Law:

Section:

section 145, read with section 156, of the income-tax act, 1961-method of accounting-cash or mercantile-none of bills receivable or sundry debtors were shown on asset side of balance sheet of assessee-payment of salary and wages was also claimed on payment basis and not on accrual basis-whether in view of these and other similar facts, tribunal was justified in holding that assessee was following cash system of accounting-held, on facts, yes-whether, consequently, no additions could be made to its income on account of excess of closing balance of bills receivable over its opening balance-held, on facts, yes Facts In the assessee-company's assessment, certain additions were made on the ground that it was following the hybrid system of accounting and there was difference between the outstandings at the beginning of the year and at the close of the year. These additions were sustained by the AAC. The assessee, however, claimed before the Tribunal that it had been consistently following the cash system of accounting. The Tribunal found, inter alia, that: (i) in none of the relevant assessment years, the bills receivable or sundry debtors were shown on the asset side of the balance sheet; and (ii) the payment of salaries and wages was also claimed on payment basis and not on accrual basis. In view of these findings, the Tribunal held that the assessee was following the cash system of accounting and it deleted the additions made to the assessee's income on account of excess of closing balance of bills receivable over the opening balance of the same. On reference : Held The revenue could not point out any instance where bills receivable or the sundry debtors were shown on the assets side of the balance sheet. Further, as regards the payment of salaries and wages to the employees of the assessee-company, the account books disclosed that these were not provided for in the books of account and profit and loss account in the last month of the accounting year. Payments were made and recorded in the first month of the succeeding accounting year. That also clearly indicated that the assessee-company followed the cash system of accounting. The finding recorded by the Tribunal…

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