Commissioner of Income Tax vs Bilahari Enterprises Pvt. Ltd. (formerly known as Bilahari Investments P. Ltd.)

K. Raviraja Pandian, J.—This appeal has been filed against the order of the Income Tax Appellate Tribunal in I.T.A. No. 209/Mds/2005

dated 28.2.2005. The relevant assessment year is 2001-02.

The substantial question of law formulated for entertainment of the appeal is as follows:

Whether on the facts and circumstances of the case, the Tribunal was right in holding that the discount loss on chits is to be allowed in its entirety in

the year it occurs rather than spread it over the period of the chit?

The assessee is in the business of subscribing to chit funds. For the assessment year 2001-02, the assessee inter alia claimed that the loss arising

on account of discount granted should be allowed at the time of accrual and not to be spread over the period of discount. The Assessing Officer

followed the order of the Income Tax Appellate Tribunal in the assessee''s own case and revised the working.

Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), who

dismissed the appeal. The assessee filed a Second Appeal to the Income Tax Appellate Tribunal, which followed the order of this Court reported

in Bilahari Investments (P) Ltd. Vs. The Commissioner of Income Tax, , which is the assessee''s own case in respect of Assessment years 1991-

92, 1992-93 and 1993-94 and decided that the discount loss should only be allowed in the year of accrual. The Revenue filed the present appeal

against that order.

Learned Counsel appearing for the Revenue fairly submits that the issue is covered as against the Revenue in respect of the assessee''s own case

reported in Bilahari Investments (P) Ltd. Vs. The Commissioner of Income Tax, , wherein, this Court, after taking into consideration Sections 5

and 145 of the Income Tax Act, 1961, held that the income received or deemed to be received or accruing or arising during the previous year shall

form part of the total income of the assessee and such income shall be computed in accordance with the accounting system which the assessee

regularly followed. Therefore, when the assessee followed the mercantile system of accounting, as required under the Income Tax Act, and entries

were posted in the books of account on the date of transaction, that is, on the date on which rights had accrued or liabilities were incurred

irrespective of the date of payment, the income derived during a particular previous year by way of chit dividend had to be reckoned and assessed

as income of that year. The dividend income had to be taxed on the basis of its accrual in the year of receipt.

In the light of the reasoning given in the assessee''s own case reported in Bilahari Investments (P) Ltd. Vs. The Commissioner of Income Tax, ,

the Tax Case Appeal is dismissed.