Itr/424/1995 Of Munjal Sales Corporation v. Commissioner Of Income Tax,Lud

I N THE HI GH COURT OF PUNJAB AND HARYANA AT CHANDI GARH M/ s Munj al Sal es Cor por at i on ver sus I TR No. 424 of 1995 ( O&M)DATE OF DECI SI ON: 24. 08. 2016 …. . Appl i cant The Commi ssi oner of I ncome- t ax Cent r al , Ludhi ana . . . . . Respondent CORAM: - HON’ BLE MR. JUSTI CE S. J. VAZI FDAR, CHI EF JUSTI CE HON’ BLE MR. JUSTI CE DEEPAK SI BAL Pr esent :Mr . Akshay Bhan, Seni or Advocat e wi t hMr . Al ok Mi t t al , Advocat e f or t he appl i cant Mr . Zor a Si ngh Kl ar , Seni or St andi ng Counsel ,f or t he r espondent - Depar t ment. . S. J. VAZI FDAR, ACTI NGCHI EF JUSTI CE: Thi s i s a r ef er ence by t he I ncome Tax Appel l at eTr i bunalper t ai ni ng t o t he Assessment Year 1984- 85. 2.The Tr i bunalwas of t he opi ni on t hat t he f ol l owi ngquest i ons of l aw r ai sed by t he appl i cant / assessee i n t hei rappl i cat i on under Sect i on 256( 1) of t he I ncome Tax Act , 1961,do ar i se f r om i t s or der : - “ 1)Whet her on t he f act s and i n t he ci r cumst ances of t hecase, t he Tr i bunal was r i ght i n hol di ng t hat t heappl i cant coul d not adopt cash syst em of account i ng i nr espect of commi ssi on f r om M/ s. Maj est i c Aut o Li mi t ed,whi ch was a new sour ce of i ncome?case, t he Tr i bunal was r i ght i n hol di ng t hat t heappl i cant coul d not adopt cash syst em of account i ng i nr espect of commi ssi on f r om M/ s. Maj est i c Aut o Li mi t ed,whi ch was a new sour ce of i ncome? 2.Whet her on t he f act s and i n t he ci r cumst ances of t hecase, t he Tr i bunal was r i ght i n hol di ng t hat t heappl i cant was l i abl e t o i nt er est u/ s 215 of t he I ncome-t ax Act , 1961?”case, t he Tr i bunal was r i ght i n hol di ng t hat t heappl i cant was l i abl e t o i nt er est u/ s 215 of t he I ncome-t ax Act , 1961?” 3.TheTr i bunal accor di ngl y pr oceeded t o dr aw up ast at ement of case whi ch st at es t he f ol l owi ng f act s: ( A)The assessee, a r egi st er ed f i r m, ear ned i ncome byway of commi ssi on f or t he account i ng per i od endi ng 31. 03. 1984f r om M/ s Her o Cycl es ( P) Li mi t ed, Mr . Hi ghway Cycl e I ndust r i esLi mi t ed, M/ s Rockman Cycl e I ndust r i es and M/ s Maj est i c Aut oLi mi t ed ( MAL) . Thi s r ef er ence r el at es t o t he val i di t y of t heassessee’ s havi ng changedt hei r account i ng syst em f r om t hemer cant i l esyst em t ot hecashsyst em i n t he mi dst of t heaccount i ng per i od endi ng 31. 03. 1984. The assessee had ent er ed i nt o an agr eement dat ed18. 03. 1981 wi t h MAL t i t l ed “ Sol e Sel l i ng Agent ” . The t er ms andcondi t i ons t her eof ar e cont ai ned i n a l et t er addr essed by MALt o t he assessee dat ed 18. 03. 1981. The assessee endor sed i t saccept ance at t he f oot not e of t he l et t er . MAL agr eed t o avai lt he assessee’ s mar ket i ng ser vi ces wi t h ef f ect f r om 01. 04. 1981t i l l 31. 12. 1982. The ar r angement was t o be r evi ewedt her eaf t er .I n consi der at i on of a payment of Rs. 30, 000/ - permont h i ncl udi ng expenses of TA, DA,post age, t el ephone,t el egr ams and ot her i nci dent al s of t he assessee’ s t r avel l i ngagent and ot her st af f member s and execut i ves, t he assesseesagr eed t o pr ovi de t he ser vi ces ment i oned t her ei n whi chi ncl uded sendi ng t hei r r epr esent at i ve t o t he deal er s of MAL atvar i ous pl aces t hr oughout I ndi a. The assessee’ sr epr esent at i ves wer e r equi r ed t o f or war d t o MAL dai l y r epor t sof t hei r vi si t s t o each deal er , i nt er al i a, i n r espect ofshowr oom condi t i on, sal e of any ot her br and by t he deal er ,st ock posi t i on and any ot her mat t er f el t necessar y. The assessee had been showi ng t he commi ssi on der i vedpur suant t o t hi s agr eement on accr ual basi s. The assessee had been showi ng t he commi ssi on der i vedpur suant t o t hi s agr eement on accr ual basi s. ( B)MAL and t he assessee t her eaf t er ent er ed i nt o anagr eement dat ed 01. 10. 1983. Bycl ause- 1, MAL appoi nt ed t heassessee as sol e sel l i ng agent s f or sal e of al l t hei r pr oduct si n I ndi a, Nepal and Bhut an. The agr eement was f or t he per i od01. 10. 1983 t o 30. 09. 