B. C. MITRA, A.M.: Order These 4 appeals of assessee raising certain common grounds are disposed of by this consolidated order for sake of convenience. appeal relate to asst. yrs. 1976-77 to 1979-80. 2. assessee is non-resident banking company. grounds raised for four assessment year under appeal are discussed seriatuim below. Asst. yr. 1976-77 3 . assessee claimed deduction of Rs. 2,25,376 representing Income tax paid by assessee on behalf of 10 of its employees who left India on basis of guarantee bonds furnished by assessee-company with object of facilitating grant of exemption certificates by ITO assessing employees. IAC disallowed assessee s claim and on appeal CIT(A) in upholding IAC s order held that bank had guaranteed payments of tax liability of individual employees as employer and it was not bank s business to guarantee tax payments of its employees. CIT(A) further observed that assessee did not charge any guarantee commission and in issuing guarantee bond to 10 of its employees bank did not obtain any security. CIT(A) also mentioned in his order that in respect of asst. yr. 1974-75 bank s claim for deduction of Rs. 56,261 representing payment of tax borne on behalf of some of its employee was disallowed and bank accepted disallowance of ITO. In first two grounds assessee has taken objection in regard to aforesaid finding of CIT(A). It has been stated that bank issued guarantee bonds for payment of taxes in respect of persons who were constituents of bank. bank also issued such guarantee bonds to assessee s employees. It has been urged that CIT(A) erred in confirming disallowance by ignoring fact that bank issued bank guarantees in course of its normal banking business and any liability arising out of such activity of bank was trading liability and consequently was to be allowed as business expenditure. It has been pointed out that CIT(A) erred in stating that guarantees were issued by bank as employer and that proper taxes were not deducted from amount paid s salary to employees. It has been argued that CIT(A) s observation that bank guarantees were issued towards fulfilment of bank s obligation to deduct taxes was not based on proper appreciation of facts. It has been pointed out that charging of commission at time of issuing bank guarantees was not legal requirement and in any case such concession allowed to constituent did not change character of assessee s liability arising from granting of bank guarantees to employees. Our attention was drawn to statement furnished before CIT(A) showing particulars of salary paid to 10 Japanese officers who came on deputation in India during various periods falling between asst. yrs. 1963-64 to 1967-68 as also particulars of income assessed and additional tax raised on complication of assessments of these officers after adjusting tax deducted at source from salary payments made by bank. assessee s ld. counsel stated that Japanese officer were employees of Bank of Tokyo in Japan and they came to India for certain specified period. bank deducted tax on salary and perquisites that were paid to them but in assessments ITO included certain income b y way of perquisites which in bank s understanding did not form part of salary. Reference was made to Gujarat High Court decision in case of CIT vs. S. G. Pgnatale (1980) 16 CTR (Guj) 337 : (1980) 124 ITR 391 (Guj) wherein High Court held that living allowance paid to some foreign technicians was not perquisite within meaning of s. 17(2) as allowance paid was in nature of reimbursement and did not give rise to any personal advantage and consequently could not be included in computation of salary income of technicians. It has been argued that no foreigner would came to India if he was told that he could not leave country unless his income-tax assessments were completed and extra tax demanded was fully realised. There was direct nexus, according to assessee s learned counsel, between assessee s furnishing of bank guarantee and work carried on by it as bank, inasmuch as service rendered by Japanese officers working on deputation were essential for smooth running of assessee s bank business. Reference in this connection was made to Madhya Pradesh High Court decision in case CIT vs. Shriram Prayagdas & Mahadeo Prasad (1982) 27 CTR (MP) 155 : (1983) 144 ITR 883 (MP) wherein High Court in laying down test for determining whether expenditure falls under s. 37(1) of IT Act, 1961 held that payment voluntarily made in order to facilitate carrying on of business of assessee on ground of commercial expediency was allowable business expenditure under s. 37(1). ld. counsel for assessee further stated that tax payable by bank constituted perquisite in hands of Japanese officials in terms of s. 17(1)(iv) of Act. mere fact that in hands of employees tax borne by bank was not treated as perquisite was of no consequence inasmuch as amount paid to employees was in nature of remuneration some was deductible incomputing business income of bank. 4. Departmental Representative in reply refuted arguments of assessee s ld. counsel by stating that guarantee furnished by bank was in accordance with provisions of s. 230 with view to facilitate ITO in assessing employees to tissue tax clearance certificates at time of their departure from India. Such guarantee issue under s. 230 could not be equated with banks issuing of guarantee bonds to its constituents on payment of guarantee commission and furnishing of necessary security by it. It has been argued that Income-tax