IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 23.11.2011 Coram The Honourable Mr.Justice P.JYOTHIMANI and The Honourable Mr.Justice P.P.S.JANARATHANA RAJA TC.(A).No.829 of 2004 M/s.SDB CISCO (India) Limited Madras ...Appellant -vs- The Assistant Commissioner of Income Tax Company Circle VI(1) Madras ... Respondent Appeal filed under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Madras "A" Bench dated 23.01.2003 in I.T.A.No.2370/95. against the Commissioner of Income Tax Apppeals-II, Madras -34 dated 15.9.1995 and made in Appeal No.93/94-95 for the Assessment Year 1991-92 against the Order of the Asst.Commissioner of Income Tax Central Circle -II (5), Madras -34 dated 30.12.94 and amde in PAN/GIR No.47-061-CT-2727 for the Assessment Year 1991-92. For appellant : Mr.J.Balachander for M/s.Sridhar For respondent : Mr.T.Ravikumar J U D G M E N T (The Judgment of the Court was made by P.JYOTHIMANI,J.) The assessee has filed the Tax Case Appeal against the order of the Income Tax Appellate Tribunal, Madras "A" Bench dated 23.01.2003 in I.T.A.No.2370/95 raising the following substantial questions of law:- "(i) Whether, on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in rejecting the cash method of accounting adopted by the appellant for arriving at the taxable income, particularly in the light of Section 145 of the Income Tax Act? (ii) Whether on the facts and in the circumstances of the case, the Income Tax https://hcservices.ecourts.gov.in/hcservices/ Tribunal is right in law in holding that section 209 of the Companies Act will override the provisions of Section 145 of the Income Tax Act, 1961? (iii) Whether, on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in rejecting the claim for deduction of the entire travelling and training expenses for a sum of Rs.20,35,936/- incurred during the previous year relevant to the assessment year 1994-95 on the ground that only 1/5th of Rs.20,35,936/- was debited in the profit and loss account? (iv) Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in rejecting the claim for deduction of proportionate expenditure on training and travelling in the sum of Rs.20,35,936/- for assessment year 1995-96 and 1996-97? and (v) Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in holding that the assessment for the assessment years 1990-91 and 1991-92 were validly reopened merely on the strength of Section 209 of the Companies Act?" 2. In so far as fourth substantial question of law is concerned, learned counsel for the assessee fairly submits that the said question of law does not survive since no Tax Case Appeal has been filed for the assessment years 1995-96 and 1996-97. Accordingly, we hold that the fourth substantial question of law does not survive for consideration in this Tax Case Appeal. 3. In respect of 1st and 2nd substantial questions of law, which relates to the assessment year 1991-92, it is the case of the assessee that they followed cash method of accounting through out and in the year 1991-92 even though they followed cash method of accounting, towards the end of the year, only for the purpose of preparing the annual return for the submission to the member in annual General Meeting and for filing necessary returns under the Companies Act, the Mercantile basis was adopted ; however, the Income Tax Appellate Tribunal has pointed out that the assessee company has changed its method of accounting from cash to accrual system from Assessment Year 1990-91 onwards to comply with the amendment brought in the Companies Act, 1956. https://hcservices.ecourts.gov.in/hcservices/ 4. The Income Tax Appellate Tribunal pointed out that the assessee has to compute its income for the purpose of the Income Tax Act on the very same basis of the accounts prepared by it on accrual basis for complying with the provisions of the Companies Act, 1956. Accordingly, the Tribunal justified the Assessing Officer in reopening the impugned assessments and further revising the income on the basis of accrual system. 5. It is relevant to note that for the assessment year 1990-91, the assessee has not filed any appeal before this Court against the order of the Income Tax Appellate Tribunal. It is also brought to the notice of this Court that for the assessment year 1993-94, no appeal was filed even before the Income Tax Appellate Tribunal. It is also stated by the learned counsel for the assessee that the assessee has been consistently following the Mercantile basis of accounting and no appeal is filed against the order of the Assessing Authority. 6. The learned counsel for the assessee relied on the judgment of the Supreme Court in the case of Commissioner of Income Tax Vs. Bilahari Investment P.Ltd., reported in (2008) 299 ITR 1 (SC) and submitted that when the method adopted by the assessee was accepted by Department over several years, for the subsequent decision of Department to change method, the Department has to record a finding that assessee's method distorts profits. He further relied on the decision of the Supreme Court in the case of Commissioner of Income Tax Vs. Realest Builders and Services Ltd., reported in (2008) 307 ITR 202 (SC) and submitted that if the Assessing Officer comes to the conclusion that there is under-estimation of profits, he must give facts and figures in that regard to demonstrate that the impugned method of accounting adopted by the assessee results in under- estimation of profits. 7. Relying on the above cited decisions, the learned counsel for the assessee submitted that the Income Tax Appellate Tribunal erred in law in not upholding the assessee's method of accounting of maintaining books of account on cash basis, hence, the same may be set aside and the Tax Case Appeal may be allowed. 8. In so far as the reliance placed by the learned counsel for the assessee on the decision in the case of Commissioner of Income Tax Vs. Bilahari Investment P.Ltd., reported in (2008) 299 ITR 1 (SC) is concerned, the same is not applicable to the facts of the present case since in the cited case, the method of accounting adopted by the assessee was subsequently changed by the Department. However, in the facts of the present case, the finding arrived by the Income Tax Appellate Tribunal was based on facts of the case, in which, the assessee himself has changed the method of accounting. Hence, we are of the view that the said judgment is of no help to the assessee. https://hcservices.ecourts.gov.in/hcservices/ 9. In so far as the reliance placed on the decision in the case of Commissioner of Income Tax Vs. Realest Builders and Services Ltd., reported in (2008) 307 ITR 202 (SC) is concerned, the same is also not applicable to the case. That was the case where the Assessing Officer had chosen to adopt the method of accounting on his own. Therefore, 1st and 2nd substantial questions of law are answered against the assessee. 10. As far as fifth substantial question of law is concerned, it is the case of the assessee that as against the original assessment order, appeal was filed and the Appellate Authority has remanded the matter back to the Assessing Officer and thereafter, notice was given under Section 148 of the Income Tax Act, 1961. It is further argued by the learned counsel for the assessee that when the matter was remanded back to the Assessing Officer for the purpose of finding out method of accounting, it is not open for the Assessing Officer to issue notice under Section 148 for reopening of the entire assessment. 11. The learned counsel for the assessee has not produced any material to substantiate his contention. We do not find any material in the typed set of papers filed by the assessee that notice under Section 148 was issued to the assessee for the purpose of reopening the entire assessment. There is nothing on record in relation to the remand order. Further, admittedly, no appeal was filed for the assessment year 1991-92. Accordingly, we confirm the order of the Income Tax Appellate Tribunal. Accordingly, the 5th substantial question of law remains unanswered in favour of the parties. 12. The Tax Case Appeal stands disposed of on the above terms. No costs. Sd/ Asst.Registrar //True Copy// Sub.Asst.Registrar nvsri To 1.The Assistant Commissioner of Income Tax Company Circle VI(1), Madras 2.The Commissioner of Income Tax Appeals, Madras-34 3.The Income Tax Appellate Tribunal, Madras A Bench 1 cc to Mr. J.Balachander, Advocate, Sr.No.71903 T.C.(A).No.829 of 2004 sr(co)pmk.1.2.2012 https://hcservices.ecourts.gov.in/hcservices/