Law:

Section:

Section 145 of Income-tax Act, 1961 - Method of accounting - Change of - Assessment year 1968-69 - Assessee was following mercantile system of accounting - For relevant assessment year it claimed that its interest income should be assessed on cash basis - Assessee conceded that there was no resolution by board of directors or its shareholders supporting change except for a statement in annual report that management had decided to account for same on cash basis - Said statement indicated that change was suggested only for relevant year and there was nothing else on record to indicate that change was intended to be followed regularly in future by assessee - Whether it was not duty of revenue to probe further into matter and establish regularity of change - Held, yes - Whether assessee could not be allowed to adduce further evidence at reference stage to enable it to prove regularity of change - Held yes - Whether, therefore, Tribunal was justified in holding that assessee was not entitled to change its method of accounting in respect of its interest income - Held yes FACTS The assessee-company filed a revised return claiming that its income by way of interest should be assessed on cash basis and not on accrual as was being done in the previous assessment years. The ITO held that assessee was not entitled to revert to accounting on cash basis in respect of its interest income. Interest, accrued but not received, was treated as the income of the assessee in the said year. On appeal, the AAC held that such departure from the previously employed system was not permissible as the accounts would then cease to reflect the true profit and loss. On second appeal, the Tribunal upheld the ITO's orders, holding inter alia, that the assessee had been following the mercantile system of accounting hitherto and had done so even in the relevant year except for the interest income and that there was no resolution by the board of directors or the shareholders of the assessee supporting the change, except for a statement in the annual report to the effect that the management had decided to account for interest on cash basis, from which it was not established that the assessee had…

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