payable by assessee crystallises at end of accounting year and it was duty of bank as employer to deduct tax properly. extra tax liability of employee cannot under any circumstances be regarded as trading liability of assessee. It has been pointed out that assessee being non-resident company it was built natural that employees stationed at assessee s head quarters in Tokyo or other places of Japan could work on deputation on transfer to any other branch in India or elsewhere. It is not assessee s business to pay on behalf of its employees extra tax liability which arose as consequence of assessment made in hands of employees. Reference was made to Supreme Court decision in case of Indian Aluminium Co. Ltd. vs. CIT (1971) 79 ITR 514 (SC) wherein it was held that payment of tax made under statutory obligation because assessee was in default in not deducting tax at source at time of making payment to non-resident could not constitute expenditure laid out for purpose of assessee s business within meaning of s. 10(2)(xv) of 1922 Act. In his counter reply assessee s ld. counsel stated that Supreme Court decision in case of Indian Aluminium Co. Ltd. (supra) relied on by Departmental Representative was distinguishable on facts inasmuch s in that case question of allowability of expenditure incurred by assessee did not arise on grounds of commercial expediency. In assessee s case according to learned counsel payment was directly linked with assessee s carrying on of its business as banker and consequently expenditure was rightly claimed as business executive in terms of s. 37(1) of Act. It has been further sated that since Departmental Representative did not dispute fact that tax payment constituted perquisite in hands of employees within meaning of s. 17(2)(iv) of Act amount claimed was deductible in computing business income of assessee. 5 . We have considered submissions of both parties and have carefully gone through records of case. specimen copy of guarantee issued by bank has been placed at pp. 37 to 39 of paperbook (1) filed at time of hearing before us. ld. counsel for assessee did not dispute that bank guarantee is in usual Performa that is generally submitted before IT Authorities under s. 230 of Act. We fail to understand as to how such guarantee furnished under s. 230 can be equated with guarantee bonds issued by bank in course of its ordinary banking business. To our mind reliance placed on Madhya Pradesh High Court decision in case of Shriram Prayagdas & Mahadeo Prasad (supra) is misplaced inasmuch as facts in that case are clearly distinguishable from facts of instant case. In case before High Court assessee purchased business of running transport company with was in arrears of tax. buses in possession of assessee were attached for tax dues of transport company and assessee paid certain sum and got buses released for carrying on business and claimed amount as business expenditure under s. 37(1) of Act. Tribunal allowed claim of assessee. It was held that buses were attached by IT Department for realising tax dues of transport company. possession of buses by assessee was absolutely necessary for carrying on its business. Deduction claimed by assessee was held to be allowable on grounds of commercial expediency under s . 37(1). In present case employees were liable to pay tax on salary earned from bank. bank also deducted tax at source on salary paid to employees. assessee admittedly did not enter into agreement with t h e employees for payment of tax on completion of their Income-tax assessments. It is admittedly not practice of bank to pay on behalf of employees taxes levied on completion of their individual-assessments. We are also not in agreement with assessee s ld. counsel that assessee s payment of tax constituted income assessable in hands of employees as perquisite within meaning of s. 17(2)(iv) of Act. statement furnished in respect of tax paid by assessee on behalf of 10 of its employees revealed that extra tax demanded was in respect of salary paid to employees during asst. yrs. 1963-64 to 1967-68. It is relevant to point out that Calcutta High Court in case of N. Sciandra vs. CIT (1979) 118 ITR 675 (Cal) considered question whether in absence of agreement between foreign technician and Indian company tax paid in respect of payment of tax free salary could be treated as perquisite in hands of foreign technician. High Court answered question in negative as under : "In our view if tax paid by employer is to be added to salary of employee as perquisite under s. 17 of IT Act., 1961 then it must fulfil characteristics of perquisite as laid down in section. It has been clearly laid down in section that such perquisite must be paid before it can be treated as part of salary. In instant case the, agreement only provides that corporation would help assessee to claim total exemption of all taxes, and if such attempt fails then tax payable would be on account of corporation. This liability of Corporation for tax levied would normally arise at future date and therefor, any amount paid or to be paid in future on such account cannot be treated as perquisite paid in relevant assessment year." ld. counsel s reliance on Gujarat High Court decision in case of CIT vs. S. G. Pgnatale (supra) in our opinion cannot help assessee as it is not known what was disputed income assessed in hands of non- resident employees which resulted in creation of extra demand to tune of Rs. 2,25,376. assessment order passed by (ITO) in case of 10 Japanese employees have not been made available before us. We accordingly are of opinion that CIT(A) was justified in upholding IAC s addition in this regard. addition is upheld. 