1. These two appeals, one filed by the assessee and the other by the revenue, arise out of the order dated 31-10-1980 in Appeal No. 414 of 1979-80 of the Commissioner (Appeals) and are disposed of by a common order.
2. The asses see is a partnership firm carrying on the business of ship brokers. It mainly helps the foreign ships in finding cargo from a port in foreign country to another port in foreign country, from foreign country to India and from India to foreign country. It also arranges for purchase and sale of ships as well as rigs for exploration of oil in India as well as on the high seas. The assessee derives income by way of commission from the above activities. The commission is entirely received in foreign currency. The previous year for the assessment year 1976-77 ended on 31-3-1976. In this year, as well as in the previous year, relevant to the assessment year 1975-76, the assessee claimed weighted deduction under Section 35B of the lncome-tax Act, 1961 ('the Act'). In this year, weighted deduction was claimed in respect of the following expenses :6. Foreign travelling 21,291 ________ The ITO did not accept the assessee's claim because he had not accepted a similar claim of the assessee in the assessment year 1975-76.
According to the ITO, as the assessee was not engaged in the export of goods, services or facilities, it was not entitled to any weighted deduction under Section 35B. The ITO further stated that the assessee was only a Sub-agent of the agent stated to be in a foreign country, who arranged ships for import of goods on behalf of the foreign persons in India. The market for the services rendered by the assessee was, therefore, in India and not in any foreign country. The question, therefore, of developing any export market by the assessee, did not arise. The ITO also stated that the assessee-firm had not incurred the expenditure wholly and exclusively on exports and services and, therefore, it was not entitled to the weighted deduction under Section 35B. The assessee had relied on a circular of the CBDT, bearing No. 6 P (LXXVI-66) of 1968 dated 6-7-1968 for the submission that weighted deduction under Section 35B would be admissible to an assessee, who incurs any expenditure under specified heads to promote the sale outside India of any goods, services or facilities dealt in or provided by him in the course of his business. The assessee's case was that though it was not exporting any goods but it was providing services or facilities. It was submitted that 'services' would cover all types of services. For the general meaning of the word 'serve' reference was made to Corpus Juris Secundum, 1952 edition, Vol. LXXIV. The ITO, however, did not accept the assessee's submission and did not allow any weighted deduction under Section 35B.Aggrieved, the assessee filed an appeal to the Commissioner (Appeals), before whom the assessee claimed weighted deduction on the expenditure of Rs. 2,32,373 and on further expenditure of Rs. 4,45,888 in respect of which an additional ground was raised. The details of the sum of Rs. 4,45,888 are as under :a. Salary 1,33,913b. Ex gratia bonus 16,125c. Technical advisor's fee 5,000d. Telex charges 25,978e. Telephone & trunk calls 37,452f. Printing and stationery 21,743g. Rent 21,253h. Electricity & water charges 2,323i. Charter party expenses 5,267j. Business promotion expenses 22,046k. Car maintenance expenses 23,431l. Post & telegrams 925m. Travelling & conveyance 36,278n. Commission 80,423o. Bank charges 542p. Miscellaneous expenses 6,684q. Subscription 1,980r. Staff welfare expenses 4,525 ________ While moving the additional ground of appeal, it was submitted that the weighted deduction on the additional expenditure of Rs. 4,45,888 was admissible under Sub-clauses (ii), (vi) and (ix) of Section 35B(1)(b).
The Commissioner (Appeals) admitted the additional ground. Before the Commissioner (Appeals) the assessee had placed reliance on the order of the Tribunal, Delhi Bench in Global Chartering Services v. ITO [IT Appeal No. 1893 (Delhi) of 1978-79 dated 29-12-1979], which was followed in the case of Capt. K.C. Saigal v. ITO [IT Appeal Nos. 2074 and 2545 (Delhi) of 1978-79 dated 14-3-1980], pertaining to the assessment year 1973-74. The Commissioner (Appeals) observed that essentially the nature of the assessee's business was of arranging foreign bottoms for a carriage of the foreign goods to India as also arranging sale of foreign rigs in India. He further observed that it was patent that no goods manufactured in India or services or facilities, which, so to say, were the produce of India, were being exported by the assessee. In fact, the assessee was helping in import of foreign goods, services or facilities into India. The Commissioner (Appeals) did not accept the aforesaid orders of the Tribunal, because, according to him, these orders did not lay down a general proposition for allowing weighted deduction under Section 35B. According to the Commissioner (Appeals), the Special Bench order of the Tribunal in the case of J.H. & Co. v. Second ITO  1 SOT 150 (Bom.) also did not support the assessee's claim. He, thus, did not accept the assessee's claim for weighted deduction under Section 35B.3. Aggrieved by this order of the Commissioner (Appeals), the assessee has filed the present appeal and one of the grounds raised is regarding the claim for weighted deduction on the expenditure of Rs. 6,78,261.
