflect his real income. In CIT
v. Rajasthan Investment Co. (P) Ltd. [1978] 113
ITR 294, the Calcutta High Court held that on
the Tribunal's finding that the change in the
method of accounting of the assessee was bona
fide and in keeping with the real state of
affairs of its business, the change in the
method of accounting was proper and
permissible. In Reform Flour Mills P. Ltd. v.
CIT [1978] 114 ITR 227, the Calcutta High
Court held that it was open to a taxpayer to
adjust his own affairs in such a way that his tax
liability may be reduced, provided the means
employed are lawful. It further held that
section 145(1) of the Act does not place any
embargo on the assessee's right to alter the
method of accounting. In other words,
according to their Lordships, the assessee was
entitled to change his method of accounting
unilaterally. In Snow White Food Products Co.
Ltd. v. CIT [1983] 141 ITR 861, the Calcutta
High Court reiterated that an assessee is
entitled to change his regular method of
accounting by another regular method and such
a change can be effected even in respect of a
part of the assessee's income. According to
their Lordships, a recognised method of
accounting followed regularly would necessarily
result in a proper computation of the assessee's
real income. Even if one regular method of
accounting is substituted by another regular
method, the same result will follow. It is only in
a case where the assessee changes his regular
method of accounting by another method and
does not follow the changed method regularly
thereafter that it may be possible to say that
by introducing successive changes in his method
of accounting, he proposes to exclude certain
items in the computation of his total income. In
such a case, the bona fides of the assessee may
be doubted. Unless there is material on record
to hold that the assessee's action is not bona
fide, the change in the method of accounting
mush be accepted."
26.Reading of the judgments therefore show that having
regard to the provisions of section 145 of the IT
Act, the Apex Court, this Court and the Gujarat High
Court have approved the liberty available to the
assessee to follow either of the two systems of
accounting or the hybrid system. As reiterated by
the Apex Court in Taparia Tools Ltd. v. Commissioner
of Income Tax [(2015) 276 CTR 1], the entries in the
books of accounts are not determinative or conclusive
and any matter relevant are to be examined on the
touchstone of provisions contained in the Act. Apart
from arguing that for the sales of newspaper and
advertisement charges, it was not permissible to
adopt accounting on cash basis, it was not even
contended by the Revenue that the taxable income
could not be deduced from the accounts of the
assessee.
In the light of the principles of law deducible from
the statutory provisions and the judgments that we
have referred to, we are of the view that no
illegality can be attributed to the decision of the
Tribunal. In such circumstances, answering the
question of law in favour of the assessee and against
the Revenue, these appeals are dismissed.
Sd/-
ANTONY DOMINIC, Judge.
Sd/-
SHAJI P. CHALY, Judge.
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