Assessee floated a scheme called ‘Golden Key Scheme’ whereunder the subscribers were required to pay full amount of Rs. 2,500/- and they were to be given NSC worth Rs. 1,000/- each simultaneously. Prizes were to be distributed to the subscribers throughout the tenure of scheme of 12 years. Such subscribers who could not get any prize were to receive gifts in the form of articles worth Rs. 2,500 at the end of scheme. The Tribunal held that cash system of accounting whereby, the entire receipts are taxed in first year and the deduction is allowed in subsequent years would give rise to artificial income in the first year and for the subsequent year there would be deductions without any corresponding income. The Tribunal held that such method of accounting presented a skewed picture. Method of accounting should be such which does not affect the interest of the Revenue and at the same time should not put the assessee in undue hardship. Held, mercantile system to be followed. It was further held that the expenses in the nature of prize money would be allowed in the first year itself on pro-rata basis. (AY. 1987-88 to 1992-93)
Sahara India Ltd. v. ACIT (2018) 168 ITD 1/ 164 DTR 49 / 192 TTJ 655 (TM) (Luck.) (Trib.)
S. 145 : Method of accounting – offering of income and allowability of expenses – Assessee floated a scheme wherein it received money in first year and the payment to the subscribers were to flow in subsequent years – held, taxing of income in first year and allowability of expenses in subsequent years based on cash system presented a skewed picture – Held, method of accounting should be such which does not affect the interest of the Revenue and at the same time should not put the assessee in undue hardship. Held, mercantile system to be followed.[ S.4 ]