JUDGEMENT
T.A. Bukte, Judicial Member -
(1.)BOTH these appeals are filed by the appellant-company against the common order of the CIT (A) dated 7-1U986 on the only common ground that the CIT (A) has erred in confirming the orders of the ITO who disallowed the interest of Rs. 49,435 for the assessment year 1980-81 and ks. l 42,205 for the assessment year 1981-82 on the ground that the appellant-company has not changed the method of accounting bona fide and has not followed the said method cosnistently. The appellant-company followed the mercantile system of accounting It changed its method of accounting so fax as the realisation of the interest is concerned from mercantile system to cash system. The ITO held that the appellant-company has changed its method of accounting mainly with a view to reduce its liability to income-tax. The CIT (A) has confirmed the said view.
(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 proceedings cannot be taken as sufficient ground for changing the basis of accounting. He has further held that the appellant-company was following the mercantile system of accounting up to the assessment year 1979-80 even in respect of interest. He has held that the appellant-company has not followed the changed method consistently. Another ground in the view of the ITO to reject the changed method of accounting was that the debtors from whom the assessee had to receive interest had all provided for interest due to the assessee on mercantile basis. Therefore, the ITO calculated the difference between the interest receivable and the interest received by the assessee and added the same to the income of the assessee. The ITO gave these reasons for the assessment year 1980-81.
However, the ITO gave some more reasons not to accept the changed method of accounting for the assessment year 1981-82. He has stated that the appellant-company is under the control of the Jalan family of M/s Soorajmull Nagarmull. Out of 2,00,000 issued and paid up equity shares of the company about 90 per cent of them are held by the Jalans, their associates and companies under their management. Of the 4 Directors one is a share-broker, other three are paid employees of the concerns of the Jalan family. The investments of money advanced as loans are to the firms and companies under the same management of the Jalan family. However, from where these materials were collected by the 1TO is not on record. Moreover, the appellant-company has challenged that there is no basis for the ITO to give these reasons not to accept the changed method of accounting adopted by it. It would be sufficient here not to rely on these reasons to arrive at a final conclusion in these appeals as there is no basis behind the said reasons.
(3.)THE appellant-company being aggrieved by the orders of the ITO rejecting the changed method of accounting so far as the item of realisation of interest is concerned and making additions of Rs. 49,435 for the assessment year 1980-81 and Rs. 1,42,205 for the assessment year 1981-82 being the difference between the interest received and the interest receivable by the appellant-company, took the dispute before the CIT (A). THE CIT (A) agreed with the action taken by the ITO and confirmed his orders. It is this common order of the CIT (A) which is challenged before the Tribunal.
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