Taxpayer allowed to choose accounting method; discrepancies challenged must be backed by strong evidence.

1. The captioned appeals are filed by the Revenue, aggrieved by the orders of the Income Tax Appellate Tribunal, Cochin Bench in ITA Nos. 386/95, 387/95, 620/95 and 679/95 respectively, concerning the assessment years 1990-91, 1991-92, 1992-93 and 1993-94 respectively.

2. The respondent assessee is a company which is publishing the newspaper ‘Kerala Kaumudi’. The assessee is following mercantile system of accounting. However, as far as sales of newspaper and advertisement revenue are concerned, the assessee was following cash system of accounting. Returns were filed during the assessment years in question. Taking the view that the assessee, having adopted mercantile system of accounting, cannot adopt accounting on cash basis as regards the sale of newspaper and advertisement charges, the Assessing Officer made additions and completed the assessment. Appeals filed by the assessee before the Commissioner of Income Tax (Appeals) were allowed partly. Further appeals filed by the assessee were allowed by the Tribunal and the Assessing Officer was directed to revise the assessments. It is in this background, the Revenue has filed these appeals.

3. The questions of law framed in these appeals being common, those framed in ITA 119/99, filed in relation to the order passed for the assessment year 1990-91, are extracted below:
“1. Whether, on the facts and in the circumstances of the case and in the absence of a finding that there was no difficulty in ascertaining the correct income for the assessment years 1990-91 and 1991-92, the Tribunal is right in law and fact in interfering with the assessment of the advertisement charges and the newspaper sales on mercantile basis?
2. Whether, on the facts and in the circumstances of the case and admittedly when “other incomes and expenses are accounted on the mercantile system” will not the assessment of advertisement charges and the newspaper sales on cash system result in difficulty for the Assessing Officer in ascertaining the correct income?
3. Whether, on the facts and in the peculiar circumstances of the case the assessee is entitled to have different system of accounting considering the incomes and the head under which the income is assessed?
4. Whether, on the facts and in the circumstances of the case the Tribunal is justified in finding in the present case that “in respect of the earlier years there was no difficulty in ascertaining the correct income” and is not the finding wrong, unreasonable unsupported by any material and evidence and hence vitiated and without jurisdiction?
5. Whether, on the facts and in the circumstances of the case wen the Tribunal is considering the appeal for the assessment years 1990-91 and 91-92, does the Tribunal have jurisdiction much less evidence (unless there is a finding in the appeal for the earlier year) to find that “in the present case ........... in respect of the earlier years there was no difficulty in ascertaining the correct income” and is not the finding in the circumstances of the case wrong based on surmises and conjectures?
6. Whether, on the facts and in the circumstances of the case and in the light of the findings that the assessee had not maintained log books in respect of the vehicles and in the absence of evidence that the telephones were used exclusively for business purpose the Tribunal is right in law and fact in interfering with the disallowance made by the Officer?”

4. We heard learned Senior Standing Counsel for the Revenue and the learned Senior Counsel appearing for the respondent assessee.

5. In sum and substance, the contention raised by the learned Senior Counsel for the Revenue is that the assessee having adopted mercant