When this appeal came up for hearing, the order of the Tribunal, Delhi Bench 'C in the case of Shiplinks v. ITO [IT Appeal Nos. 4594 and 4595 (Delhi) of 1977-78 dated 27-10-1979] was referred to wherein after making a reference to the order in IT Appeal No. 1849 (Delhi) of 1976-77 dated 19-7-1978 [also in the case of Shiplinks (supra)], it was held that the assessee was not entitled to weighted deduction under Section 35B. On behalf of the assessee, reliance was placed on the orders of the Bombay Bench 'E' in Oceanic Shipping Agency [IT Appeal No. 417 (Bom.) of 1976-77 dated 15-3-1977] and in the case of ITO v.J.B. Boda Marine General Survey Agencies (P.) Ltd. [IT Appeal No. 766 (Bom.) of 1977-78 dated 24-4-1978]. A copy of the order of the Tribunal's order dated 29-12-1979 in Global Chartering Services' case (supra) was also filed. In these orders, it had been held that the assessees were entitled to weighted deduction under Section 35B. Since there was a conflict of opinion between the different Benches of the Tribunal on the question, whether weighted deduction under Section 35B was admissible in a case like the present one, the matter was referred to the President, who has constituted this Special Bench for this purpose. It is in these circumstances that this appeal came to be heard by us.
4. The learned counsel for the assessee has filed four separate paper books. The first paper book comprises 83 pages and it, inter alia, contains the objections to draft assessment order filed before the IAC, directions of the IAC, copies of the ITO's order, grounds of appeal before the Commissioner (Appeals), the submissions made before the Commissioner (Appeals) and a copy of the order of the Commissioner (Appeals). In the objections taken before the IAC vide letter dated 6-4-1979, it is mentioned that the broker is supposed to render the following services, which entitled him to a commission payable by ship-owners : c. To compile terms of negotiations, obtain charterers and owner's approval and draft and finalise charter party duly signed by both parties.
d. To advise and deliver this contract to all the parties concerned including port agents, suppliers, etc. and analyse terms, if required.
e. To follow up ship's movements and cargo position and communicate to respective parties ensuring all needful notices and precautions necessary for the trade are followed and complied with in due time.
f. To maintain close liaison wtih owners/charterers all through the currency of the charter and communicate information of requirements of either party to the other, in line with charter or otherwise, and, if necessary, follow up any fresh negotiations.
i. To ensure satisfactory compliance of C/P terms and full and final settlement of all dues and claims. To prevent expensive dispute and misinterpretation of charterer, party terms, etc.
j. If vessel involved in arbitration or litigation, to play due role as a broker.
k. To render legal professional, technical advice and report market conditions or collect such information from various sources as and when asked for.
It is also stated therein that from the charterer party file which was already before the ITO, it would be noticed that most of the work for the brokers start after the 'fixture'. The time and money spent on a specific ship after the fixture is many times multiple of time and cost of communication, etc., incurred to fix a ship and conclude a contract.
The 'Post Fixture' service is intensive, continuous and demanding.
5. The paper book No. II contains 148 pages and from pages 63 to 148, certain correspondence has been filed which has been grouped under : (A) Furnishing to persons outside India, samples and technical information for promotion of sale of such goods, services or facilities (pages 63 to 108).
(B) Obtaining information regarding markets outside India for such goods, services and facilities (pages 109 to 138).
(C) Messages relating to sale and purchase of vessels (pages 139 to 148).
The information under item (A) above has been collected under Sub-items (a) to (z). The information under item (B) above has been collected under items (a) to (w) and under item (C) above, the information has been collected under items (a) to (j).
5. Volume III of the paper book contains certain orders of the Tribunal and volume IV of the paper book contains : (A) Specimen copies of telex messages giving technical and commercial details of the vessels and cargoes sent to various foreign connections over one day, i.e., 5-3-1975 (pages 1 to 18).
(B) Specimen copies of telex messages repeated and publicised to international connections relating to technical, commercial, contractual information and details of available cargoes for which suitable tonnage is solicited (pages 19 to 29).
(C) Specimen copies of telex messages relating to obtaining information regarding markets outside India for ships and charterers available, their technical description, places of availability, dates, etc. and other terms from various shipping centres of the world (pages 40 to 44).
(D) Specimen telex messages pertaining to obtaining information regarding tonnages available for sale and purchase (pages 45 to 49).
(E) Specimen telex messages regarding obtaining information (commercial and technical) from worldwide sources, pertaining to foreign ships and charterers over a period of one month (separate pages 1 to 86).
On the basis of the information furnished in the paper books, filed by the learned counsel for the assessee, it was claimed that the expenditure incurred by the assessee was covered by the provisions of Section 35B(1)(b)(i), (ii) and (vi). A reference was made to the order of the Tribunal in the case of Capt. K.C. Saigal (supra) pertaining to the assessment year 1973-74, wherein the expenditure involved was : (i) Telex charges for obtaining information regarding markets outside India.
