Dr. D.Y Chandrachud, J.:— This appeal by the Revenue under section 260A of the Income-tax Act, 1961, arises out of the order passed by the Tribunal for the assessment years 2002-03 and 2003-04 on December 11, 2008. The appeal is for the assessment year 2002-03. The questions of law which have been formulated are as follows:
“(a) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in deleting the addition made on account of excess cash received at the cash counters of the branches in some years?
(b) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in directing the Assessing Officer to ascertain the correct date of payment of PF dues (employees’ contribution) and to allow the same if the same has been made within the grace period of five days from the due date?
(c) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in deleting the addition made on account of interest ‘accrued’ on Government securities?
(d) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in deleting the disallowance of deduction claimed under section 36(1)(viia)?
(e) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in deleting the addition made on account of advance income received by way of commission, exchange and discount, including locker rent?”
2. In so far as the first question is concerned, the Tribunal has followed the order of the Jodhpur Bench for the assessment years 2000-01 and 2001-02. The Jodhpur Bench held that the liability on account of excess cash received at the cash counters of the bank represents the liability to pay the customers as and when they may demand payment. The Tribunal, therefore, held that it cannot be considered as the income of the assessee. On this ground, the addition was directed to be deleted. We have perused the order of the Jodhpur Bench of the Tribunal for the assessment years 2000-01 and 2001-02 which has been relied upon in the impugned order by the Tribunal. The Jodhpur Bench has also observed that the bank, in respect of the collection of excess cash at its counters in various branches has a liability to pay back the amount to the real owners. After applying the principles laid down in the judgment of the Supreme Court in United Commercial Bank v. CIT, [1999] 240 ITR 355, the Tribunal held that collection of excess cash, in the circumstance, does not represent income of the assessee-bank. This part of the reasoning has not been demonstrated to suffer from any perversity. Before the Jodhpur Bench, reliance was also placed on the cash manual of the assessee which provides that the bank has to make a record of the excess cash, this has to be considered as a liability of the bank and the collection is required to be handed back to the real owner in accordance with the prescribed procedure. In view of the aforesaid, the first question of law does not give rise to any substantial question of law. In so far as the second question is concerned, the Tribunal has remanded the issue to the Assessing Officer for verification of the actual date of payment of the disputed sum. The Tribunal observed that if the payment has been made within the grace period of five days from the due date, then the deduction claimed by the assessee has to be allowed in terms of the judgment of the Madras High Court in Shri Ganapathy Mills Ltd., [2000] 245 ITR 879. Since the Tribunal has remanded the matter to the Assessing Officer, no substantial question of law, as such would arise. We would like to clarify that upon remand, due regard would be given to the relevant provisions of the law, including the judgments which hold the field.
3. In so far as the third question is concerned, it is brought to our notice that in the assessment years 1991-92 and 1992-93, this issue was considered by the Jodhpur Bench of the Tribunal. The Jodhpur Bench held that interest on Government securities can be said to accrue only when it becomes due and, therefore, there cannot be a charge to such income until such time that it becomes due. Counsel appearing on behalf of the Revenue has stated before the court that he has written instructions to the effect that an appeal against the order of the Jodhpur Bench of the Tribunal was dismissed by the High Court of Rajasthan on January 23, 2008. In that view of the matter and particularly, since the finding of the Tribunal has not been shown to suffer from any perversity, no substantial question of law would arise.
4. As regards the fourth question, the Tribunal observed that the assessee has made a claim for deduction under section 36(1)(viia) for bad and doubtful debts in respect of advances made by rural branches. The view of the Tribunal is consistent with the provisions of section 36(1)(viia) which refer to “an amount not exceeding ten per cent, of the aggregate average advances made by the rural branches of such bank”. Counsel appearing on behalf of the Revenue stated that against the order of the Jodhpur Bench of the Rajasthan High Court of March 7, 2008 in I.T.A No. 13 of 2005, a special leave petition was dismissed by the Supreme Court on January 16, 9. In that view of the matter, no substantial question of law would arise.
5. The last question which has been formulated by the Revenue relates to the accounting system followed by the assessee in respect of income received in advance. This income consists of commission, exchange and discount including locker rent. The assessee follows the mercantile system of accounting. During the course of the previous year, income from these sources was accounted for on a receipt basis. As a result of a change in the method of accounting followed by the assessee, while continuing with the mercantile system of accounting, the assessee has accounted for the receipts in relation to the year in which payment has accrued. Consequently, though in a given case the entire payment may be received in advance, the assessee accounted for the payment as it accrues over a period of time. The Assessing Officer made an addition of Rs. 3.46 crores on the ground that the change in the method of accounting resulted in lower profits to that extent. The Commissioner (Appeals), however, directed a deletion of the amount. This has been confirmed by the Tribunal.
