C.I.T. PATIALA vs. M/S PB.ST. SMALL INDS. CORP. LTD.

I.T.R. No. 278 of 1995 [ 1] IN THE HIGH COURT OF PUNJAB AND HARYANA

AT CHANDIGARH Income Tax Reference No. 278 of 1995 Date of decision: August 25, 2008 The Commissioner of Income Tax, Patiala. .. Applicant. v. M/s Punjab State Small Industries Corporation Limited, Chandigarh. .. Respondent. CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA 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 opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short, `the Tribunal') arising out of order dated 23.11.1992 passed in I.T.A. No. 888/Chandi/1988, for the assessment year 1982-83:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing change in the method of accounting from accrual basis to receipt basis for a part source of income i.e. interest income from seed money and consequently deleting the addition of Rs. 2,94,719/- ?

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 assessee company derives income from various sources including income from interest on seed money loans, interest on hire purchase loans and other loans and advances. During the years relevant to the assessment year 1982-83, the assessee showed interest on seed money loans on receipt basis whereas prior to assessment year 1981-82, the assessee had been crediting the interest from such loans on accrual basis. The Assessing Officer was of the opinion that the assessee had not accounted for interest of Rs. 2,94,719/- on accrual basis. Following the decision of the Calcutta High Court reported in Reform Flour Mills P. Ltd. v. Commissioner of Income-Tax, West Bengal-II, (1981) 132 ITR 184, the Assessing Officer held that change in the method of accounting for part of the same source of income was not permissible and hence interest income on accrual basis on seed money loans to the extent of Rs. 2,94,719/- was assessed in the hands of the assessee for assessment year 1982- 83.” In appeal filed by the assessee on the issue, Commissioner of Income-tax (Appeals) [for short, `the CIT (A)'] set aside the order. In further appeal 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 in question the assessee did not make any provision for interest amounting to Rs. 28,95,263/- receivable for the year in question from the allottees of plots/ sheds. The claim of the assessee was that it had effected change in the method of accounting during the year in question with regard to the interest due 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, the claim made by the assessee was rejected relying upon Reform Flour Mills P. Ltd.'s case (supra) and the interest receivable from the allottees of plots/ sheds amounting to Rs. 28,95,263/- was taxed on accrual basis in accordance with the method of accounting being followed by the assessee earlier. 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 has already been considered by this Court in the judgment of even date in I.T.R. No. 72 of 1989 –The Commissioner of Income Tax, Patiala v. M/s Punjab State Small Industries Corporation Ltd., Chandigarh now The Punjab Small Industries & Export Corporation Ltd., Chandigarh, for the assessment year 1981-82, wherein the issue has been answered in favour of the assessee and against the Revenue.

For the reasons stated therein, which shall be read as part of the present order as well, the questions referred to above, are answered against the Revenue and in favour of the assessee. The reference is disposed of accordingly. (Rajesh Bindal) Judge (Hemant Gupta) Judge August 25, 2008 mk