May 2022
Chit fund: (i) Method of accounting — Change in method of accounting from mercantile system of accounting to completed contract method — Profits accounted for chit discount on completed contract method — Result revenue neutral — Assessee’s method of computing justified; (ii) Business expenditure — Advertisement expenditure — Expenses incurred not on particular series of chit alone but for promotion and running of business — Allowable as revenue expenditure in year in which expenses incurred
By K. B. Bhujle
Advocate
9 Shriram Chits and Investments (P.) Ltd. vs. ACIT [2022] 442 ITR 54 (Mad) A.Ys.: 1987-88 to 1995-96 and 1999-2000 Date of order: 30th August, 2012 Ss. 37 and 145 of ITA, 1961
Chit fund: (i) Method of accounting — Change in method of accounting from mercantile system of accounting to completed contract method — Profits accounted for chit discount on completed contract method — Result revenue neutral — Assessee’s method of computing justified; (ii) Business expenditure — Advertisement expenditure — Expenses incurred not on particular series of chit alone but for promotion and running of business — Allowable as revenue expenditure in year in which expenses incurred
The assessee was in chit business. Till 31st December, 1985, in respect of the method of accounting u/s 145 of the Income-tax Act, 1961, the assessee followed the mercantile accounting system regarding the commission earned by it in its capacity as foreman, conducting the chit activity. However, thereafter, the assessee changed the method to the completed contract method of accounting, and the commission earned was accounted for on the completion of each series of chits. The Department did not accept the change of the accounting method on the ground that on the date the auction was conducted, the right of the assessee to receive the commission in the capacity as foreman accrued, and consequently, the assessee was not entitled to wait for the completion o
