Rajes Kumar, J. - (1.) The Income Tax Appellate Tribunal, Allahabad has referred the following question of law under Section 256(1) of the Income Tax Act, 1961, (hereinafter referred to as "the Act") for opinion of this Court. "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in confirming the order of the C.LT. (A), who had upheld the order of the I.T.O. In calculating the interest income on accrual basis, while the assessee had shown such income on receipt basis ? "
(2.) The present Reference relates to the Assessment Year 1980-81.
(3.) Brief facts of the case are as follows: The assessee had interest inline by advancing loans against security of ornaments It was noticed by the I.T.O. That the assessee has shown his interest income from such business oil receipt basis whereas interest was being paid to its creditors on accrual basis. He had, therefore, opined that this was not a correct and consistent method The assessee had explained before the I.T.O. That this was perfectly permissible method of accounting, and it is open to an assessee to maintain part of his accounts on cash basis and part of his accounts on mercantile basis. But the I.T.O. did not agree with the contention of the assessee. He has noted that the assessee is following mercantile system of accountancy inasmuch as it has been mentioned in the return in sub-part-C, Annexure-D that the assessee is following mercantile system of accountancy. He also observed that even if the assessee had been following a mixed system of accountancy, which he is not doing, then also in a single transaction of business, that is, interest received and interest paid, the, system should have been the same. He could apply different method of accounting to different sources of income but not for the same source of income. In the circumstances, he had calculated the interest on accrual basis @ 14%, which worked out to Rs. 18,263/-. The assessee had shown interest from pledging of goods at Rs. 9,451/-. Thus, difference of Rs. 8,812/- was added to the income of the assessee.;