1988. MAL, however , r eser ved t o i t sel f t her i ght t o sel l i t s pr oduct s t o i t s bul k buyer s f or whi ch t heassessee was not ent i t l ed t o any commi ssi on. Cl auses 4, 5, 6, 11, 12 and 13 of t hi s agr eement r ead as under : - “ 4.The Sel l i ng Agent s her eby agr ee t o obt ai nor pr ocur e f r om f i nanci al l y sound buyer s i n I ndi a,or der s f or mi ni mum 75% of t ot al pr oduct i on of t hePr oduct of t he Pr i nci pal s dur i ng any per i od at t hepr i ces and upon t he t er ms speci f i ed her ei n and t he eventi n of hi s f ai l ur e t o do so, t he pr i nci pal s shal l haver i ght t o t er mi nat e t hi s agr eement by not i f yi ng t hesel l i ng agent of such t er mi nat i on. I f any goods ar e l ef tunsol d at t he t i me of t er mi nat i on of t hi s agr eement ,t hey shal l have t o be l i f t ed by sel l i ng agent s at t hesel l i ng pr i ce of t he Pr i nci pal s, t hen i n f or ce. 5.That t he sel l i ng agent s wi l l not engage orbe i nt er est ed ei t her di r ect l y or i ndi r ect l y as pr i nci palagent or empl oyee, i n sel l i ng goods of any descr i pt i onof ki nd si mi l ar t o t hose of t he company or desi gned t oper f or m t he l i ke f unct i ons as t hose of t he company,whet her al one or i n conj unct i on wi t h any ot her goods,wi t hout obt ai ni ng t he pr evi ous consent i n wr i t i ng of t hecompany. 6.That t he sel l i ng agent s wi l l use i t s bestendeavour s and shal l empl oy necessar y st af f t o pr omot eand ext end t he sal es of pr oduct t o al l pot ent i al buyer st her eof . 11.That t he sel l i ng agent s shal l be ent i t l edt o get commi ssi on @ 1. 5% ( i ncl udi ng del - cr eder ecommi ssi on) upon t he i nvoi ce pr i ce of t he pr oduct i ssuedby t he Pr i nci pal s i n I ndi a, ot her t han Di r ect Sal es madeby t he Pr i nci pal s as ment i oned i n col umn 3 above andsal es t o Gover nment Depar t ment s or t he compani es ownedby t he Gover nment . The sel l i ng agent s shal l al so be notent i t l ed t o any commi ssi on on expor t s. The above r at e ofcommi ssi on i s i ncl usi ve of t he del - cr eder e commi ssi on. 12.The sel l i ng agent s shal l not be ent i t l ed t ocommi ssi on on t he amount of any i nvoi ce such amountshal l be whol l y or par t l y l ost by r easonsof t he i nsol vency of t he cust omer s. The sel l i ng agent s shal l ber esponsi bl e f or maki ng good t he l oss on account of baddebt s ar i si ng out of sal e of t he pr oduct s of t hePr i nci pal s made dur i ng t he per i od of agr eement . 13.That al l t he di sput ed bi l l s shal l beset t l ed by t he sel l i ng agent s at t hei r expenses and t hel oss on r et ur n of goods shal l al so be bor ne by t hem. ” ( C)Af t er ent er i ng i nt o t he agr eement dat ed 01. 10. 1983,t he assessee changed i t s syst em of account i ng f r om t hemer cant i l e t o t he cash basi s. The change was onl y i n r espectof t he commi ssi on r ecei ved f r om MAL. The assessee cont i nuedshowi ng t he commi ssi on r ecei ved f r om t he ot her concer ns on t hemer cant i l e/ accr ual basi s. 4.The account i ng year of t he assessee was t he f i r stday of Apr i l each year t o t he 31[st] day of Mar chof t hef ol l owi ng year . As we ment i oned ear l i er , dur i ng t he assessmentyear i n quest i oni . e. 1984- 85, t he assessee f ol l owed t hemer cant i l e syst em f or t he per i od 01. 04. 1983 t o 30. 09. 1983 andt he cash syst em f or t he per i od 01. 10. 1983 t o 31. 03. 1984. ( C)Af t er ent er i ng i nt o t he agr eement dat ed 01. 10. 1983,t he assessee changed i t s syst em of account i ng f r om t hemer cant i l e t o t he cash basi s. The change was onl y i n r espectof t he commi ssi on r ecei ved f r om MAL. The assessee cont i nuedshowi ng t he commi ssi on r ecei ved f r om t he ot her concer ns on t hemer cant i l e/ accr ual basi s. 4.The account i ng year of t he assessee was t he f i r stday of Apr i l each year t o t he 31[st] day of Mar chof t hef ol l owi ng year . As we ment i oned ear l i er , dur i ng t he assessmentyear i n quest i oni . e. 1984- 85, t he assessee f ol l owed t hemer cant i l e syst em f or t he per i od 01. 04. 1983 t o 30. 09. 1983 andt he cash syst em f or t he per i od 01. 10. 1983 t o 31. 03. 1984. 