COMMISSIONER OF INCOME TAX Vs. KERALA TRANSPORT CO

JUDGEMENT

(1.) THE CIT, Cochin requested the Tribunal to refer the following questions of law under Section 256(1) of the IT Act to this Court :

(2.) THE assessee is a registered firm engaged in the business of transportation of goods. Upto the previous year, relevant to the asst. yr. 1981 -82, the assessee followed mercantile system of accounting. For and from the asst. yr. 1982 -83, however, it changed its method of accounting to cash system in respect of receipts only and accounted for the expenditure on accrual basis. Assessee returned a loss of Rs. 12,13,367. Assessment was completed on 28th Oct., 1985, on a total income of Rs. 63,79,240. While completing the assessment, AO rejected the cash system of accounting adopted by the assessee in respect of its receipts and applied mercantile system of accounting. ITO felt that the method of accounting adopted by the assessee was incorrect and irrational. According to the officer, if the appellant wanted to follow cash system for receipts it should have followed the same cash system for expenses also. ITO also took note of the fact that the assessee by its letters dt. 3rd Oct., 1985 and 18th Oct., 1985, had agreed to the inclusion of Rs. 15,88,204 (general freight receipts) and Rs. 7,32,917 receipts from sister concern Nidhish Transport Corporation. Various additions were also made in the assessment. AO also initiated penalty proceedings under Section 271(1)(c) of the Act in respect of some of the additions. In the quantum appeal, the first appellate authority had allowed relief of Rs. 3,05,075 and consequently reduced the total income to Rs. 60,74,170. First appellate authority also upheld the rejection of the cash system of accounting adopted by the assessee in respect of its receipts. Assessee filed a further appeal before the Tribunal objecting to the rejection of the cash system of accounting. For taking the benefit under the Amnesty Scheme the assessee withdrew that appeal on 28th Feb., 1986 and filed an amnesty return admitting a total income of Rs. 60,19,550. Subsequently, the assessee filed a revised return admitting total income of Rs. 60,87,420. Reassessment order was passed on 31st July, 1986, accepting the total income declared in the return stating that the assessee is entitled for immunity under the Voluntary Disclosure Scheme only in respect of Rs. 23,77,780 i.e., the amount disputed in appeal. In respect of other additions the assessee is not entitled for the benefit of immunity under the Voluntary Disclosure Scheme. Penalty proceedings originally initiated were allowed to continue.

(3.) REVENUE took up the matter in appeal before the Tribunal. Tribunal also concurred with the view of the CIT(A) that the benefit under the Amnesty Scheme should have been extended to the amount collected from Nidhish Transport Corporation. Tribunal observed that the assessee being a transport company having large number of branches with transactions running into crores of rupees the switchover to cash basis from mercantile system in respect of receipts could not be said to be without reasonable cause. Tribunal observed that it was not open to the AO to make the computation of income upon such basis and in such manner as it may determine in a case where the income could not be correctly deduced from the accounts maintained by the assessee and, that was what had happened in respect of the freight collection of Rs. 24,01,534 and also in respect of the sum of Rs. 4,02,362 also being freight collection. Tribunal felt that once immunity was granted in respect of the former amount there was inequity in not granting immunity in respect of the second sum as well. Tribunal accordingly dismissed the appeal in favour of the assessee.