(ii) Overseas telephone calls for obtaining information regarding markets outside India.
(iv) Advertisement expenses through supply of articles inclusive of postage.
After referring to the judgment in the case of Global Chartering Services (supra), it was held in the above order that weighted deduction in respect of the expenditure in question had been rightly claimed under Sub-clause (i) for advertisement and Sub-clauses (ii) and (vi) as regards other expenses. It was also held that Explanation 2 was not applicable to the facts of the case. Reference was also made to the order in the case of Capt. K.C. Saigal v. ITO] IT Appeal Nos. 2345 (Delhi) of 1980 and 788 (Delhi) of 1981 and cross-appeals in IT Appeal Nos. 2952 (Delhi) of 1980 and 1036 (Delhi) of 1981] pertaining to the assessment years 1976-77 and 1977-78, wherein the order of the Tribunal for the assessment year 1973-74 was followed. It was submitted that the Commissioner (Appeals) erred in holding that, as no goods were exported, weighted deduction under Section 35B was not admissible. On this point, reference was made to the order of the Tribunal in the case of Indian Hotels Co. Ltd. v. ITO [IT Appeal No. 467 (Bom.) of 1975-76 dated 30-9-1976], wherein it was held that the words 'advertisement' and 'publicity' have been used in the section evidently not in any technical or narrow sense and, therefore, it would be proper to give them the general meaning as understood in the common parlance. 'To advertise', according to the ordinary dictionary meaning, means to inform, give notice to, to give notice of, to give public information of announcement or commentation of (see Chambers Twentieth Century Dictionary) and word advertisement' is the noun form of the verb 'advertise' meaning the act of advertising. In that case, the expenditure incurred was on travelling outside India by whole-time directors and employees. The Tribunal held that the expenditure incurred by the assessee clearly came within the provisions of Sub-clause (i) of Clause (b) of Section 35B(1). It was also held that Sub-clause (vii) of Section 35B(1)(b) would also cover the expenditure claimed in that case. The Tribunal in that case had also observed that the question of deduction must be solely determined by the language of the provisions of the section and could not be circumscribed by the marginal note. The P.A. filed by the Commissioner was rejected by the Bombay High Court. Thereafter, the Commissioner filed a petition for Special Leave to the Hon'ble Supreme Court and the said petition was dismissed by the Hon'ble Supreme Court (Source : The Economic Times dated 29-9-1979). The order of the Tribunal in the aforesaid case was referred for the purpose that though in the case of the assessee, there was no export of goods but all the same, the assessee was entitled to weighted deduction under Section 35B because it was promoting the export of such services and facilities which made the assessee entitled to weighted deduction under Section 35B. A reference was made to the Special Bench order of the Tribunal in the case of J.H. & Co. (supra) and it was submitted that this judgment was not in any way against the assessee. It was specifically submitted that no part of the expenditure on which weighted deduction was claimed, was covered by Sub-clause (iii) of Section 35B(1)(b).
6. The learned departmental representative submitted that the role of the assessee was only that of a professional negotiator and it was helpful in getting the fixture executed. According to him, before the fixture was executed, the assessee obtained this offer and communicated the same to the other party and after receiving the acceptance, the same was communicated to the concerned party and, thereafter, the contract was executed. The point that he made was that the entire services rendered by the assessee were after the execution of the contract. He referred to Sub-clause (viii) of Section 35B(1)(b) and submitted that since expenditure had been incurred in connection with execution of the contract for the supply of services or facilities, no weighted deduction under Section 35B was admissible. He referred to the meaning of the word 'Advertisement' in the Concise Oxford Dictionary, which means public announcement. He submitted that the word 'Publicity' in the same dictionary means a business of advertising (both goods and facilities). He referred to Words and Phrases Judicially Defined, Vol.
I of Butterworths & Co. Ltd. by Roland Burrows Eq. K.C., wherein it has been observed that the word 'Advertisement' does not cover 'trade mark'. From the same book, he referred to the meaning of 'Advertising' [under] Circular 201 [issued] under Paper Restrictions Orders, 1918. He referred to Words and Phrases Judicially Defined- Pocket Supplement 1966, Vol. I, London Butterworths (pages 24 and 25) where the word 'Advertise' under the Veterinary Surgeons Act, 1923- 1957 (NSW) has been' defined. In the same book, the word 'Advertisement' has been defined in the Medical Advertisement Act, 1942 (NZ). He submitted that the telex messages sent by the assessee were in the nature of private communication and, therefore, could not be considered either in the nature of advertisement or publicity. He argued that advertising was not the business of the assessee. The case of the assessee was not covered by Section 35B(1)(b)(i). He further submitted that the major brokerage earned by the assessee was for import of goods in India and the income from the business of finding cargoes from one foreign port to another foreign port had been small. He submitted that the market must be outside India but, in the case of a ship broker, the market was where the broker was situated, i.e., in India. According to him, the telex messages were for the purpose of distribution, supply or provision outside India of services or facilities provided by the assessee. The assessee's case was, therefore, covered by Sub-clause (iii) of Section 35B(1)(b). It was also submitted that Sub-clause (v) of Section 35B(1)(b) was not applicable to the facts of the assessee's case. He further argued that the words 'technical information' derived their meaning from the words used in Sub-clause (vi) of Section 35B(1)(b). According to him, Explanation 2 to Section 35B was applicable to the facts of this case. He submitted that the assessee was not entitled to weighted deduction under Section 35B and, therefore, the orders of the Tribunal in the case of Capt. K.C. Saigal v. ITO [IT Appeal Nos. 2074 and 2545 (Delhi) of 1978-79 for the assessment year 1973-74, in the case of Global Chartering Services (supra) for the assessment year 1975-76 and in the case of Capt. K.C.Saigal v. ITO [IT Appeal Nos. 2345 and 2952 (Delhi) of 1980 and 788 and 1036 (Delhi) of 1981 for the assessment years 1976-77 and 1977-78], should not be followed.
