COMMISSIONER OF INCOME TAX Vs. P L RAMIAH

JUDGEMENT

(1.) THOUGH the Assessing Officer held that the "expenditure" referred to in Section 57(iii) of the Income-tax Act, 1961, in the absence of account books, should be taken on cash basis, the Appellate Assistant Commissioner took a different view and held that the expenditure is to be computed on accrual basis as the amount which had been borrowed for the purpose of investment in shares from which shares dividend income was derived, had been borrowed from a corporation which followed the mercantile system of accounting, and had debited the interest due on the loan given to the assessee, each year, even though the interest had not been received. That view of the appellate authority has been affirmed by the Tribunal. The Revenue is before us questioning the correctness of the same.

(2.) THERE is no dispute here about the fact that the investment made in the shares from which the dividend was derived, was made out of the funds borrowed from Mercantile Credit Corporation Limited which maintained its account on a mercantile basis, and that it had debited interest for the year in the sum of Rs. 88,068 to the account of the assessee. The dividend income earned by the assessee was Rs. 15,341. The assessment year being 1982-83, the assessee did not maintain any account books. It was, therefore, open to the Assessing Officer to decide as to whether the assessment should be on accrual basis, or otherwise. That decision of the Assessing Officer was, however, subject to appeal. The appellate authority had the power to take a different view. The view taken by it cannot be said to be unfounded, or illegal. Section 57(iii) of the Act does not require that the expenditure should have been incurred in cash in that year, nor does it in express terms exclude the expenditure incurred on an accrual basis. The question is purely one of the method of account. The fact that the appellate authority considered the mercantile system as being appropriate, having regard to the method of account followed by the lender, and disagreed with the view of the Assessing Officer does not on that score render the appellate decision defective. The Tribunal's order sustaining that view of the Commissioner also is in no way contrary to law.