6. In ground No. 3 point raised is that CIT(A) has erred in upholding ITO s disallowance of Rs. 6,74,325 being provision of loss or foreign exchange forward contracts. 7 . assessee in P & L A/c disclosed not profit earned on foreign exchange transactions of Rs. 4,660,214.25 after making following adjustments. manner in which profit has been arrived at can be found from details of commission, foreign exchange and brokerage as per page 24 of paper book as under : "Profit on Foreign Exch. Transaction Gross Rs. Receipt 5,324,547.25 Add : Loss Forward Exch. Contract provided in 9,992.00 previous year 31-3-1975 . 5,334,539.25 Less : Loss on Forward Exch. Contract provided 674,325.00 674,325.00 during year 31-3-1976 Rs. . 4,660,214.25" amount provided to extent of Rs. 6,74,325 has been shown in credit side of balance sheet under head Acceptances Endorsement & Other Obligations . IAC added back in assessment Rs. 6,74,325 by observing that provision made on date of closing of accounts for probable loss on outstanding contracts is not admissible . CIT(A) upheld disallowance with observation that "actual profit and loss will arise only at day of settlement when contracts will be closed. appellant is not carrying on business of earning incomes on foreign exchange by itself but only as medium of banking transaction and, therefore, unless there is actually loss on transaction, mainly difference on accounts due to fall in value of rupee cannot be allowed as trading loss. 8. It has been stated that authorities below failed to appreciate facts leading to dispute. It has been pointed out that foreign exchange dealings constituted most important aspect of assessee s business. banks is authorised to deal in foreign exchange by Reserve Bank of India. Parties/constituents of bank having valid import licence approached bank for acceptance of import documents and contract was thereafter entered into for honouring documents by payment in foreign exchange to party abroad on further date as mentioned in documents. Loss, gain on foreign exchange contracts is settled on date when actual payment is made. Now, if foreign exchange contract remains outstanding on last date of accounting year, same is valid at ruling market rate and necessary entries to that effect are recorded in books of bank. It has been normal practice of bank according to ld. counsel to value outstanding foreign exchange contracts at end of year and such practice has been followed consistently by bank. It has been pointed out that assessee takes into consideration exchange loss/gain on outstanding forward contracts provided in accounts of earlier year and thereafter actual loss or gain arising on valuation of outstanding forward contracts at prevailing market rate as at end of accounting year relevant for assessment year is provided and taken to balance sheet under head Acceptances Endorsement & Other Obligations . foreign exchange contracts according to assessee s ld. counsel are entered into in normal course of assessee s business and profit arising from such contracts constitute trading receipts of bank. Accordingly it has been pointed out that outstanding foreign exchange contracts form part of assessee closing stock which assessee has been consistently valuing for years together at official foreign exchange rates of currencies involved in contracts. It has been stated that where assessee regularly employs particular method of accounting its income has to be computed in accordance with such regular method. Reference in this connection was made to number of High Court decisions viz., Calcutta High Court decisions in case of Reform Flour Mills (P) Ltd. vs. CIT (1978) 114 ITR 227 (Cal), Snow White Food Products Ltd. vs. CIT (1983) 141 ITR 847 (Cal),CIT vs. National & Grindly Bank Ltd. (1984) 145 ITR 457 (Cal). It has been argued that while s. 145 of Act 1961 enables ITO not to accept method of accounting of assessee if he were of opinion that method employed was such that income cannot be properly deduced therefrom, there is no power vested with assessing officer to impose his own method. Reliance in this connection was made on Madras High Court decision in case of CIT vs. K. Sankarapandia Asari & Sons (1980) 19 CTR (Mad) 264 : (1981) 130 ITR 541 (Mad). It has been pointed out that ITO did not disturb system of accounting followed in regard to valuation of outstanding foreign exchanged contracts till asst. yr. 1975-76. It is not Department s case according to ld. counsel for assessee that system of accounting followed by assessee is defective and that method is such that correct profit can not be deduced from system of accounting followed by assessee. option lies with assessee to follow particular system of accounting which is best suited in circumstances of assessee s case. Reference in this connection was made to Andhra Pradesh High Court decision in case of CIT vs. Margadarsi Chit Funds (P) Ltd. 1984 Taxation 75(3)(Apj). 