7. In reply, the learned counsel for the assessee submitted that the Explanation 2 to Section 35B was not applicable in this case. He submitted that market for advertisement will be the place where services will be utilised. He reiterated his earlier arguments that the assessee's case was covered by Sub-clauses (i), (ii) and (vi) of Section 35B(1)(b) but also submitted that weighted deduction could also be claimed under Sub-clause (v) of Section 35B(1)(b). He reiterated his submission that weighted deduction under Section 35B should be allowed to the assessee.
8. We have carefully considered the rival submissions. After going into the plethora of information furnished before us regarding activities of the assessee, we have no hesitation in our mind in coming to the conclusion that the expenditure incurred by the assessee is covered by Sub-clauses (i), (ii) and (vi) of Section 35B(1)(b). The major part of the expenditure is on telex messages sent to foreign parties and this expenditure is covered by Sub-clauses (i), (ii) and (vi) of Section 35B(1)(b). We cannot accept the submission of the learned departmental representative that the telex messages are in the nature of private communication. Almost similar messages have been sent to different parties on one date or different dates and these cannot be considered to be private communications. Expenditure on foreign travelling will be covered both by Sub-clauses (i) and (vii) of Section 35B(1)(b). As already held in the case of Indian Hotels Co. Ltd. (supra), for claiming deduction under Section 35B, the actual export of goods was not the condition precedent. This view now has the approval of the Hon'ble Supreme Court, because, against the order of the Tribunal in the case of Indian Hotels Co. Ltd. (supra), reference application was rejected by the Tribunal, the petition under Section 256(2) of the Act was dismissed by the High Court and a petition for Special Leave to appeal against the judgment of the Bombay High Court was rejected by the Hon'ble Supreme Court. In the case of the assessee, no goods as such, are actually exported but the assessee provides services or facilities in the course of its business. We do not agree with the assessee that the expenditure is also covered by Sub-clause (v) of Section 35B(1)(b) because the expenditure incurred is not in connection with preparing and submission of tenders for the supply or provision outside India of services or facilities and activities incidental thereto. The assessee does not submit any tenders as such for supply of services or facilities and it is for this reason that we hold that Sub-clause (v) is not applicable to the facts of this case. The Tribunal in the case of Indian Hotels Co. Ltd. (supra) has already held that there can be certain amount of overlapping and therefore, weighted deduction in respect of travelling expenses can be allowed both under Sub-clauses (i) and (vii) of Section 35B(1)(b). We do not accept the submission made on behalf of the revenue that the work of the assessee starts only after a 'fixture' is executed. It is true that some expenditure would be incurred when the fixture is executed but the claim of the assessee is that the time and money spent on a specific ship after the fixture is many times more than the time and money spent and cost of communication, etc., incurred to fix a ship and conclude a contract. The 'Post Fixture' service is intensive, continuous and demanding. We, thus, see no reason for denying the claim of the assessee for weighted deduction under Section 35B(1)(b). We, therefore, agree with the decisions of the Tribunal in the case of Global Chartering Services (supra), Bombay Bench 'C' in the case of ITO v.J.B. Boda Marine General Survey Agencies (P.) Ltd. (supra), in the case of Oceanic Shipping Agency (supra), in the case of Capt. K.C. Saigal (supra), for the assessment years 1976-77 to 1977-78. We do not agree with the order of the Tribunal in the case of Shiplinks (supra).
9. After holding that the assessee is entitled to weighted deduction under Section 35B(1)(b) we have further to consider as to whether the assessee is entitled to weighted deduction on the entire expenditure as claimed or the weighted deduction should be allowed to the assessee on a part of the expenditure on which weighted deduction has been claimed.
This matter has not been gone into by the lower authorities and we would, therefore, consider it appropriate to set aside the orders of the lower authorities on this point and would refer the matter back to the ITO for a decision on merits and according to law. While considering the allowability of the weighted deduction on different items of expenditure, the ITO may refer to the Special Bench orders of the Tribunal in the case of J.H. & Co. (supra) and in the case of ITO v. Happy Sound Industries  1 SOT 172 (Delhi).
