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[2009] 311 ITR 165 (MAD.) HIGH COURT OF MADRAS Commissioner of Income-tax v. Shriram transport finance co. Ltd. K. RAVIRAJA PANDIAN AND P.P.S. JANARTHANA RAJA, JJ. TAX CASE APPEAL NOS. 752 AND 753 OF 2007 JULY 17, 2007 Section 145 of the Income-tax Act, 1961 - Method of Accounting - Change of Where assessee-finance-company, following mercantile system of account- ing in respect of income under head 'Additional finance charges' on hire purchase/lease transactions, changed method of accounting to cash for income-tax purposes alone, it was entitled to follow such hybrid system of accounting [In favour of assessee] [Assessment year 1994-95] CIT v. Shriram Transport Finance Co. Ltd. [2009] 311 ITR 165 (Mad.) The assessee was a non-banking financial company. It had been accounting all its income and expenditure on mercantile basis until the assessment year 1993-94. From 1-4-1993, onwards in respect of income under the head 'Additional finance charges' on hire purchase/lease transactions, it changed the method of accounting to cash for the income-tax purposes alone. The Assessing Officer held that such change was not permissible. Held that from the records it could be seen that the assessee being a non-banking financial company had entered into a lease agreement with its customers. One of the clauses in the agreement provided that if the monthly instalments had not been paid, that would carry additional finance charges in the prescribed rate. Such clause was incorporated as a deterrence measure to instil some kind of fear in the minds of lessees and customers so that they kept paying the instalments regularly. Since such clause was inserted it could not be said that such finance charges had accrued to the assessee-company or if the entries were made in the books of account maintained for the purpose of the Companies Act, it could not be conclusively said that such additional finance charges had really accrued to the assessee-company. The change in the method of accounting had not caused a real loss to the revenue because such charges had been received by the assessee-company, the same having been offered for taxation. The hybrid system of accounting was permissible…

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