5.The Assessi ng Of f i cer di d not accept t he change ont he gr ound t hat t he sour ce of i ncome i n r espect of al l f ourconcer ns was t he same. The Commi ssi oner of I ncome Tax( Appeal s) uphel d t he Assessi ng Of f i cer ’ s deci si on, as di d t heTr i bunal .The Assessi ng Of f i cer r ef er r ed t o t he aut hor i t i esr el i ed upon by t he par t i es some of whi ch we wi l lshor t l y dealwi t h. He al so r ef er r ed t o Sect i on 145( 1) , whi ch at t her el evant t i me, r ead as under : - “ Met hod of account i ng. 145. ( 1) I ncome char geabl e under t he head “ Pr of i t s andgai ns of busi ness or pr of essi on” or “ I ncome f r om ot hersour ces” shal l be comput ed i n accor dance wi t h t he met hodof account i ng r egul ar l y empl oyed by t he assessee:gai ns of busi ness or pr of essi on” or “ I ncome f r om ot hersour ces” shal l be comput ed i n accor dance wi t h t he met hodof account i ng r egul ar l y empl oyed by t he assessee: Pr ovi ded t hat i n any case wher e t he account s ar e cor r ectand compl et e t o t he sat i sf act i on of t he I ncome- t axOf f i cer but t he met hod empl oyed i s such t hat , i n t heopi ni on of t he I ncome- t axOf f i cer , t he i ncome cannotpr oper l y t he( si c)deduced t her ef r om, t hen t hecomput at i on shal l be made upon such basi s and i n suchmanner as t he I ncome- t ax of f i cer may det er mi ne. ( 2) Wher e t he I ncome- t ax Of f i cer i s not sat i sf i ed aboutt he cor r ect ness or t he compl et eness of t he account s oft he assessee, or wher e no met hod of account i ng has beenr egul ar l y empl oyed by t he assessee, t he I ncome- t axOf f i cer may make an assessment i n t he manner pr ovi ded i nsect i on 144. ” The Assessi ng Of f i cer was of t he opi ni on t hat t hei ncome cannot be pr oper l y deduced on account of t he change i nt he account i ng syst em and, t her ef or e, r ej ect ed t he assessee’ scomput at i on and pr oceeded t o r e- comput e t he assessee’ s i ncomeon t he basi s of t he mer cant i l e syst em i n r espect of t he i ncomef r om MAL. 6.The CI T( A) al l owed t he appealonl y par t l y but on ani ssue t hat i s not r el evant t o t hi s r ef er ence. On t he quest i onsr ef er r ed, t he CI T( A)conf i r med t he deci si on of t he Assessi ngOf f i cer . The assessees sought t o j ust i f y t he change on accountoft hei r havi ng ent er ed i nt o a f r esh agr eement wi t h MAL dat ed01. 10. 1983.The CI T( A) , however , hel d t hat t he nat ur e ofi ncome was al most t he same even af t er and i n r espect of t henew agr eement dat ed 01. 10. 1983 and t hati t i s t he same sour ceof i ncome. He uphel d t he Assessi ng Of f i cer ’ s opi ni on t hat t heassessees cannot be al l owed t o adopt t wo di f f er ent met hods ofaccount i ng. On behal f t he depar t ment , consi der abl e emphasi s waspl aced on t he f ol l owi ng obser vat i ons i n t he assessment or der : -“ 5. 1…. .…….…….…….Fur t her t he i ncome ( net i ncome) means t he gr oss i ncomel ess expendi t ur e r el evant f or ear ni ng t hat gr oss i ncome. I n On behal f t he depar t ment , consi der abl e emphasi s waspl aced on t he f ol l owi ng obser vat i ons i n t he assessment or der : -“ 5. 1…. .…….…….…….Fur t her t he i ncome ( net i ncome) means t he gr oss i ncomel ess expendi t ur e r el evant f or ear ni ng t hat gr oss i ncome. I n t he case under appeal t he I TO has est abl i shed beyond doubtwhi l e ar gui ng t he case bef or e me t hat t he appel l ant has shownal l t he expenses on accr ual basi s wher eas t he i ncome i s shownon r ecei pt basi s. I t i s def i ni t el y not a pr oper met hod ofkeepi ng t he books of account . Ther e i s no consi st ency i nmai nt ai ni ng of t he account s of i ncome because t he expenseshave been cl ai med on mer cant i l e basi s and t he gr oss i ncomehas been shown on r ecei pt basi s. Keepi ng i n vi ew t he abovedi scussi on and al so t he f or cef ul ar gument of t he I TO I hol dt hat al l t he case- l aws quot ed by t he appel l ant ar e notr el evant on t he f act s of t hi s case and t he ar gument s of t heappel l ant ’ s counsel al so st and on no f oot i ng. I , t her ef or e,f ur t her hel d t hat i t i s not a new sour ce of i ncome andkeepi ng i n vi ew t he dubi ous met hod of pl anni ng f or evasi on oft ax, t he I TO has r i ght l y came t o t he concl usi on t hat t hei ncome f r om t hi s sour ce shoul d have been t aken on mer cant i l ebasi s. I n t hese ci r cumst ances t he addi t i on of Rs. 14, 09, 241/ -made by t he I TO under t he head “ Commi ssi on I ncome” i sconf i r med. ” 7.The Tr i bunal par t l y al l owed t he assessee’ s appeal ont he quest i ons r ef er r ed by i t . The Tr i bunal uphel d t he deci si onof t he Assessi ng Of f i cer and of t he CI T( A) . The Tr i bunal hel dt hat t he assessee had not adopt ed t he change i n t he account i ngsyst em f r om mer cant i l e t o cash i n r espect of t hei r ot her t hr eepr i nci pal s and t hat t he f ourpr i nci pal s f or med a cl ass. TheTr i bunal , t her ef or e, hel d t hat t he assessee was not ent i t l edt o swi t ch over f r om t he mer cant i l e t o t he cash syst em onl y i nr espect of i t s agr eement wi t h MAL. The Tr i bunal al so hel d t hatt he sour ce of i ncome r emai ned t he same i n r espect of al l t hepr i nci pal s but t hat i t i s onl y t he i ncome f r om MAL whi ch hadbeen subj ect ed t o t hi s change. 