Law:

Section:

Section 145 of the Income-tax Act, 1961-Method of accounting-Change in-Whether assessee is entitled to change his regular method of accounting by adopting another regular method in respect of a part of his income-Held, yes-Whether revenue authorities have jurisdiction to go into bona fides of introduction and continuance of change in method of accounting if assessee has replaced his regular method of accounting by another recognised method and has followed latter method regularly thereafter-Held, no Facts In the assessment year 1968-69, the assessee for the first time claimed a change in its method of accounting from mercantile to cash system in respect of its interest income. All the authorities up to the Tribunal disallowed the assessee's claim, holding that the assessee had failed to establish that the change was intended to be regular. The High Court also upheld the Tribunal's order. In the assessment year 1969-70, the assessee again pressed its claim, reinforcing it with a resolution passed by its board of directors on 2-1-1969 sanctioning the impugned change in the method of accounting. The revenue authorities again rejected the assessee's claim, and the Tribunal upheld the rejection, observing (i ) that as the resolution was passed after the accounting year was over, it brought no change in the circumstances in the said year as compared with the circumstances prevailing in the preceding assessment year 1968-69; (ii ) that there was only one debtor in the relevant assessment year from whom the interest was not realisable and the change was intended only to cover that single case ; and (hi) that in the immediately preceding year the Tribunal was not satisfied about the bona fidesof the assessee's claim and that the position on this point remained unchanged in the assessment year under consideration. The Tribunal also refused to refer the matter to the High Court in respect of the assessment year 1969-70. In the assessment years 1971-72 and 1972-73, which are the subject-matter of the present reference, the ITO again rejected the assessee's claim of change of method of accounting from mercantile to cash, and included interest, accrued on loans advanced by…

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