10. So far as the commission is concerned, it has been following cash basis, i.e., the commission is returned on the basis of actual receipt while in respect of expenditure, it follows mercantile system of accounting. What the assessee follows is commonly known is hybrid system of accounting. The assessments of the assessee-flrm were being made on the basis of method of accounting followed by the assessee from the assessment year 1969-70 up to and including the assessment year 1974-75. Some time on 17-9-1975, there was a search of the premises of the assessee-firm as well as the partners. However, there is nothing that is relatable to the search with the present assessment. For the assessment year 1975-76, for the first time, the method of accounting insofar as the commission is concerned has been disturbed by the ITO.According to the ITO, the correct method should be mercantile basis and, on that footing, he made the assessment for that year. An appeal was filed before the Commissioner (Appeals), who remanded the matter to the ITO and it appears that it is still pending. There was a further appeal before the Tribunal on the question of method of accounting and the inclusion of commission on accrual basis. But the appeal was dismissed by the Tribunal. In the meanwhile the assessments for the earlier years were reopened and they are all pending.
11. Insofar as the assessment year under consideration is concerned, the assessee showed commission of Rs. 13,57,825 on receipt basis. In the view, the ITO took that commission should be assessed on the basis of accrual, he found that a sum of Rs. 8,45,315 is only to be assessed.
However, since the assessee had disclosed Rs. 13,57,825 in the return, he assessed that amount with an observation that the difference, namely, Rs. 5,08,510 should be assessed on protective basis, meaning thereby that the amount would be finally adjusted on the completion of all other assessments.
12. The assessee went up in appeal before the Commissioner (Appeals) against the action of the ITO, but the Commissioner (Appeals) confirmed the action of the ITO. That is how the assessee has come up in appeal and one of the principal grounds taken up is that the assessee's method of accounting should have been accepted. There are no doubt other grounds of appeal, arising out of the assessment. The revenue has also come up in appeal being aggrieved by the order of the Commissioner (Appeals), who granted some reliefs to the assessee in regard to its claims.
13. In support of the principal question, raised in the grounds of appeal, filed by the assessee, Mr. S.E. Dastur, learned counsel submitted that, in the very nature of the business, which the assessee is carrying on, the commission has to be accounted for on the receipt basis. He has pointed out with reference to the various agreements entered into by the assessee with the foreign parties that the commission is received only when the freight is received by the consignor. Secondly, Mr. Dastur contended that there cannot be protective assessment of a particular amount in the case of the same assessee in the same year, while no doubt protective assessments are well recognised. Thirdly, he contended that the assessee is aggrieved by the method of assessment made by the ITO and the Commissioner (Appeals) is in error in holding that the assessee is not aggrieved. He pointed out that once the action of the ITO has an effect on the assessment, the assessee is entitled to file appeal. He has further argued that the expression 'denial of liability' occurring in Section 246(1)(c) of the Act qualifying four items, is only illustrative and not exhaustive. He has further stressed the common law principle that provision for appeal should be liberally construed. He has finally argued that once an appeal lies, the assessee is entitled to urge all other grounds including the ground regarding the non-acceptance of the method of accounting adopted by the assessee.
14. Mr. S.D. Kapila, in reply, argued that the method of accounting cannot be adjudicated upon as the assessment has been made on the amount returned and, at any rate, there is no double taxation. Since, however, the assessment was made only on a protective basis, insofar as the difference between the returned amount and the amount actually to be assessed, there is no prejudice caused to the assessee. He further argued that our adjudicating on the question would result in anticipating the issues involved in the earlier years. Once there is no impact on the income as such, the assessment cannot be challenged, Mr.
Kapila argued. He relied on the decision in the case of CIT v. Smt.
Shyamo Bibi  59 ITR 1 (All.). In the circumstances, he tried to justify the action of the ITO in resorting to the provisions of Section 145(1) of the Act in this case. He drew analogy from the provisions of Section 176 of the Act. He has also pointed out that what the assessee was claiming was only the so called difficulties in following the mercantile system and, in fact, there are no such difficulties nor the assessee is entitled to follow cash basis for receipt of income while following mercantile basis for expenditure.
15. Before adverting to the various submissions, made from both the sides, it is better to understand the working of the assessee-firm. As already mentioned, the assessee is a partnership firm and it carries on the business of booking and chartering of ships as broker. The firm has come into existence since 1968. The assessee works through foreign ship broking firms which are closed to owners and charterers. As per the custom of the trade, it appears that the commission is being paid to the charterers/brokers on settlement of freight, if there is no other dispute by that time. The assessee stated before the lower authorities as follows : It is in our very best interest to recover commissions as early as possible and we endeavour to do so. But you would appreciate that, with the Indian law having no jurisdiction over foreign owners and we having no facility or resources to go into expensive litigation abroad, it is in everybody's interest to recover those commissions with better method and established practices. Any unnecessary pressure leads to unpleasant reactions and rebuke from the owner/owner's broker and ultimate withdrawal and disposal of owner's support for Indian cargoes which is seriously prejudicial to our national interest. More ships offering means lower freight rates and this is the first and the foremost service we are there to render and any other interest must play secondary role to this goal.