8.Pr i or t o01. 04. 1999, i . e. , even dur i ng t heassessment year i n quest i on, an assessee was ent i t l ed t of ol l ow t he mer cant i l e/ accr ual syst em as wel l as t he cashsyst em whi ch was commonl y r ef er r ed t o as t he hybr i d syst em.Thi s r ef er ence r ai ses var i ous i ssues r el at i ng t o an assessee’ sr i ght t o swi t ch over f r om one account i ng syst em t o anot her . 9.We wi l l pr esume as cont ended by Mr . Zor a Si ngh Kl ar ,t he l ear ned counsel appear i ng on behal f of t her espondent / depar t ment t hat by t he wor d “ sour ce” , t he Tr i bunalact ual l y meantt he “ nat ur e” of i ncome. We f i nd t hat t o be sof or t he sour ce i s admi t t edl ydi f f er ent , namel y, t he f ourpr i nci pal s. The Tr i bunalmeant t hat t he nat ur e of t he i ncomewas t he same. The Tr i bunal , however , obser ved t hat evenassumi ng t hat t he t woagr eement s wer e di f f er ent f r om eachot her , t he quest i on t hat r emai ned was whet her t he change hadbeen br ought i n r espect of a speci f i c sour ce of i ncome or apar t i cul ar cl ass of cust omer s and hel d t hatf r om ei t her poi ntof vi ew, t her e was no j ust i f i cat i on f or maki ng a change on t heal l egat i on t hatt he payment s wer e notr ecei ved pr ompt l y andr egul ar l y f r om MAL.I t was hel d t hat t her e was not hi ng onr ecor d t o est abl i sh t hat ar r ear s wer e due f r om MAL and t hat i twas, t her ef or e, t o t he det r i ment of t he assessee on account oft he i ncome bei ng shown on accr ual basi s. 10.Ther e i s not hi ng i n t he Act even as i t st ood at t her el evant t i me t hat pr event ed an assessee f r om swi t chi ng overf r om one syst em t o t he ot her . Fur t her , at t he r el evant t i me,an assessee was ent i t l ed t o f ol l ow a hybr i d syst em, t o wi t , adi f f er ent account i ng syst em i n r espect of i t s var i oust r ansact i ons. Even i n r espect of si mi l ar t r ansact i ons, anassessee was ent i t l ed t o f ol l ow ei t her syst em. Thi s, however ,was subj ect t o t he I ncome Tax Of f i cer ’ spower under t hepr ovi so t o Sect i on 145( 1) t o pr event t he assessee f r om doi ngso. Under t he pr ovi so, even wher e t he account s ar e cor r ect andcompl et e t o t he sat i sf act i on of t he I ncome Tax Of f i cer but t hemet hod empl oyed i s such t hat i n t he opi ni on of t he I ncome Tax Of f i cer , t he i ncome cannot pr oper l y be deduced t her ef r om, t hecomput at i on i s t o be made upon such basi s and i n such manneras t he I ncome Tax Of f i cer may det er mi ne.The pr ovi so,t her ef or e, does not pl ace a bar upon t he assessee’ s swi t chi ngover f r om one syst em t o t he ot her . Nor di d i tat t he r el evantt i mebar t he assessee f r om adopt i ng di f f er ent syst ems ofaccount i ng i n r espect of di f f er ent t r ansact i ons even i f t heywer e si mi l ari n nat ur e. St r i ct l y, t he pr ovi so does not evenpr ohi bi t t he assessee f r om swi t chi ng over f r om one syst em t ot he ot her i n t he mi ddl e of t he account i ng year . The assesseecoul d do sosubj ect t o t he I ncome Tax Of f i cer ’ s r i ght t oi nsi st upon a par t i cul ar basi s of account i ng i n t he event ofhi s bei ng of t he opi ni on t hat i ncomecannot pr oper l y bededuced on t he basi s of t he syst em adopt ed by t he assessee. 