The Commissioner Of Income Tax,Patiala v. M/S Punjab State Small Industriescorporation Limited, Chandigarh

I.T.R. No. 278 of 1995 [ 1] IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Income Tax Reference No. 278 of 1995Date of decision: August 25, 2008 The Commissioner of Income Tax,Patiala. .. Applicant. v. M/s Punjab State Small IndustriesCorporation Limited, Chandigarh... Respondent. CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA HON'BLE MR. JUSTICE RAJESH BINDAL HON'BLE MR. JUSTICE RAJESH BINDAL Present: Ms. Urvashi Dhugga, Advocate for the applicant.Mr. Akshay Bhan, Advocate for the respondent. .. Rajesh Bindal J. The following questions of law have been referred for opinionof this Court by the Income Tax Appellate Tribunal, Chandigarh Bench,Chandigarh (for short, `the Tribunal') arising out of order dated 23.11.1992passed in I.T.A. No. 888/Chandi/1988, for the assessment year 1982-83: “1.Whether, on the facts and in the circumstances of thecase, the Tribunal was right in law in allowing change inthe method of accounting from accrual basis to receiptbasis for a part source of income i.e. interest income fromseed money and consequently deleting the addition of Rs.2,94,719/- ?case, the Tribunal was right in law in allowing change inthe method of accounting from accrual basis to receiptbasis for a part source of income i.e. interest income fromseed money and consequently deleting the addition of Rs.2,94,719/- ? 2.Whether on the facts and in the circumstances of thecase, the Appellate Tribunal was right in upholding theorder of the CIT(A) deleting the addition of Rs.28,95,261/- made on account of interest recoverable fromthe allottees of plot/shed ?”case, the Appellate Tribunal was right in upholding theorder of the CIT(A) deleting the addition of Rs.28,95,261/- made on account of interest recoverable fromthe allottees of plot/shed ?” Facts of question No.1 Brief facts of the case, as noticed in the statement of the case are extracted below: “The assessee is a company whose accounting period relevant I.T.R. No. 278 of 1995 [ 2] to assessment year 1982-83 ended on 30.6.1981. The assesseecompany derives income from various sources includingincome from interest on seed money loans, interest on hirepurchase loans and other loans and advances. During the yearsrelevant to the assessment year 1982-83, the assessee showedinterest on seed money loans on receipt basis whereas prior toassessment year 1981-82, the assessee had been crediting theinterest from such loans on accrual basis. The AssessingOfficer was of the opinion that the assessee had not accountedfor interest of Rs. 2,94,719/- on accrual basis. Following thedecision of the Calcutta High Court reported in Reform FlourMills P. Ltd. v. Commissioner of Income-Tax, West Bengal-II,(1981) 132 ITR 184, the Assessing Officer held that change inthe method of accounting for part of the same source of incomewas not permissible and hence interest income on accrual basison seed money loans to the extent of Rs. 2,94,719/- wasassessed in the hands of the assessee for assessment year 1982-83.” In appeal filed by the assessee on the issue, Commissioner ofIncome-tax (Appeals) [for short, `the CIT (A)'] set aside the order. In furtherappeal by the Revenue before the Tribunal, the order of CIT(A) was upheld.Facts of question No.2 In appeal filed by the assessee on the issue, Commissioner ofIncome-tax (Appeals) [for short, `the CIT (A)'] set aside the order. In furtherappeal by the Revenue before the Tribunal, the order of CIT(A) was upheld.Facts of question No.2 As regards question No. 2 is concerned, during the year inquestion the assessee did not make any provision for interest amounting toRs. 28,95,263/- receivable for the year in question from the allottees ofplots/ sheds. The claim of the assessee was that it had effected change in themethod of accounting during the year in question with regard to the interestdue from the allottees of plots/sheds to receipt basis as against accrual basis,as was done in the case of interest on seed money scheme. However, theclaim made by the assessee was rejected relying upon Reform Flour Mills P.Ltd.'scase (supra) and the interest receivable from the allottees of plots/sheds amounting to Rs. 28,95,263/- was taxed on accrual basis inaccordance with the method of accounting being followed by the assesseeearlier. In appeal, the assessee succeeded before the CIT(A). The order I.T.R. No. 278 of 1995 [ 3] passed by the CIT(A) was upheld by the Tribunal. The issue regarding change of method of accounting hasalready been considered by this Court in the judgment of even date in I.T.R.No. 72 of 1989 –The Commissioner of Income Tax, Patialav. M/s PunjabState Small Industries Corporation Ltd., Chandigarh now The Punjab SmallIndustries & Export Corporation Ltd., Chandigarh, for the assessment year1981-82, wherein the issue has been answered in favour of the assessee andagainst the Revenue. For the reasons stated therein, which shall be read as part of thepresent order as well, the questions referred to above, are answered againstthe Revenue and in favour of the assessee. The reference is disposed of accordingly. (Rajesh Bindal)Judge August 25, 2008mk (Hemant Gupta) Judge