Facts of the Case

The Appellant Revenue (Income Tax Department) preferred a statutory tax appeal docketed as ITA No. 195/2009 along with a procedural application CM No. 2050/2009 before the High Court of Delhi. The dispute involved assessing taxable components under the mercantile system of accounting. The Revenue sought to tax certain disputed items or interest income that it claimed had accrued under a strict reading of statutory provisions, which had previously been resolved in favor of the Assessee by lower appellate forums. The Revenue was represented by Advocate Mr. Sanjeev Sabharwal.

 Issues Involved

  • Whether the precise question of law raised by the Revenue under Section 145 was already legally exhausted and conclusively answered against the Income Tax Department by prior coordinate benches of the same jurisdiction.
  • Whether the principles governing the recognition of hypothetical versus real income on non-performing assets or special accounting methods stand binding on the Revenue when dictated by Division Benches.

Petitioner’s (Revenue) Arguments

The Revenue, through its standing counsel, contended that the Assessee’s system of accounting under Section 145 structurally required the recognition of income on a mercantile accrual mechanism. They argued that commercial guidelines, prudential norms, or asset classifications should not diminish the absolute right of the statutory authority to bring accrued financial elements into the taxable pool, and urged the Court to formulate a substantial question of law.

Respondent’s (Assessee) Arguments

The Assessee stood on the firm footing of established judicial discipline and the rule of consistency (stare decisis). The implied defense rested on the fact that the primary legal substance brought forth by the Revenue was no longer res integra (an undecided matter), having been soundly adjudicated against the Revenue by two highly authoritative Division Benches of the Delhi High Court.

Court Order / Findings

The Division Bench consisting of Hon'ble Mr. Justice Vikramajit Sen and Hon'ble Mr. Justice Rajiv Shakdher issued the following definitive orders:

  • CM 2050/2009: Allowed, subject to all just exceptions.
  • ITA No. 195/2009: The Court noted that the precise underlying matter was completely covered against the interests of the Revenue by existing judgments delivered by different Division Benches of this Court. Specifically, the Court relied on:
    1. CIT -vs- Morgan Securities and Credits P. Ltd., [2007] 292 ITR 339
    2. CIT -vs- Autometers Ltd., [2007] 292 ITR 345
  • Final Decision: Driven by judicial consistency, the High Court summarily Dismissed the Revenue's appeal, refusing to re-open a settled interpretation.

Important Clarification

This judgment reinforces a crucial operational standard for tax administrators: the Revenue cannot continuously litigate individual cases on an identical point of law once coordinate Division Benches of a High Court have established clear precedent. The referenced cases (Morgan Securities and Autometers Ltd.) clarify that under Section 145, income cannot be taxed on a hypothetical basis if it lacks real probability of realization, ensuring protection for corporate and banking assessees.

Section Involved

  • Section 145 of the Income Tax Act, 1961: Relates to the method of accounting, specifically the computation of business income under a regularly employed cash or mercantile accounting system.
  • Section 260A of the Income Tax Act, 1961: Framework governing appeals preferred before the High Court against decisions of the Income Tax Appellate Tribunal (ITAT).

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2009:DHC:9879-DB/VJS05032009ITA1952009_172541.pdf

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