2010 (4) TMI 217 - HC - Income Tax

Method of accounting - Excess collection of cash correct date of payment of PF dues accrual of interest on government securities claim of deduction u/s 36(1)(vii)(a) - advance income received by way of commission, exchange and discount, including locker rent ITAT has decided all the issues in favor of assessee 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, no addition be made on account of excess collection of cash - 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 claim of bad debts 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 - 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. view of AO is incorrect change in method of accounting is not detrimental to interest of revenue.

Summary

Issues:
- Appeal by Revenue under Section 260A of the Income Tax Act, 1961 for assessment years 2002-03 and 2003-04.
- Questions of law regarding various additions and deletions made by the ITAT.

Analysis:

1. Excess Cash Received at Cash Counters:
- Tribunal followed Jodhpur Bench's order, holding excess cash as a liability to pay customers, not income.
- Jodhpur Bench's view supported by Supreme Court's judgment.
- No substantial question of law arises.

2. Payment of PF Dues:
- Tribunal remanded issue to AO for verification of payment date.
- If payment within grace period, deduction allowed per Madras High Court's judgment.
- No substantial question of law due to remand.

3. Interest 'Accrued' on Govt. Securities:
- Jodhpur Bench held interest accrues only when due, no charge until then.
- Tribunal's decision not challenged, no substantial question of law.

4. Disallowance of Deduction under Section 36(1)(vii)(a):
- Tribunal's view consistent with Section 36(1)(viia) provisions.
- Supreme Court's dismissal of appeal, no substantial question of law.

5. Advance Income Received:
- Tribunal deleted addition on advance income received.
- No substantial question of law raised.

6. Accounting System for Advance Income:
- Assessee changed method of accounting for advance income.
- Tribunal confirmed deletion of addition by AO.
- Compliance with Accounting Standards and SEBI requirements.
- No perversity in Tribunal's findings, no illegality by assessee.
- Change in accounting method held bonafide and consistent.
- No substantial question of law raised, appeal dismissed.

7. Legal Provisions:
- Section 145(2) mandates income computation under cash or mercantile systems.
- Central Government notifies accounting standards for assessees.
- Accounting Standard I and II requirements for disclosure and changes in accounting policies.

In conclusion, the High Court dismissed the Revenue's appeal as none of the questions raised substantial legal issues. The judgment extensively analyzed each issue, including interpretations of relevant legal provisions, previous judgments, and the application of accounting standards. The Court upheld the Tribunal's decisions based on sound legal reasoning and factual findings.