Madras High Court
Commissioner Of Income Tax vs Tamil Nadu State Transport Corporation on 28 November, 2011
Bench: P.Jyothimani, P.P.S.Janarthana Raja
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 28.11.2011 CORAM THE HON'BLE MR.JUSTICE P.JYOTHIMANI AND THE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.(A).No.334 of 2005 Commissioner of Income Tax Madurai. .. Appellant Vs. Tamil Nadu State Transport Corporation (Madurai Division-I) Ltd., Madurai. .. Respondent (Cause title amended vide order dated 15.11.2011 made in M.P.No.1/2011) Appeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal Madras 'C' Bench dated 30.11.2004 made in ITA No.52/Mds/1997 for the assessment year 1993-1994. For Appellant : Mr.J.Naresh Kumar Standing Counsel For Respondent : Mr.J.Balachander for M/s.S.Sridhar J U D G M E N T
(Delivered by P.JYOTHIMANI, J.) The Revenue is the appellant. This tax case appeal is directed against the order of the Income Tax Appellate Tribunal Madras 'C' Bench dated 30.11.2004 made in ITA No.52/Mds/1997 for the assessment year 1993-1994, and the same was admitted on the following question of law:
"Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is entitled to accounting reimbursement claims in respect of student concession passes on a cash basis, while it was generally following a mercantile system of accounting?"
2. It is not in dispute and also found on verification that even for the subsequent years the assessee has been following only the cash system of accounting and paid tax accordingly and the same has also been accepted by the Department.
3. In fact, in respect of an identical issue, for the assessment years 1991-1992 and 1992-1993, the case of the assessee was accepted and it is not known as to whether any appeal has been filed by the Department against the same. In fact, this aspect has been considered in detail by the Tribunal in the impugned order and by relying upon the judgment of the Supreme Court in United Commercial Bank v. Commissioner of Income Tax, (1999) 240 ITR 355, wherein the Supreme Court has evolved the principles in respect of following of the system of accounting whether mercantile or cash, which is as follows:
"23. Hence, for the purpose of income tax, whichever method is adopted by the assessee a true picture of the profits and gains, that is to say, the real income is to be disclosed. For determining the real income, the entries in a balance-sheet required to be maintained in the statutory form, may not be decisive or conclusive. In such cases, it is open to the Income Tax Officer as well as the assessee to point out the true and proper income while submitting the income tax return. In Kedarnath Jute Mfg. Co. Ltd. v. CIT, (1971) 82 ITR 363, this Court has negatived the contention that:
'.... if an assessee under misapprehension or mistake fails to make an entry into the books of account and although, under the law, a deduction must be allowed by the Income Tax Officer, assessee will lose the right of claiming or will be debarred from being allowed that deduction.' The Court held that whether the assessee is entitled to the particular deduction or not will depend upon the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. In the present case, the question is slightly different. For reasons, the Central Government, in exercise of the powers conferred by Section 53 of the Banking Regulation Act, and on the recommendation of Reserve Bank of India, permitted the assessee not to disclose the market value of its investment in the balance-sheet required to be maintained as per the statutory form. But as the assessee was maintaining its accounts on mercantile system, he was entitled to show his real income by taking into account market value of such investments in arriving at real taxable income. On that basis, therefore, assessing officer has taxed the assessee.
From the decisions discussed above, it can be held:
(1) That for valuing the closing stock, it is open to the assessee to value it at the cost or market value, whichever is lower.
(2) In the balance-sheet, if the securities and shares are valued at cost but from that no firm conclusion can be drawn, a taxpayer is free to employ for the purpose of his trade, his own method of keeping accounts, and for that purpose, to value stock-in-trade either at cost or market price.
(3) A method of accounting adopted by the taxpayer consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping accounts or of valuation.
(4) The concept of real income is certainly applicable in judging whether there has been income or not, but, in every case, it must be applied with care and within their recognised limits.
(5) Whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation.
(6) Under Section 145 of the Act, in a case where accounts are correct and complete but the method employed is such that in the opinion of the Income Tax Officer, the income cannot be properly deduced therefrom, the computation shall be made in such manner and on such basis as the Income Tax Officer may determine.", and by following the same, the Tribunal, in our view correctly, has held against the Revenue. The Tribunal has also given reasons for arriving at such conclusion and found that the assessee is in the practice of crediting the amount on realization basis and a consistent system is being followed every year.
For the reasons aforesaid, we find no reason to interfere with the order passed by the Tribunal. Accordingly, the substantial question of law is answered against the Revenue and the appeal stands dismissed. No costs.
(P.J.M.J.) (P.P.S.J.J.)
28.11.2011
Index : Yes
Internet : Yes
sasi
To:
1.The Assistant Registrar,
Income Tax Appellate Tribunal
Chennai Bench "C", Chennai.
2.The Secretary, Central Board
of Direct Taxes, New Delhi.
3.The Commissioner of Income
Tax (Appeals-II), Madurai.
4.The Commissioner of Income Tax
Madurai.
5.The Deputy Commissioner of Income Tax
Special Range-II, Madurai.
P.JYOTHIMANI,J.
AND
P.P.S.JANARTHANA RAJA,J.
(sasi)
T.C.(A).No.334 of 2005
28.11.2011