COMMISSIONER OF INCOME TAX Vs. ANNAMALAI FINANCE LTD

JUDGEMENT

(1.) THE Revenue has come forward with this tax case appeal against the order dated 25. 4. 2008 passed by the Income-tax Appellate Tribunal, 'd' Bench, Chennai in ITA no. 102/mds/2002 relating to the assessment year 1997-98, by formulating the following questions of law:-

(2.) THE facts, as culled out from the memorandum of grounds, are as follows: during the previous year ended on 31. 3. 1997, the assessee Company had admitted overdue financial charges on hire purchase and lease transactions on cash basis i. e. on receipt basis and not on accrual basis. In the course of the assessment proceedings, the assessee Company was informed that since it had been following mercantile system of accounting for all incomes and expenses, the same has to be adopted in respect of overdue financial charges as mandated by Section 145 of the Income-tax Act.

(3.) FROM the assessment year 1997-98, in the case of Companies, the method of accounting is to be followed strictly the mercantile system of accounting i. e. on accrual basis including that of overdue charges of hire purchase and lease for standard and non-standard assets. The assessee-Company filed the details and it is found that the overdue charges on accrual basis in respect of hire charges and lease in respect of the amount of Rs. 82,23,892/- and Rs. 24,37,922/-respectively aggregating to an amount of Rs. 1,06,61,814/- had not been admitted by the assessee on accrual basis.