11.For t he f i r st account i ng year , a par t y woul d, i n anyevent , be ent i t l ed t o f ol l ow any account i ng syst em subj ectonl y t o t he I ncome Tax Of f i cer ’ s i nsi st i ng upon a par t i cul arsyst em i n t he event of t he i ngr edi ent s of t he pr ovi so t o t hesect i on bei ng sat i sf i ed. The wor d “ r egul ar l y” i n Sect i on145( 1) i ndi cat es t hat havi ng chosen a par t i cul ar syst em ofaccount i ng, an assessee cannot swi t ch over t o anot her syst emuni l at er al l y.A vi ew t o t he cont r ar y woul d r ender t he wor d“ r egul ar l y” ot i ose. The hypot het i cal si t uat i on wher e anassessee may swi t ch oversever al t i mes dur i ng t he f i r staccount i ng year or f or t hat mat t eri nany account i ng yearposes no di f f i cul t y. I n such a case, t he I ncome Tax Of f i cerwoul d be ent i t l ed t o deci de whi ch syst em was r egul ar l y bei ngf ol l owed wi t hi n t he meani ng of t hat expr essi on i n Sect i on145( 1) . I t woul d make no di f f er ence even i f he comes t o t he concl usi on t hat nei t her syst em coul d be sai d t o have beenr egul ar l y f ol l owed. I n such a case, t he I ncome Tax Of f i cercoul d and i ndeed woul d j ust i f i abl y i nvoke hi s power s under t hepr ovi so t o Sect i on 145( 1) . 12.Our vi ew i s suppor t ed by a j udgment of a Di vi si on of-t he Al l ahabad Hi gh Cour t i n ( 1966) 61 I TR 124 Shi v Pr asad RamSahai vs. Commi ssi oner I ncome- Tax, Ut t ar Pr adesh.The Di vi si onBench hel d: - “ 9. I t was f ur t her hel d t hat i t was open t o t he assessee i ncer t ai n ci r cumst ances t o cl ai m t hat t he syst em shoul d bechanged f r om t he mer cant i l e syst em t o t hat of t he cash basi s. …. . …. . …. . …. . concl usi on t hat nei t her syst em coul d be sai d t o have beenr egul ar l y f ol l owed. I n such a case, t he I ncome Tax Of f i cercoul d and i ndeed woul d j ust i f i abl y i nvoke hi s power s under t hepr ovi so t o Sect i on 145( 1) . 12.Our vi ew i s suppor t ed by a j udgment of a Di vi si on of-t he Al l ahabad Hi gh Cour t i n ( 1966) 61 I TR 124 Shi v Pr asad RamSahai vs. Commi ssi oner I ncome- Tax, Ut t ar Pr adesh.The Di vi si onBench hel d: - “ 9. I t was f ur t her hel d t hat i t was open t o t he assessee i ncer t ai n ci r cumst ances t o cl ai m t hat t he syst em shoul d bechanged f r om t he mer cant i l e syst em t o t hat of t he cash basi s. …. . …. . …. . …. . 11. I n t he absence of any di r ect aut hor i t y, but on t he f i r stpr i nci pl es i t i s cl ear t hat , once t he assessee has adopt edt he mer cant i l e syst em of account i ng, t her e i s no al t er nat i vef or t he I ncome- t ax Of f i cer but t o comput e t he assessee’ si ncome on t hat syst em, i . e. , on t he accr ual and not t her ecei pt basi s. The choi ce i s ent i r el y t hat of t he assessee.He may even choose t o adopt t he mer cant i l e syst em f or cer t ai nt r ansact i ons and t he cash basi s f or ot her t r ansact i ons, butonce havi ng chosen and r egul ar l y empl oyed t hat syst em, i t i snot open t o hi m uni l at er al l y at any t i me dur i ng an account i ngyear t o say t hat he wi l l notnow f ol l ow t hat syst em i nr espect of a par t i cul ar t r ansact i on. I t woul d be open t o t heassessee t o var y t he t er ms of a par t i cul ar cont r act but t hevar i at i on must be by mut ual agr eement . I t i s not open t o hi mt o keep al i ve t he cont r act and hi s r i ght s t her eunder , but ,f or t he pur poses of i ncome- t ax, t o say t hat he wi l l not debi tt he i nt er est whi ch may have accr ued as a debt i n i t s account sf or any r eason what soever . Thi s i s t he ver y evi l on accountof whi ch sect i on 13 i n t he Act of 1922 was br ought on t hest at ut e book. I f t he assessee coul d at any moment of t i me sayt hat he wi l l not debi t t he i nt er est because of some r eason ort he ot her , t hen i t woul d open t he f l oodgat es of evasi on.Ther e i s al so no har dshi p as t he l egi sl at ur e has expr essl ypr ovi ded t hat , i f t he i ncome on t he accr ual basi s has beeni ncl uded i n t he assessee’ s t ot al i ncome and t ax pai d t her eonbut subsequent l y i t i s f ound t hat t hat i ncome was notr ecei ved or coul d not be r ecei ved, t hen i n t he year when suchdebt was f ound t o have become i r r ecover abl e or bad, i t coul dbe cl ai med as a bad debt . Thi s pr ovi si on i s t o be f ound i nsect i on 10( 2) ( xi ) of t he Act . Thi s pr ovi si on al so i ndi cat est hat t he l egi sl at ur e never i nt ended an assessee t o be abl e t or esi l e f r om t he mer cant i l e syst em of account i ng and t heaccr ual basi s at hi s sweet Wi l l and pl easur e. I n t hi s vi ew oft he mat t er , i t i s whol l y unnecessar y t o consi der whet her t he f i nanci al posi t i on of t he debt or was good or not , and whet hert her e was any j ust i f i cat i on f or t he assessee not t o have madet he debi t of Rs. 20, 400 i n t he account of t hi s par t i cul