You can clearly see that we have no control over these commissions and unless owner's claim is satisfactorily settled, we even run the risk of losing same altogether.
The method of accounting adopted by us since the inception of the business is the commission on receipt basis and expenditure on accrual basis. The expenditure on accrual basis, mainly the telex and telephone expenses bills for which are received in the early part of the next year pertaining to the previous year (sic). Mostly, all the expenditure is on the payment basis and the claim of expenses on accrual basis is also negligible on the plea that the expenditure claimed in the previous year are paid in the very early part of the next year.
16. It is well settled that where an assessee employs regular method of accounting, that method will have to be adopted. The leading case on the point is Keshav Mills Ltd. v. CIT  23 ITR 230 (SC) and such is the position in Investment Ltd. v. CIT  77 ITR 533 (SC), CIT v. A. Krishnaswami Mudaliar  53 ITR 122 (SC); and so on.
17. The assessee is following cash system of accounting for receipt of commission and, for expenditure, it is following mercantile system of accounting. We have already indicated that this method of accounting can be properly termed as hybrid system of accounting. It is not necessary to load the order as to what is the cash system of accounting and what is mercantile system of accounting. The point is whether the method of accounting regularly employed by the assessee should be followed or it should be rejected by applying the provisions of Section 145(1). This raises a fundamental issue as to whether an assessee can follow cash system for receipts and mercantile system for expenditure and vice versa. The judicial opinion has recognised the hybrid system of accounting. For instance, reference can be made to the following decisions : Indo-Commercial Bank Ltd. v. CIT  44 ITR 22 (Mad.), J.K. Bankers v. CIT  94 ITR 107 (All.), CIT v. E.A.E.T. Sundararaj  99 ITR 226 (Mad.) and Sheoduttrai Bholanath v. CIT  52 ITR 121 (Ori.).
From a careful analysis of the above decisions, it is clear that there is no case in which the expenditure is on mercantile basis while the receipt is on cash basis. Nevertheless the principle of hybrid system of accounting has been well recognised. Different methods of accounting can be adopted for different sources. The case of Sundararaj (supra) is an extreme case where different methods of accounting are adopted for different items. Therefore, once the principle of hybrid system of accounting is employed, can it be rejected We are afraid, it cannot be. The very word 'hybrid' indicates a hotchpotch method of accounting.
The only requirement is that the method should be adopted regularly.
The assessee cannot alter the method as and when it suits him. Once it follows a particular method of accounting, it has to be continued albeit the method of accounting. We do not find any principle coming in the way of accepting the method of accounting adopted by the assessee in this case. There is no dispute that this particular method of accounting, which is commended to us for acceptance is being followed regularly by the assessee right from the beginning. In fact, such method was accepted by the revenue authorities. Maybe, the assessments are sought to be reopened now in the view they have taken for the first time in the assessment year 1975-76. There is no real difficulty in accepting the method adopted nor there can be a legal objection to it.
The assessee has also given reasons for adopting this particular method. The main source of income is the commission and its receipt by the assessee depended on various factors. It mostly depended upon how the third party acts, namely, in payment of the freight, etc. The assessee has to receive the amount from foreign parties. In case some small dispute arises and the assessee does not receive the commission, it may be very difficult for the assessee to start proceedings for recovery. Therefore, if commission is assessed on accrual basis, it might some time result in an unrealistic assessment. So far as the expenditure is concerned, it is mostly on the basis of payment except perhaps for a small expenditure which is incurred in the last month of the accounting year, which is accounted for in the next month and such expenditure is quite negligible. In substance, therefore, there would not be much difference in income if the method adopted by the assessee is accepted.