9 . Departmental Representative stated that forward contracts could not be stock-in-trade of assessee. Loss/gain arising in forward contract being notional cannot be taken into account in valuing closing stocks of assessee. It has been stated that entries made by assessee in his books of account is not determinative of question whether assessee has earned any profit or suffered any loss. assessee may by making entries which are not in conformity with proper principles of accountancy, conceal profit or show loss and entries made by him cannot, therefore, be regarded as conclusive. Reference in this connection was made to Supreme Court decision in case of Sutlej Cotton Mills Ltd. vs. CIT 1978 CTR (SC) 155 : (1979) 116 ITR 1(SC). It has been argued that even though assessee maintained its accounts on mercantile system assessee was not bound to show all anticipated loss inasmuch as loss could be claimed only where it was ascertained in year when foreign exchage contracts were to be settled. Reference in this connection was made to Calcutta High Court decision in case of CIT vs. Shewbux Jahurilal (1962) 46 ITR 688 (Cal). Reference was also made to Supreme Court decision in case of Karam Chand Thapar & Bros. (P) Ltd. vs. CIT (1969) 74 ITR 26 (SC). Departmental Representative also referred to another Calcutta High Court decision in case of CIT vs. Soorajmull Nagarmull (1981) 22 CTR (Cal) 6 : (1981) 129 ITR 169 (Cal). 10. In his counter reply assessee s learned counsel stated that two Calcutta High Court decisions relied on by Departmental Representative, namely in cases of CIT vs. Shewbux Jahurilal (supra) and CIT vs. Soorajmull Nagarmull (supra) were distinguishable since facts of those cases were different to facts of present case. In case of Shewbux Jahurilal (supra), facts in brief were that assessee entered into contract in April, 1946 for supply of jute to another company at specified rates on future dates. Under contract buyer had option in event of non-delivery of goods on due dates, to cancel contract to recover difference between price fixed in contract and market price on date of cancellation. assessee was not able to supply goods on due dates. buyer cancelled contract on 1st March, 1947 and claimed sum of Rs. 3,58,997 as difference in price. matter was referred to Bengal Chamber of Commerce which passed award in 1948 and award was filed in High Court in 1949. settlement was subsequently arrived at by which sum payable was fixed at Rs. 1,35,000 and it was made payable in February, 1950. assessee paid this amount in February 1950 and claimed amount as loss in year 1950-51. IT authorities contended that this was loss pertaining to year 1946 and that assessee should have claimed loss of Rs. 3,58,997 in asst. yr. 1947-48 and should have applied for adjustment in asst. yr. 1950-51 as he maintained his accounts in mercantile system. High Court held that even though assessee maintained his accounts on mercantile system he was not bound to show all anticipated loss as and when claims were made and pay tax on that basis and have matter readjusted later when anticipated loss was quantified. Accordingly it was held that assessee was entitled to loss claimed in asst. yr. 1950-51. It has been pointed out that in assessee s case point at issue was whether system followed by assessee in valuing its forward exchange contracts which remained outstanding at close of year was bona fide and if so whether adjustments made in accounts were permissible in law. It has been stated that assessee having followed particular system of accounting, Revenue could not disturb method so followed unless it was held that accounting system followed by assessee was defective and that correct profits from foreign exchange transaction could not be deduced from books of assessee. It has been pointed out that facts in case of CIT vs. Soorajmull Nagarmull (supra) were different inasmuch as point at issue in that case was whether loss arising due to difference in foreign exchange valuation of jute was to be allowed in year when contract was made or in year when settlement was reached between parties in subsequent year. It has been stated that in that case there was dispute which was settled between parties in subsequent year. Accordingly it has been urged that ratio of said decision cannot be applied in assessee s case. Similarly it has been pointed out that Departmental Representative s reliance on Supreme Court decision in case of Karamchand Thapar & Bros. (P) Ltd. (supra) was wholly misplaced inasmuch as point at issue in said case was different. In that case it has been pointed out that assessee sold its dry ice factory at Lahore in September 1948 and purchaser took over factory on 1st Oct., 1948 but price was finally settled in December, 1949. By sale company suffered loss of Rs. 34,891 which ITO disallowed on sole ground that business of dry ice factory was not carried on in relevant year of account ended on 31st March, 1950. It was held that loss was suffered in accounting period 1949-50 and was plainly allowable under s. 24(1) of Indian IT Act 1922. 11. We have considered submissions of parties concerned. detailed working of loss on forward exchange contracts totalling Rs. 6,27,325 has been furnished at page 42 of paper book 1 which is reproduced below: "Loss on Forward Exchange Contracts outstanding as on 31st March, 1976 provided in Accounts Calcutta . . . . Office Stg. Rs. Selling 40,000.00 7,21,574.27 Contracts X 28,393.44 @57,705 Rs. Rs. Inter Bank 100 6,93,180.83 Rs. Buying $ 62,165 5,42,925.75 Contract @ $ X 12,118.89 Rs. Customers 11.20 Rs.100 5,55,044.64 $ Rs. Selling 4,38,582.76 33,74,474.36 Contracts 5,83,903.80 @ $ 11.08 Rs. Rs. Customers 100.00 39,58,328.16 $ Rs. Selling 1,20,000.00 10,76,882.12 Contracts 6,150.37 @ $ 11.08 Rs. Rs. Inter Bank 100.00 10,83,032.49 Net . . .. 