ardebt or . That wi l l be a mat t er whi ch f al l s t o be consi der ed i fand when t he assessee cl ai ms t he amount as a bad debt . I twi l l not be r i ght or pr oper t o make any obser vat i ons on t hataspect of t he case i n t hese pr oceedi ngs, as i t may embar r asst he assessee. For t he r easons gi ven above, t he answer t o t hequest i on wi l l be i n t he af f i r mat i ve and agai nst t he assessee.The assessee wi l l pay t he cost s of t hi s r ef er ence t o t hedepar t ment , whi ch we assess at Rs. 200. Counsel ’ s f ee i s al soassessed at Rs. 200. ” We ar e i n r espect f ul agr eement wi t h t he aboveobser vat i ons. I t must be not ed t hat t he Di vi si on Bench hel dt hat once an assessee chooses a r egul ar l y appoi nt ed syst em, i ti s not open t o hi m, uni l at er al l y, at any t i me, dur i ng anaccount i ng year , t o deci de t hat he woul d not f ol l ow t hatsyst em i n r espect of a par t i cul ar t r ansact i on and t hat i twoul d be open t o t he assessee t o var y t he t er ms of apar t i cul ar cont r act but t he var i at i on must be by mut ualagr eement . Ourvi ew i s not i nconsi st ent wi t h t heseobser vat i ons. 13.A si mi l ar vi ew was al so t aken by a Di vi si on Bench oft he Cal cut t a Hi gh Cour t i nCommi ssi oner of I ncome Tax vs.Kesor am I ndust r i es & Cot t on Mi l l s Lt d. , ( 1993) 204 I TR 154.The Di vi si on Bench hel d as under : - “ 6.The assessee has been consi st ent l y f ol l owi ng t hi ssyst em i n r espect of bonus l i abi l i t y i n t he subsequentassessment year s. Nei t her pr i nci pl e nor t he aut hor i t y bar s anassessee f r om subst i t ut i ng one met hod of account i ng f oranot her at hi s choi ce. The assessee i s ent i t l ed t o change hi smet hod of account i ng pr ovi ded i t i s bona f i de and i t i sr egul ar l y empl oyed and not mer el y f or t he year i n quest i on. ” 14.Our vi ew i s al so suppor t ed by t he j udgment of a Di vi si on Bench of t he Hi gh Cour t of Gauhat i i n t he case ofCommi ssi oner of I ncome Tax vs. Doom Dooma I ndi a Lt d. , ( 1993)200 I TR 496. The Di vi si on Bench hel d as under : - “ I t i s f or t he assessee t o adopt any r ecogni sed met hod ofaccount i ng f or hi s busi ness. The i ncome shal l be comput ed i naccor dance wi t h t he met hod of account i ng r egul ar l y empl oyedby t he assessee. I n ot her wor ds, i t i s open t o t he assessest o opt f or such met hod of account i ng as he deems r easonabl eand appr opr i at e. He may opt t o adopt t he manuf act ur i ng costpr i ce met hod or t he mar ket pr i ce met hod pr ovi ded t he met hodi s f ol l owed i n r egar d t o bot h t he openi ng st ock and t hecl osi ng st ock. I t i s not open t o hi m t o adopt one met hod f orval ui ng t he openi ng st ock and a di f f er ent met hod f or val ui ngt he cl osi ng st ock so as t o i nt ent i onal l y suppr ess t he i ncomeder i ved or der i vabl e i n t he par t i cul ar pr evi ous year . Evenwher e an assessee has adopt ed a par t i cul ar met hod f or aper i od of year s, t her e i s no pr ovi si on of l aw whi ch pr event shi m f r om changi ng t o any ot her met hod, pr ovi ded t he changeover i s not made i n t he same assessment year . ” We agr ee wi t h t hese obser vat i ons except t o t he ef f ect t hat t hechange over i s not per mi ssi bl e i n t he same assessment year .Sect i on 145 does not pr ohi bi t t he same. Our at t ent i on was noti nvi t ed t o any ot her pr ovi si on of l aw t hat pr ohi bi t s i tei t her . As a mat t er of f act , a swi t ch over i n t he sameassessment year woul d be al l owed f ar l ess r eadi l y f or r easonswe wi l l f ur ni sh l at er .That , however ,i s an aspect t hatr el at es t o t he exer ci se of di scr et i on i n t he f act s of a caseand not t o an absol ut e l egal bar . 