Law:

Section:

Section 145 of the Income-tax Act, 1961 - Method of accounting - Hybrid system of accounting - Assessment years 1987-88 to 1989-90 - Whether once method of accounting regularly employed by assessee is recognised in law, consequences thereof cannot be a ground for derecognising method employed, compelling assessee to switch over to method other than that regularly employed by it - Held, yes - Assessee used to maintain mercantile system of accounting in respect of its outgoings whereas it used to maintain cash system of accounting in respect of receipt of interest earned on financing of vehicles, as a part of its business - Assessing Officer held that hybrid system of accounting could not be permitted - Whether proviso to section 145, as it stood for previous years in question could not be resorted to and applied for purpose of interfering with system of accounting maintained by assessee, in absence of any finding that account maintained was inaccurate or incomplete and that it was not possible to deduce income therefrom - Held, yes FACTS The assessee used to maintain mercantile system of accounting in respect of its outgoings whereas it used to maintain cash system of accounting in respect of receipt of interest earned on the financing of vehicles, as a part of its business. The Assessing Officer held that the hybrid system of accounting could not be permitted. On appeal, the Commissioner (Appeals) reversed the said orders, holding that section 145 permitted maintaining of hybrid system of accounting provided the accounts were complete and accurate. On revenue's appeal, the Tribunal held that the cash system in respect of the receipt of interest earned on the financing of vehicle represented a distorted picture of the income inasmuch as the income shown was less than what would have been shown under the mercantile system of accounting. Therefore, it reversed the order of the Commissioner (Appeals) and restored that of the Assessing Officer. On appeals : HELD Section 145 was amended and replaced with effect from 1-4-1997, by introducing the principle that the assessee has to follow one or the other system of accounting exclusively and had done away with the mixed…

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