18. Then comes the question whether, in view of the method followed by the assessee, the ITO can still resort to the provisions of Section 145(1) on the ground that true profits are not deducible Here again, we find that the ITO is not justified in adopting the proviso to Section 145(1). We have already shown above that the true profits are deducible from the method of accounting adopted by the assessee. If true profits are to be given a rigid meaning, scientific method of accounting only can be recognised but that is not the import of the provisions of Section 145(1). Courts have recognised different methods of accounting which should be accepted if an assessee follows one method regularly. It may be that a particular method may not be very scientific and in strict sense true profits are not deducibie but the ITO has no option but to accept such method of accounting. He cannot say that, on the basis of method of accounting, followed by an assessee, true profits are not deducible. Such power is not vested in the ITO. Why the Courts recognised different methods of accounting, as acceptable, is because, ultimately, the income works out alright. If, in a particular year, the income is less, automatically, it will be more in the next year. The result would be that the assessee is liable to be taxed on the income earned. Take, for instance, a purely cash system of accounting. Undoubtedly, this is recognised and the same has to be a accepted. But, if one were to adopt scientific analysis, it may be difficult to say that the cash system of accounting brings out the true profits. All the same, cash system of accounting is recognised system of accounting and the ITO has no choice but to accept the same and determine the income accordingly. Therefore, we see no difference between a case, where pure cash system of accounting is accepted and a case where for income cash system is adopted and, for expenditure, mercantile system is adopted. In fact, there is not much of importance to the name of the accounting method but what is important is the method which is to be regularly employed. Once the concept of taxing the income is achieved, there remains no problem at all whatever be the method of accounting an assessee adopts. We are, therefore, clearly of the opinion that, having regard to the facts of the case and the legal principles involved, the method of accounting adopted by the assessee, should be accepted.
19. The question of maintainability of the appeal, having regard to the contentions of Mr. Kapila, will now have to be decided. The substance of the argument of Mr. Kapila is that, when there is only a protective inclusion of Rs. 5 lakhs and odd and what has resulted in was the acceptance of the amount shown by the assessee, there could be no grievance by the assessee against the assessment order. The argument may look very simple and attractive but we are unable to accept the same. Provision for appeal is always held to be a statutory right to be conferred specifically. There cannot be a general right of appeal without a provision for such a right. But, once a right of appeal is created, it should be liberally construed. In other words, there should not be undue restriction on the exercise of such right of appeal. With these few general observations, let us have a look at Section 246(1) which confers the right of an appeal to an assessee. Sub-section (1) begins like this: 246(1) Subject to the provisions of Sub-section (2), any assessee aggrieved by any of the following orders of an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order- The Sub-section provides right of appeal against various types of orders. Clause (c) is only relevant for our purposes which reads: (c) an order against the assessee, where the assessee denies his liability to be assessed under this Act or any order of assessment under Sub-section (3) of Section 143 or Section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed; The first and foremost requirement is that an assessee should be aggrieved by any order of the ITO which is enumerated under Sub-section (1) of Section 246. All that provision requires is that the assessee should have a grievance. The grievance must be real and not merely illusory or academic. Undoubtedly, in this case, the assessee does have a grievance. Its method of accounting is not accepted. The finding regarding method of accounting is sought to be objected by the assessee. The consequence of the rejection of the method of accounting may be that so far as this year is concerned, it is beneficial in the sense that what the assessee had shown has been accepted. Nevertheless, when the assessee's stand with regard to the basic question as to the method of accounting is not accepted, the assessee can be said to be aggrieved. He has the right to agitate the question before the appellate authorities. The finding regarding method of accounting may not have immediate impact in the sense that it would touch the particular year but it has a definite bearing on assessments of not other years. The assessee cannot leave the matter because that would create practical difficulties while dealing with the assessments of other years. The basis of the assessment is under challenge by the assessee and we are not able to understand how the assessee cannot be said to be aggrieved at all.
20. Mr. Dastur pointed out that so far as Clause (c) is concerned, the four instances given thereunder, namely : are only illustrative and not exhaustive. But we do not see any substance in this argument. The right of appeal is provided initially if an assessee is aggrieved but it is against the order of assessment under Section 143 of the Act provided, however, that any of the above four objections are raised. But, however, we do not want to dilate on this argument any further because in our view the assessee is covered by the first two. The assessee is objecting to the amount of income assessed. The assessee returned the income on a particular basis but the assessment is on a different basis. In fact, the substantive assessment is on an amount other than what the assessee has claimed, with a rider that the difference is treated provisionally. As a consequence of this, the amount of tax determined also is varied. In our view, therefore, the assessee can be said to be objecting to the amount of income assessed or to the amount of tax determined. No doubt, Mr. Dastur also laid emphasis on the denial of liability occurring in Clause (c) but we do not think that the assessee's case can be covered by that clause. Thus, on a closer reading of Section 246(1)(c) we are of opinion that the assessee is aggrieved by the order of assessment passed by the ITO under Section 143 and his objection is to the quantum of income and to the tax determined.
21. We may point out that the addition of an amount in the case of the assessee for a particular year on a provisional basis is unknown. We are aware of those cases, where provisional assessment or protective assessments are very well recognised [see for instance Jagannath Hanumanbux v. ITO  31 ITR 603 (Cal.), Lalji Haridas v. ITO  43 ITR 387 (SC), Smt. Hemlata Agarwal v. CIT  64 ITR 428 (All.) and 143 ITR 346 (sic). None of the cases deals with protective inclusion of an amount in the case of an assessee for a particular year. We are unable to see how such a course can be adopted by the ITO.There are two fundamental objections to such a course. Firstly, it is well settled that the Tribunal cannot decide a second appeal on a protective or provisional basis. The Tribunal, being a final fact finding body, has to decide one way or the other and there cannot be a protective decision of the Tribunal. This is well supported by judicial pronouncements.
