C I T vs. DERA BABA KARAM SINGH HOTI MADANWALA

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ITA/363/2007HC Punjab & HaryanaPHHC01073060200722 November 2007Author: MR. JUSTICE M.M. KUMAR,MR. JUSTICE RAJESH BINDAL3 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the assessee's un-rebutted case throughout was that it followed the cash system of accounting for interest income earned from banks. The Tribunal referred to Section 145(1) of the Income Tax Act, 1961, which mandates that income chargeable under the head 'profits and gains of business or profession' or 'income from other sources' is to be computed in accordance with the method of accounting regularly employed by the assessee. Since it was established that the assessee had been regularly following the cash system of accounting for its interest income, the Tribunal found no justification for the Revenue to compel the assessee to adopt the mercantile system. Consequently, the Tribunal concluded that no substantial question of law arose for determination. The appeals filed by the Revenue were dismissed.

What were the facts?

The Commissioner of Income Tax (Revenue) filed five appeals (ITA Nos. 363, 364, 365, 366, and 369 of 2007) against a consolidated order dated January 31, 2007, passed by the Income Tax Appellate Tribunal (Tribunal). These appeals pertained to assessment years 1998-99, 1999-2000, 2001-02, 2002-03, and 2003-04. The core of the dispute involved the method of accounting for interest income earned by the assessee, Dera Baba Karam Singh Hoti Mardanwala, from Fixed Deposits (FDs). The Revenue challenged the Tribunal's decision allowing the assessee to declare this interest income on a cash basis.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the assessee was justified in declaring its income from interest on FDRs on a cash basis when the evidence clearly showed that it had been accounted for on a mercantile basis? (Question of law, turning on Section 145(1) of the Income Tax Act, 1961). Assessee's Contention: The Tribunal held that the assessee's consistent case was that it followed the cash system of accounting for interest income from banks. According to Section 145(1) of the Act, income chargeable under 'profits and gains of business or profession' or 'income from other sources' must be computed according to the method of accounting regularly employed by the assessee. Once the assessee was found to be regularly following the cash system for interest income, the Revenue could not compel it to follow the mercantile system. Revenue's Contention: The Revenue argued that the evidence clearly indicated the assessee had accounted for the interest income on a mercantile basis, and therefore, the Tribunal erred in allowing the cash basis of accounting.

Which sections of the Income-tax Act were involved?

Section 145(1),Section 260A

AI-generated summary — verify with the full judgment below

In the High Court of Punjab and Haryana at Chandigarh Date of decision: November 22, 2007 Commissioner of Income Tax, Jalandhar-II, Jalandhar ---Petitioner Vs. Dera Baba Karam Singh Hoti Mardanwala ---Respondent Coram: HON'BLE MR. JUSTICE M.M.KUMAR HON'BLE MR. JUSTICE RAJESH BINDAL Present: Mr.Sanjiv Bansal, Advocate, for the appellant. *** M.M.KUMAR, J.

This order shall disposed of ITA Nos. 363, 364, 365, 366 and 369 of 2007. All these appeals have been filed under Section 260A of the Income Tax Act, 1961 (for brevity 'the Act') against the consolidated order dated 31.1.2007 (A-3)passed by the Income Tax Appellate Tribunal, Amritsar (for brevity 'the Tribunal'). List of all these appeals along with related number of the appeal before the Tribunal is as under:- Tribunal ITA No.316(ASR /2005) Asstt, Year 2001-02 Dated 31.1.2007 ITA No.318 (ASR/2005) Asstt, Year 2002-03 Dated 31.1.2007 ITA No. 319 (ASR/2005) Asstt, Year 2003-04 Dated 31.1.2007 ITA No. 313 (ASR/2005) Asstt, Year 1999-2000 Dated 31.1.2007 -2- ITA No. 311(ASR/2005) Asstt, Year 1998-99 Dated 31.1.2007 The revenue has claimed the following substantial question of law in these appeals:- “That on the fact and in the circumstances of the case, the ITAT is not right in holding that the assessee was justified in declaring its income from interest on FDRs on a cash basis when the evidence clearly show that it has been accounted on a mercantile basis.” The Tribunal has categorically held that the the un-rebutted case of the assessee throughout has been that they are following the cash system of accounting for the interest income earned from the bank and according to Section 145 (1) of the Act, the income chargeable under the head 'profits and gains of business or profession' or ' income from other sources' is required to be computed in accordance with the method of accounting regularly employed by the assessee. Once it has been held that the assessee has been regularly following the cash system of accounting for the interest income earned from the bank, there is no room left for us to conclude that the revenue was entitled to compel the assessee to follow the mercantile system of accounting. Therefore, we find that no question of law, much less the substantial question of law, would arise for our -3- determination. In view of the above, these appeals fail and the same are dismissed accordingly.

(M.M.KUMAR) JUDGE (RAJESH BINDAL) JUDGE NOVEMBER 22, 2007 paramjit

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