15.The answer t o t he f i r st quest i on r equi r esaconsi der at i on as t o whet her i n t he f act s of t hi s case, t heTr i bunal was r i ght i n hol di ng t hat t he assessees coul d notadopt a cash syst em of account i ng i n r espect of t he commi ssi onr ecei ved f r om MAL. I n our vi ew, on f act s, t he quest i on must beanswer ed i n f avour of t he depar t ment and agai nst t he assesseebut onl y so f ar as t he assessees sought t o swi t ch over f r omt he mer cant i l e t o t he cash syst em i n t he mi dst of t hef i nanci al year . The deci si on t o swi t ch over i s ot her wi seper f ect l y val i d. 15.The answer t o t he f i r st quest i on r equi r esaconsi der at i on as t o whet her i n t he f act s of t hi s case, t heTr i bunal was r i ght i n hol di ng t hat t he assessees coul d notadopt a cash syst em of account i ng i n r espect of t he commi ssi onr ecei ved f r om MAL. I n our vi ew, on f act s, t he quest i on must beanswer ed i n f avour of t he depar t ment and agai nst t he assesseebut onl y so f ar as t he assessees sought t o swi t ch over f r omt he mer cant i l e t o t he cash syst em i n t he mi dst of t hef i nanci al year . The deci si on t o swi t ch over i s ot her wi seper f ect l y val i d. 16.The ent i r e nat ur e of t he t wo agr eement s i . e.t heagr eement dat ed 18. 03. 1981 and t he agr eement dat ed 01. 10. 1983i s di f f er ent .Whi l e consi der i ng whet her an assessee ought t obe per mi t t ed t o swi t ch over f r om one account i ng syst em t oanot her , t he sour ce of i ncome i s not r el evant and at l east notal ways r el evant .I t cer t ai nl y i s not t he onl y r el evantconsi der at i on. The sour ce may be t he same but t he nat ur e oft he r emuner at i on, t he t er ms and condi t i ons f or t he r ecei pt oft he r emuner at i on/ i ncome may and of t en i s ent i r el y di f f er ent .I t woul d depend upon t he t er ms and condi t i ons of t he agr eementbet ween t he par t i es. I t i s not possi bl e t o enumer at eexhaust i vel y cases wher e a swi t ch over of account i ng syst emsi n such cases i s per mi ssi bl e. 17.Under t he agr eement dat ed 18. 03. 1981, t he assesseewas ent i t l ed t o a f i xed i ncome of Rs. 30, 000/ - per mont hi ncl udi ng al l ot her expenses. I n ot her wor ds, t he i ncome di dnot var y dependi ng upon t he vol ume of sal es or t he ext ent oft he mar ket i ng ser vi ces pr ovi ded. Fur t her , al t hough t he t i t l et o t hi s agr eement was “ Sol e Sel l i ng Agent ” , t he t er ms andcondi t i ons st i pul at ed t her ei n do not i ndi cat e t hat t heassessee was a sol e sel l i ng agency. Ther e was no bar agai nstMAL appoi nt i ng ot her agent s. Even i f t her e was an i mpl i ed baron account of t he t i t l e, i t woul d make no di f f er ence. On t heot her hand, under t he agr eement dat ed 01. 10. 1983, t heassessee’ s r esponsi bi l i t i es and obl i gat i ons wer e ent i r el ydi f f er ent . Under cl ause- 4, t he assessee was t o pr ocur e or der sf r om f i nanci al l y sound buyer s f or a mi ni mum 75% of t he t ot alpr oduct i on of MAL’ s pr oduct s. Mor eover , i n t he event of t heassessee f ai l i ng t o do so, MAL was ent i t l ed t o t er mi nat e t he agr eement and t he unsol d goods wer e t o be l i f t ed by t heassessee at MAL’ s sel l i ng pr i ce t hen i n f or ce. 18.Under cl ause- 5, t he assessee was not ent i t l ed t oengage orbe i nt er est ed ei t her di r ect l y or i ndi r ect l y aspr i nci pal , agent or empl oyee i n sel l i ng si mi l ar goods wi t houtMAL’ s consenti n wr i t i ng. Ther e was no such bar under t heear l i er agr eement . Mor e i mpor t ant , wher eas under t he f i r stagr eement dat ed 18. 03. 1981, t he assessee was ent i t l ed t o af i xed r emuner at i on of Rs. 30, 000/ - per mont h, cl ause- 11 of t heagr eement dat ed 01. 10. 1983 ent i t l ed t he assessee t o commi ssi onat 1. 5% upon t he i nvoi ce pr i ce.Equal l y i mpor t ant i s t he f actt hat under cl ause- 13 t he di sput ed bi l l s wer e t o be set t l ed byt he assessees at t hei r expense and t he l oss on r et ur n of goodswas al so t o be bor ne by t hem. Such st i pul at i ons wer e absent i nt he f i r st agr eement . 19.The t wo agr eement s wer e, t her ef or e, ent i r el ydi f f er ent i n t hei r scope and nat ur e. The r i ght s andl i abi l i t i es of t he par t i es t her eunder wer e al so ent i r el ydi f f er ent .I n r espect of t he f i r st agr eement t he assesseesknew exact l y how much t hey wer e ent i t l ed t o r ecei ve, namel y,Rs. 30, 000/ - per mont h.Under t he second agr eement , al t hought he commi ssi on was f i xed at 1. 5%, t he r ecei pt t her eof may wel lhave been t he subj ect mat t er of cont r over sy and uncer t ai nt y,i nt er al i a,on account of cl auses 11 and 13.The cont r over syand t he di sput es coul d l ead t o l i t i gat i on whi ch i n t ur n woul dbe r esol ved onl y af t er year s.The assessees, t her ef or e, woul dnot at any gi ven poi nt of t i me know wi t h any degr ee ofcer t ai nt y as t o t he amount t hat t hey woul d be ent i t l ed t o dur i ng t he f i nanci al year .The uncer t ai nt y of r ecei vi ng t heamount , t he quant um of t he amount and t he t i me of r ecei pt ar ecr uci al f act or s i n t he assessees deci si on as t o whi ch of t heaccount i ng syst ems ought t o be f ol l owed.The assessee was,t her ef or e, ent i t l ed t o swi t ch over f r om one syst em t o t heot her . 