Secondly, what will happen if, ultimately, mercantile system is held to be the correct method Who will rectify the present assessment Suppose, the limit for rectifying expire, will the assessee suffer this assessment These are various questions to which answers are, difficult to find. Of course, if the assessee's stand is accepted, there would not be any difficulty at all but the validity of protective assessment of the nature we are having before us, will have to be tested on a legal basis rather than the consequences.
22 From another angle also, we may come to the same conclusion that the appeal is maintainable. The assessee was aggrieved by the assessment order made under Section 143 by the ITO because there are, admittedly, other grounds also arising in the appeal. Once an appeal has been preferred, the assessee can urge all the points including the question relating to the method of accounting even though in this particular year, the finding on the method of accounting may not effect the assessment for the year in question in the sense that, ultimately, whatever the assessee has returned, is accepted. But as already indicated, once the assessee objects to the computation of the income or the determination of the tax, whatever may be the method by which such process is arrived at, the assessee would be entitled to maintain an appeal. In this connection, we would like to refer to the decision in CIT v. Mahabir Parshad & Sons  125 ITR 165 (Delhi). Their Lordships were considering the scope of provision for appeal under Section 246(1)(c). The following observations are very opposite and they fully support whatever we have stated above : ...To say that an appeal cannot be preferred unless the assessee objects to the income, tax, loss or status does not mean that even where he has such a grievance and he prefers an appeal because of such grievance, the scope of the appeal is limited to these four subject-matters. We say this because what the clause envisages, where one of the four grievances exists, is an appeal against the order of assessment. In other words, once these grievances are there, what is before the AAC for consideration is the order of assessment. We are unable to see any word in this clause which limits the scope of the arguments of the petitioner or the grounds which he can take before the AAC only to these four matters... (p.
174) Mr. Kapila's argument that the observations are only obiter and, therefore, should not be followed, is stated to be rejected. In fairness to Mr. Kapila, we may refer to the decision cited by him-Delhi Registered Stockholders (Iron & Steel) Association Ltd. v. CIT  59 ITR 16 (Punj.) This decision deals with an order of the ITO refusing to effect the change in the previous year. Their Lordships held that the assessee cannot maintain an appeal under Section 23 of the Indian Income-tax Act, 1922, even though that order was a part of the order of assessment. In our opinion, this decision is clearly distinguishable.
Maybe some observations are in conflict with what the Delhi High Court has laid down in the case of Mahabir Prashad & Sons (supra), but since we are bound by the decision of the Delhi High Court, we respectfully follow the same.
23. For all these reasons, therefore, we see no merit in the objections raised by the revenue regarding maintainability of the appeal by the assessee.
24. Before parting with this issue, we must observe that the society and even law recognises slander, defamation, libel, etc., as a crime against the human being even when none of them cause any physical injury to the person. Why, because it hurts a person. We will presently show why we are saying so.
25. Before us, the argument was advanced by the revenue that the asses-see could not have any grievance because in the ultimate, the income, as returned had been accepted though the system of accounting as followed by the assessee had been tampered with and, therefore, there was no grievance inasmuch as no extra tax had been levied. It was further purported to be submitted that the grievance of the assessee that this change of accounting as done by the revenue authorities may affect his future or earlier assessments which may be lying pending, amount to the assessee seeing red unnecessarily. We would have readily agreed with this argument of the revenue because in the first flush it appears to be sound. But that soundness explodes when we look at it from the other point of view. Undoubtedly, it is true that the returned income has been accepted but only the system of accounting had been tampered with, apparently on the face of it, there cannot be any grievance of the assessee. But the assessee can say that in that mode of acceptance of the returned income, his books of account and his system of maintaining the account books has been thrown out. Is that not a grievance? It may affect his future assessment or it may affect his assessment presently pending. Will that not lead to fresh trouble for the assessee, fresh discomfort and fresh round of litigations? Is it not enough to be concerned about? Is it not enough to make a grievance of? Just as in the case of a slander or defamation or libel, no physical injury is caused to the person, but the law recognises such a grievance of the human beings for the simple reason that it hurts the propensities of the individual, it hurts his self-respect, it projects his image which is not his, it depicts him before the people in a manner which he does not like, it gives a picture of the person concerned, which he does not relish. If the criminal law could take note of such a situation, why not the income-tax law. After all the assessee's system of accounting has been tampered with, it may not mean much in the shape of tax, but one thing is patent, he has been told on his face that though we accept your income as returned, we do not approve of your maintaining your account books or your system of accounting which, in other words, means, to put it in the terms of law of criminology, that you are a lier, you are unreliable, you are not trustworthy. Is it not a grievance? Is the assessee not entitled to seek the remedy under the law to have it undone. We are of the view that under the rule of law, he has the right and we have taken note of it and that is why we have so decided.
26 to 37. [These paras are not reproduced here as they involve minor issues].