Full Judgment
R. Jayasimha Babu, J.
One question has been referred to us at the instance of the revenue and two questions have been referred at the instance of the assessee. The assessment years are 1981-82 to 1983-84. The assessee is a manufacturer of air compressors, air horns, hydraulic lifts, car washers, etc. The assessee during the assessment year 1981-82 had changed its method of accounting in respect of the export cash assistance, from accrual to actual basis and followed mercantile system in respect of other items. Such a changeover was made for a better understanding of the profit earned by the assessee. As the amount was not being regularly received without any variation between the amount sought for and the amount granted, it was considered convenient to follow the accrual basis as the method of accounting, in respect of the export cash assistance.
2. The assessing officer took the view that it was impermissible for the assessee to change the mode of accounting in that manner. That view was overruled in appeal by the Inspecting Assistant Commissioner who held that the change of mode of accounting had been made to avoid the real and genuine problems in the accounting and in order to more accurately show the profits. Before the Tribunal that finding of the appellate authority was not challenged. It was merely contended by the revenue that the change should not have been made in respect of one of the items of receipt. The Tribunal did not accept that contention and in our view, rightly.
3. The change in the accounting insofar as export cash assistance is concerned having been made bona fide and with a view to avoid genuine problems and there being nothing in the Act which would come in the way of such change being effected with respect to one or more items with a view to better reflect the true position in the accounts, the assessing officer was not justified in rejecting that change in the method of accounting.
4. The question referred to us at the instance of the revenue as to whether on the facts and in the circumstances of the case the Tribunal is right in law in accepting the change in the method of accounting made by the assessee-company from mercantile to cash system of accounting in respect of export incentives and in consequently sustaining the order of the Commissioner (Appeals) deleting the addition of Rs. 21,766 in 1981-82 and of Rs. 16,464 in 1982-83, is answered in favour of the assessee and against the revenue.
5. The two questions referred to us at the instance of the assessee are :
1. Whether, on the facts and in the circumstances of the case, a valid charge or mortgage was created by the deed of hypothecation trust dated 1-5-1981, as modified by the supplementary deed dated 27-9-1982
2. Whether, on the facts and in the circumstances of the case, part of the interest on fixed deposits from the public was liable to be disallowed under section 40A(8) of the Income Tax Act, 1961, in the two assessment years 1982-83 and 1983-84
6. Questions similar to these questions have been considered by this court in the case of L.G. Balakrishna & Bros. Ltd. v. CIT : [2000]245ITR743(Mad) and those questions were answered against the revenue. For the reasons stated in that judgment, these questions are also answered in favour of the assessee and against the revenue.