20.I n t hese ci r cumst ances, t he assessees wer e ent i t l edt o f ol l ow a di f f er ent syst em of account i ng i n r espect of t hei rt r ansact i ons under t he new agr eement al t hough wi t h t he samepar t y, namel y, MAL. 21.The quest i on now i s whet her t he I ncome Tax Of f i cerwas j ust i f i ed i n r ef usi ng t o per mi t t he assessees swi t chi ngover f r om t he cash t o t he mer cant i l e syst em dur i ng t he mi dstof t he f i nanci al year . We t hi nk he was, f or mor e t han oner eason. For i nst ance, as r ecor ded i n par agr aph 5. 1 of t heassessment or der : - “ 5. 1…. .…….…….……. Fur t her t he i ncome ( net i ncome) means t he gr oss i ncomel ess expendi t ur e r el evant f or ear ni ng t hat gr oss i ncome. I nt he case under appeal t he I TO has est abl i shed beyond doubtwhi l e ar gui ng t he case bef or e me t hat t he appel l ant has shownal l t he expenses on accr ual basi s wher eas t he i ncome i s shownon r ecei pt basi s. I t i s def i ni t el y not a pr oper met hod ofkeepi ng t he books of account . Ther e i s no consi st ency i nmai nt ai ni ng of t he account s of i ncome because t he expenseshave been cl ai med on mer cant i l e basi s and t he gr oss i ncomehas been shown on r ecei pt basi s. Keepi ng i n vi ew t he abovedi scussi on and al so t he f or cef ul ar gument of t he I TO Ihol dt hat al l t he case- l aws quot ed by t he appel l ant ar e notr el evant on t he f act s of t hi s case and t he ar gument s of t heappel l ant ’ s counsel al so st and on no f oot i ng. ” Mor eover , a swi t ch over i n t he mi dst of an account i ng year ,especi al l y i n such cases,coul d l ead t o skewed r esul t s. Anassessee coul d t hen avoi d payi ng t he cor r ect advance t ax byf ol l owi ng t he cash syst em at f i r st and t hen j ust i f yi ng t he Mor eover , a swi t ch over i n t he mi dst of an account i ng year ,especi al l y i n such cases,coul d l ead t o skewed r esul t s. Anassessee coul d t hen avoi d payi ng t he cor r ect advance t ax byf ol l owi ng t he cash syst em at f i r st and t hen j ust i f yi ng t he non- payment or shor t payment by swi t chi ng over t o t hemer cant i l e syst em. Fur t her , t he assessee coul d do t hi s,t heor et i cal l y at l east , mor e t han once l eavi ng t he ent i r eassessment i n a st at e of uncer t ai nt y and conf usi on. Thi s woul dconsi der abl y f r agment an assessment year . Apar t f r om pl aci ng abur den on t he Assessi ng Of f i cer and t heot her aut hor i t i esunder t he Act i n car r yi ng out t he assessment i n t er ms of t i meand r esour ces, i t woul d pose consi der abl e di f f i cul t i es i ncar r yi ng out t he assessment . The aut hor i t i es woul dunder st andabl y be f ar mor e r el uct ant t o accept a swi t ch overi n t he mi dst oft he f i nanci al year . Thei r deci si on t o r ef uset o accept t he swi t ch over i n t he mi dst of f i nanci al year oughtnot be i nt er f er ed wi t h l i ght l y. A swi t ch over i n t he mi dst off i nanci al year ought t o be per mi t t ed by t he aut hor i t i es onl yi n except i onal cases wher e t he same poses no di f f i cul t ywhat soever i n comput i ng i ncome and t he swi t ch over i sj ust i f i ed. The bur den t o est abl i sh t he same must r est heavi l yupon t he assessee who desi r es t he swi t ch over i n t he mi dst oft he f i nanci al year .22.The r ef er ence t o t he f i r st quest i on, t her ef or e, i sanswer ed i n f avour of t he Revenue i n so f ar as i t r el at es t ot he assessees’ r i ght t o swi t ch over f r om t he mer cant i l e t o t hecash syst em i n t he mi dst of t he account i ng year . 23.I t was agr eed t hat t he answer t o t he second quest i onf ol l ows t he answer t o quest i on No. 1. Quest i on No. 2 i s,t her ef or e, al so answer ed i n f avour of t he Revenue i n so f ar asi t r el at es t o t he assessment year i n quest i on, namel y, 1984- 85. 24. 24. 08. 2016par kash* The r ef er ence i s accor di ngl y answer ed. ( S. J. VAZI FDAR)CHI EF JUSTI CE ( DEEPAK SI BAL)JUDGE Not e:- Whet her nonspeaki ng/ r easoned[√] Whet her r epor t abl e:YES