5,49,541.84 Loss New $ Rs. Delhi Selling 9,05,000.00 80,97,557.32 1,22,105.18 Contracts @ Rs. Rs. Inter Bank 908.25 Rs. 100 82,19,662.50 DM. Rs. Selling 15,000.00 52,631.58 Contracts 2,678.15 @ DM Rs. Inter Bank 27.12 Rs.100.00 53,309.73 Net . . 1,24,783.33 Loss Grand . . Total loss 6,74,325.17 Rs. In first two transactions shown under Calcutta Office account, valuation made on last date of accounting year in respect of assessee s outstanding foreign exchange contract liabilities resulted in profit while other transactions as shown in working sheet resulted in loss. It is assessee s case that business of assessee being banking business, and it was dealing in forward exchange contracts, outstanding liabilities at end of year were to be valued at cost or market price whichever was lower. It is assessee s case that outstanding liabilities in respect of its forward exchange contracts constituted stock-in-trade along with negotiable instruments held by bank. It is not in dispute that bank s major earning are from foreign exchange dealings. In fact profit shown on foreign exchange transactions for year ending 31st March, 1976 as per details furnished in p. 24 of paper book 1 amount to Rs. 53.24 lakhs. assessee in disclosing net profit from foreign exchange transactions at Rs. 46.60 lakhs made adjustments in respect of provision made in asst. yr. 1975-76 and provision made in respect of outstanding liabilities for year ending 31st March, 1976. Such adjustments have been made in earlier years as also in subsequent years as per details furnished at p. 13 and 50 in paper book 1 pertaining to asst. yrs. 1975-76 and 1977-78 respectively and in p. 18 of paper book No. 2 for asst. yr. 1978-79. It is also not in dispute that Department accepted till asst. yr. 1975-76 method of accounting consistently followed in this regard by assessee bank. Madras High Court in case of CIT vs. EAET Sundaraj (1975) 99 ITR 226 (Mad) held that assessee may employ method of accounting for on apart of his business or one class of customers and different method for another part of his business or another class of customer. He may also keep accounts in respect of different parts of same business on different basis. It such different methods are employed regularly and concisely profits have to be computed in accordance with respective methods provide it results in proper determination of true profits. said decision of Madras High Court has been relied upon by Calcutta High Court in two decisions relating to case of Reform Flour Mills (P) Ltd. (1978) 114 ITR 227 (Cal) and Reform Four Mills (P) Ltd. vs. CIT (1980) 19 CTR (Cal) 25 : (1981) 132 ITR 184 (Cal). In two decisions relating to case of Snow White Food Products Co. Ltd. (supra); it has been observed that if method of accounting followed by assessee does not reflect correct income, ITO can always compute income on different basis under s. 144 of Act. In respect of first decision in Snow White Food Products Co. Ltd. (supra) High Court upheld Revenue s stand that assessee-company was not entitled to change its method of accounting from mercantile to cash system in respect of its interest income as Tribunal found that for asst. yr. 1968-69 no evidence could be produced by assessee that change effected in method of accounting was only for year and there was nothing on record to indicate that change was intended to be followed regularly in future by assessee. In decision of same assessee, viz., Snow White Food Products Co. Ltd. (1982) 29 CTR (Cal) 8 : (1983) 141 ITR 861 (Cal) their Lordships observed that only in year where change in method of accounting was introduced for first time it is to be examined by Revenue authorities whether change introduced is meant to be regularly followed or not. Where it is found that assessee has changed its regular method of accounting by another recognised method and has followed latter method regularly it is not open to Revenue authorities to go into question of bona fides of introduction and continuance of change. In assessee s case only point to be considered in our opinion is whether method of accounting systematically followed by assessee is such that true profit of assessee bank cannot properly be deduced so as to entitle IAC to make addition in computing assessee s income from its banking business. IAC disallowed assessee s claim for deduction of loss of Rs. 6,74,325 on ground that same represented provision made for probable loss on outstanding contracts. CIT(A) in upholding IAC s order was of opinion that loss provided in accounts was notional loss as actual profit or loss arising in forward exchange contracts would arise only on date of settlement. authorities below did not consider method of accounting followed by assessee as also submission made by bank that outstanding foreign exchange contracts were to be valued at ruling market rate as they formed part of bank s closing stocks. Since it is not in dispute that assessee in course of its foreign exchange dealings entertained forward contracts from its constituents, outstanding contracts as at end of year had to be valued in accordance with practice followed consistently in this regard by bank. It is not Department s case that method of accounting followed in this regard was not bona fide. we accordingly hold that CIT(A) was not justified in upholding IAC s disallowance of Rs. 6,74,325. addition is deleted. 12. In ground No. 4, point raised is that CIT(A) erred in confirming IAC s disallowance of Rs. 4,37,605 representing deferred amount of guarantee fees relating to future periods. 