ABAD FISHERIES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Cochin Bench (in short "the Tribunal"), has referred the following questions for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 (in short "the Act") :

(2.) THE factual background as set out in the statement of case is as follows : THE assessee is a partnership firm. During the course of assessment proceedings for the assessment year 1988-89, the Assessing Officer noticed that though a sum of Rs. 7,19,598 was due to the assessee as cash incentive, the same was not included in the return of income filed by it. THE assessee had not offered the said amount for taxation on the ground that the amount was not received during the previous year, but only in a subsequent year. It was claimed that in respect of cash incentive, it had changed its method of accounting from the mercantile system to cash system, and the amount was to be considered for assessment for the subsequent year, i.e., 1989-90. THE Assessing Officer felt that the change in the method of accounting was not bona fide. Accordingly, the amount in question was included in the total income. THE assessee preferred an appeal before the Commissioner of Income-tax (Appeals) (in short "the CIT (A)"), who concurred with the Assessing Officer. In second appeal before the Tribunal, the assessee contended that the Assessing Officer was not justified in including the cash incentive in the total income on accrual basis rejecting the change in the method of accounting. THE Revenue's stand was that the assessee was going on changing its method of accounting in respect of a particular item amongst various receipts. THE obvious purpose was to claim exclusion of the amount in question by claiming deduction under Section 80HHC of the Act in the subsequent assessment year with a view to escape tax liability. THE assessee was switching over to a different method of accounting for the said purpose and the intention is not bona fide. THE Tribunal noticed that the assessee became entitled to cash incentive on the basis of exports. Previously, it was accounting for the cash incentive on cash basis, but during the previous year relevant to the assessment year 1987-88, it had changed to "due basis on mercantile system". That was accepted by the Assessing Officer for the year 1987-88 and the assessment was also made on that basis. THE assessee became entitled to receive Rs. 7,19,598 as cash incentive during the concerned assessment year 1988-89. On due basis, i.e., in accordance with the mercantile system of accounting, this amount was to be included in the assessment year 1988-89. THE assessee did not show this amount for 1988-89 and postponed its inclusion to 1989-90. THE obvious purpose was to avail of a benefit under Section 80HHC in the subsequent assessment year. THE change of accounting was found to be not bona fide. THE assessee was accounting for all other receipts and outgoings on due basis. It was noticed that there was no uncertainty regarding receipt of the cash incentive and that there would be no difficulty in getting the amount from the Government Departments. THEre was no justifiable reason for the assessee to account for the cash incentive on receipt basis deviating from the hitherto followed method of accounting. Accordingly, the view of the Assessing Officer as well as the Commissioner of Income-tax (Appeals) was affirmed by the Tribunal.

(3.) THE questions are, therefore, answered in the affirmative, in favour of the Revenue and against the assessee.