High Court Of Calcutta
CIT vs. United Credit Ltd.
Section 145
Asst. Year 1987-88, 1988-89
Ajoy Nath Ray & Indira Banerjee, JJ.
IT Ref. No. 51 of 1997
3rd July, 2002
ORDER
BY THE COURT :
The questions referred to us are as follows :
(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in its view that the assessee could follow the cash system of accounting in respect of interest income and continue to follow the mercantile system of accounting in respect of interest expenditure ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the additions of Rs. 44,90,434 and Rs. 25,44,968 for the asst. yrs. 1987-88 and 1988-89, respectively ?
The second question is consequential to the first, in the relevant assessment year which came before the amendment of s. 145, the assessee followed in regard to the head of interest, a mercantile system of debiting its own liability to pay interest, and a cash system in regard to showing receipts only for cash interest actually received.
As against one case decided by the Madras High Court cited on behalf of the Department, numerous cases were cited by Mr. Murarka appearing for the assessee, showing that the Courts have, on an overwhelming majority of occasions, held that the above type of mixed accounts, even within a single head itself, is permissible. The reason is that it was not forbidden at the material time and further that such a mixing of accounts is not an accounting process of that nature which stops the true state of profits from being known fairly and accurately from the accounts of the assessee over a reasonably long range and span of assessment years.
Thus both the questions are answered in the affirmative and in favour of the assessee.
[Citation : 257 ITR 443]