13. assessee s explanation before authorities below was that assessee issued bank guarantees to different clients for varying periods. It has been practice of assessee to take into account proportionate commission relatable for year for which accounts are drawn up and commission for unexpired period mentioned in bank guarantees is carried forward in balance sheet and is accounted for in year to which commission income pertains. IAC brought to tax entire deferred commission of Rs. 4,37,605 with observation that fees and commission accrued to assessee at time of issue of guarantee letters and since assessee followed mercantile system of accounting assessee could not defer portion of its income which had accrued already during accounting period relevant for asst. yr. 1976-77. CIT(A) upheld disallowance by observation that as follows: "The commission is fixed once for all when bank undertakes to pay amount and guarantees such payment. commission is receivable in its entirety even if debtor pays off liability well within period of guarantee say within two years, appellant was under no obligation to return or refund commission for three years in such case." According to CIT(A) income accrued at time when bank guarantees were issued irrespective of length of period for which bank guarantees remained in force. 14. assessee s learned counsel referred to rules regarding issue of bank guarantees as framed by Foreign Exchange Dealers Association of India. (Copy of rules furnished at pp. 1 to 5 of paper book No. 1). Rule 16 is relevant rule in terms of which guarantees are issued by bank. charges for bank guarantee in terms of said Rule are 1/12th of 1 per cent per month with minimum of 1/4 per cent for validity period of guarantee (including extensions) plus additional three months. Our attention was drawn to following stipulations made in r. 16 : "(a) If guarantee be redeemed (i.e. returned duly cancelled) before expiry of extra six months, proportionate overcharge may be refunded. (b) commission for full specified period of liability shall be collected at time of signing guarantee, except in respect of guarantees covered by r. 15 III(E) and r. 16II(6)." Our attention was also drawn to specimen copies of some of contracts entered into by assessee for providing bank guarantees for varying periods-vide pp. 6 to 11 of paper book No. 1. It has been stated that bank guarantees are generally issued for periods exceeding 12 months and according t o accounting practice systematically followed by bank commission relatable to each year is accounted for in book or in other words commission relatable to unexpired period of guarantee is deferred and s h o w n separately in balance sheet under head "Acceptances Endorsements & Other Obligations." It has been pointed out that CIT(A) finding that assessee is under no obligation to refund or return commission once bank guarantee is issued is contrary to facts. According to ld. counsel for assessee if obligations under guarantee are met before completion of guarantee period, guarantee contract necessarily has to be revoked. In this connection reference was made to particulars furnished in p. 3 of paper book No. 2 giving particulars of bank guarantee commission refunded in case of two parties as under : Total Date of Guarantee Sl. Name of Amount Amount Issue & Bond Ref. & No. Party received & refunded Amount Period Date of refund Usha 14-7- 1. martin Black 613-2074 3,958,33 . 1975 Ltd. 28th 30-4- . . 1,90,000 2,375.00 months 1976 7-8- 2. do 613-2077 8,750.00 1975 30-4- . . 4,20,000 25 months 5,600.00 1976 7-8- 3. do 613-2078 9,687.50 . 1975 30-4- . . 4,65,000 25 months 6,200.00 1976 7-8- 4. do 613-2079 7,708.33 1975 30-4- . .. 3,70,000 25 months 4,933.33 1976 Universal 1-3- 5. 613-2321 30,000.00 . Electrics Ltd. 1978 12-4- . . 2,00,000 18 months 8,333.33 1979 It is pointed out that assessee did not depart from accounting practice followed in past and since it was not IAC s case that method of accounting followed by assessee was defective or that correct income form guarantee commission could not be deduced, CIT(A) was wrong in upholding IAC s addition. arguments advanced in this connection were more or less same as have been made by learned counsel in connection with ground No. 3. 15. Departmental Representative stated that in instant case, income was deferred after it had accrued. It has been argued that entire guarantee contract was irrevocable as would be evident from specimen copies submitted at pp. 6 to 11 of paper book No. 1. Our attention was drawn t o page 11 of paper book containing copy of guarantee/contract entered into by bank with Andhra Pradesh State Electricity Board wherein it was clearly mentioned that Bank of Tokyo Ltd. lastly undertake not to revoke this guarantee during its currency except with previous consent of Board in writing. According to Departmental Representative there was n o provision for refunding any amount to client in contract form. It has been pointed out that Tribunal in case of State Bank of India on this very issue decided matter in favour of Department mentioning inter alia vide para 12.3 of their order in ITA No. 745 (Cal) of 1983 that (i) that guarantee agreement is indivisible one lasting over entire period of repayment ; (ii) that it is irrevocable and unconditional and (iii) that right to receive guarantee commission accrues and arises as soon as agreement is entered into and this right does not get deferred merely because Bank has