6. Section 145(2) provides that income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” shall, subject to the provisions of sub-section (2), be computed in accordance with either the cash or mercantile systems of accounting regularly employed by the assessee. Hence, under sub-section (2) of section 145, income under these two heads has to be computed either in terms of the cash or mercantile system. Moreover, that system of accounting which is adopted by the assessee must be regularly employed. Under sub-section (2), the Central Government may notify in the Official Gazette, from time to time, accounting standards to be followed by any class of assessees or in respect of any class of income. Under sub-section (3), the Assessing Officer may make an assessment under section 144 where he/she is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards notified in sub-section (2) have not been regularly followed by the assessee.
7. Under section 145(2), the Central Government has notified accounting standards which are required to be followed by assessees following the mercantile system of accounting. Accounting Standard I relates to disclosure of accounting policies. It provides that (i) all significant accounting policies adopted in preparation and presentation of financial statements shall be disclosed; (ii) such disclosures shall form part of the financial statements and significant accounting policies shall normally be disclosed in one place; (iii) any change in an accounting policy which has a material effect in the previous year or in years subsequent thereto, shall be disclosed; (iv) the impact of, and the adjustments resulting from, such change, if material, shall be shown in the financial statements of the period in which such change is made to reflect the effect of such a change; (v) the accounting policies adopted by the assessee should represent a true and fair view of the state of affairs of the business, profession or vocation in the financial statements prepared and presented on the basis of such accounting policies and that for this purpose, norms of “prudence”, “substance over form” and “materiality” shall be adopted. The expression “accrual” has been defined to refer to the assumption that revenues and costs are accrued, that is, recognized as they are earned or incurred (and not as money is received or paid) and recorded in the financial statements of the period to which they relate. Clause 9 of Accounting Standard II provides that a change in an accounting policy shall be made only if the adoption of a different accounting policy is required by statute or if it is considered that a change would result in a more appropriate preparation or presentation of financial statements by an assessee.
8. In the present case, the undisputed position before the court is that (i) the assessee has adopted the mercantile system of accounting since inception; (ii) this system is regularly employed; and (iii) there is no change in the method of accounting on a mercantile basis. The assessee is listed with the Jaipur Stock Exchange. By a communication dated September 11, 2001, the Stock Exchange informed the assessee of a requirement communicated to it by the Securities and Exchange Board of India on August 31, 2001, by which amendments to listing agreements were notified. Clause 50 relates to compliance with accounting standards. The SEBI by its communication dated August 31, 2001, mandated that a new clause shall be added to the listing agreement, as clause 50, to provide that companies shall mandatorily comply with all the accounting standards issued by the Institute of Chartered Accountants of India from time to time. The Stock Exchanges were advised to incorporate the amendment in the listing agreements immediately and to report compliance. The Commissioner (Appeals) observed in the present case that the Assessing Officer had not given any finding that any of the entries in the books of account are incorrect or that the assessee was not employing a method of accounting on a regular basis and it was not the finding of the Assessing Officer that the trading results could not be deduced from the entries in the books of account regularly maintained. The Commissioner (Appeals) also observed that out of the four items, bank locker rent was received for a period of up to three years and other charges are received for about six to nine months. The locker rent of one year alone ought to be treated as taxable income in the accounts for the particular year rather than the entire advance locker rent of the two subsequent years. The advance locker rent of the following two years was shown as income in the respective subsequent years. The finding of fact which was arrived at by the Commissioner (Appeals) was that the change in the method of accounting was bona fide and it has been followed regularly and consistently in the subsequent assessment years. The changed method has been held to be a better method for preparing and presenting financial statements of income of the assessee. The Tribunal has, in appeal, also arrived at a conclusion that the change in the method of accounting is not detrimental to the interest of the Revenue. The Tribunal affirmed the finding of fact of the Commissioner (Appeals) that the change was bona fide and consistently followed after the year in which it was changed. This is a pure finding of fact of both the Commissioner (Appeals) and by the Tribunal. In the result, on the basis of the material on record, the Revenue has not established before the court any perversity in the findings of the Tribunal or any illegality on the part of the assessee.
9. In the circumstances and for the reasons already stated earlier, none of the questions which have been formulated by the Revenue would raise any substantial question of law. The appeal shall accordingly stand dismissed.
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