option to realise commission in instalments. It has been stated that since all banks in Country are under direct control of Reserve Bank of India it would be wrong to say that system of accounting followed by assessee bank is different than that of State Bank of India. Departmental Representative relied on various decisions of Supreme Court and High Court on point that income which accrued during particular accounting year could not be deferred to different year. Particular reference was made to two Supreme Court decisions in case of E. D. Sassoon & Co. Ltd. & Ors. vs. CIT (1954) 26 ITR 27 (SC) and CIT vs. A. Gajapathy Naidu, (1964) 53 ITR 114 (SC). Reference was also made to another Supreme Court decision in case of Laxmipat Singhania vs. CIT (1969) 72 ITR 291 (SC) wherein at p. 294 it has been observed that it is fundamental rule of law of taxation that, unless otherwise expressly provided, income cannot be taxed twice. Again, it is not open to ITO if income has accrued to assessee, and is liable to be included in total income of particular year, to ignore accrual and thereafter to tax it as income of another year on basis of receipt. It has been argued that manner in which entries are made by assessee in his books of account is not determinative of question whether assessee has earned profit or suffered any loss. assessee may by making entries which are not in conformity with proper principles of accountancy conceal profit or show loss and entries made by him cannot therefore be regarded as conclusive one way or other. In support Departmental Representative referred to Supreme Court decision in case of Sutlej Cotton Mills Ltd. vs. CIT 1978 CTR (SC) 155 : (1979) 116 ITR 1 (SC). It has been stated that s. 145 merely prescribes that computation of taxable profits shall be made in accordance with method of accounting regularly employed where in opinion of ITO income cannot properly be deduced from method of accounting; it is open to ITO to compute income upon such basis and in such manner as he may determine. said section does not compel ITO to accept balance sheet and P & L A/c showing adjustments made on wrong basis. Reliance in this connection was made to Supreme Court decision in case of CIT vs. A. Krishnaswami Mudaliar & Others (1964) 53 ITR 112 (SC). In regard to point that under mercantile system of accounting assessee was liable to be taxed on entire guarantee commission on accrual basis, reliance was placed on Calcutta High Court decision in case of James Finally & Co. vs. CIT (1982) 22 CTR (Cal) 289 : (1982) 137 ITR 698 (Cal). 16. In his counter reply assessee s learned counsel stated that Tribunal s decision in case of State Bank of India on which reliance was placed by Departmental Representative, did not apply to facts of assessee s case. In this connection our attention was drawn to para 12.4 of Tribunal s order where it has been held that Statutory Auditors had advised assessee bank to spread over commission of guarantee over years for which guarantee lasted will no alter legal accrual of commission. Its accrual depends on agreements referred to above and not on advice of statutory auditors. It has been pointed out that in case of State Bank of India no evidence was led to show that it was normal practice of bank to account for commission relatable to year to which it related and to carry forward commission that did not relate to year of account as was practice followed regularly by assessee bank. ITO has been stated that bank issues irrevocable guarantee bond for particular period which can only be revoked with consent of third party to whom guarantee is given. learned counsel for assessee with reference to copy of agreement entered into by bank with Andhra Pradesh Stated Electricity Board (pages 10 and 11 of paper book No. 1) stated that agreement which was executed on 14th Feb., 1984 was effective till 31st march, 1986 and commission pertaining to entire period amounted to Rs. 777. In terms of agreement bank undertook not to revoke guarantee during currency of guarantee period, i.e. till 31st march, 1986. It has been stipulated in agreement that bank guaranteed in lieu of cash deposit which Andhra Pradesh Stated Electricity Board required from M/s Universal Co. Ltd., P. O. Joka, dist. 24-pgs. It has been stated that in case M/s Universal Co. Ltd., constituent of bank, made cash deposit as required by Andhra Pradesh State Electricity Board, agreement could be revoked with consent of Andhra Pradesh State Electricity Board. In fact, according to ld. counsel bank has refunded guarantee commission for unexpired period on revocation of guarantee agreements to certain other parties as per particular submitted at page 3 of paperbook No. 2. It has been argued that receipt of money as per contract does not necessarily mean accrual of entire income as it has to be examined whether receipt was for particular period/periods and whether such period/periods fell within accounting year for which accounts had been maintained on mercantile basis. It has been stated that payment of refund for unexpired portion as and when particular guarantee agreement is revoked with consent of party to whom guarantee is given by bank does not violate r. 16 laying down procedure for issuing guarantees by banks who are members of foreign Exchange Dealers Association of India. It is normal commercial practice of assessee bank to account for only income arising from guarantee commission relatable to year of account. According to assessee s learned counsel provisions of s. 145 being mandatory it imposes statutory duty on ITO to examine whether accounts submitted by assessee are correct and complete and assessee followed system of regular method of accounting from which income could be deduced properly. Reference in this connecti8on was made to Bombay High Court decision in case of B. M. Kamdar, In re (1946) 14 ITR 10 (Bom) and in observations of Supreme Court in case of CIT vs. A. Krishnaswami Mudaliar & Others (1964) 53 ITR 122 (SC). Reliance was placed on following observations of their Lordships of Madras High Court in case of CIT vs. EACT Sundaraj (1975) 99 ITR 226 (Mad): "An assessee may employ one method of accounting for one part of his business or one class of customers, and different method for another part of his business or one class of customers, and different method for another part of h i s business or another class or customers. He may also keep accounts in respect of different parts of same-business on different basis. If such different methods are employed regularly and consistently profits have to be computed in accordance with respective methods, provided it results in proper determination of true profits." It has been stated that in terms of s. 145 assessee can exercise his option to follow whatever method of accounting it likes in respect of incomes assessable under ss. 28 & 56 of IT Act, 1961. Reliance in this connection was made on Allahabad High Court decision in case of J. K. Bankers vs. CIT (1974) 94 ITR 107 (All). other case laws relied were CIT vs. K. Sankarapandia Asari & Sons (1980) 19 CTR (Mad) 264 : (1981) 130 ITR 541 (Mad) and CIT vs. Margadarsi Chit Funds (P) Ltd., Hyderabad (1984) Taxation 75(3)-8 (AP). It has been argued that Supreme Court decision in case of Sutlej Cotton Mills Ltd. (supra) relied upon by Departmental Representative was not applicable in present case inasmuch as interpretation of s. 145 was not before Supreme Court in that case. It has been stated that both decisions of Supreme Court in A. Gajapathy Naidu (supra), and A. Krishna Swami Mudaliar & Ors. (supra) support assessee s case as income which accrued in particular year of account could not be related back to another year on basis of method of accounting followed regularly by assessee. Similarly it has been pointed out that Supreme Court decision in case of Laxmipati Singhania (supra) did not help Department as it is assessee s case that income which accrued during particular year was liable to be included in total income of that year. It has been pointed out that assessee has been systematically disclosing that part of guarantee commission which related to particular year irrespective of fact that receipt at time of executing guarantee agreement covered entire period for which guarantee remained in force. It has been pointed out that Calcutta High Court decision in case of James Finlay & Co. (supra) also did not apply to facts of assessee s case inasmuch as there was no departure from method of accounting followed by bank in past years. It has been stated that Department accepted method of accounting followed in regard to treatment made of guarantee commission in books of assessee till asst. yr. 1975-76 and IAC having failed to point out any defect in system of accounting followed earlier could not make addition by rejecting accounts by bringing into aid provisions of s. 145(1) of Act. 17. We have considered submissions of both representatives of assessee and Department. We have also gone through two paper books submitted by assessee s ld. counsel containing pages 1 to 39 and pages 1 to 30 respectively as also paper book submitted by Departmental Representative (pages 1 to 32) at time of hearing before us. We have also gone through Tribunal s order in case of State Bank of India (ITA No. 745(Cal) of 1983 copy of which has been placed at p. 6 of paper book submitted by Departmental Representative. perusal of Tribunal s order reveals that on advice of statutory auditors State Bank of India spread over commission of guarantee over years for which guarantee lasted. It has not been disused in State Bank of India s case whether bank in accordance with normal practice followed by it accounted for guarantee commission relatable to year for which accounts of particular period pertained. It is also not known when auditors advised for spreading over commission over years for which guarantee remained in force. Accordingly there is force in ld. counsel s submission that Tribunal s decision in case of State Bank of India was distinguishable on facts from assessee s case before us. Departmental Representative did not dispute fact that upto asst. yr. 1975-76 method of accounting followed by bank in regard to issue of bank guarantee commission has not been disturbed in framing assessments of bank. In view of what we have stated in deciding point raised in ground No. 3 we are of opinion that system of accounting followed by bank being bona fide and as no evinced has been led before us that accounting procedure followed was defective so as to render it impossible to deduce profits of bank correctly, authorities below were not justified in adding back guarantee commission which did not relate to accounting year relevant for asst. yr. 1976-77. We would accordingly set aside CIT(A) order in this regard and delete IAC s disallowance of Rs. 4,37,605. 1 8 . Ground No. 5 mentioning that CIT(A) has erred in confirming disallowance of rebate under s. 80M on dividend income of Rs. 64,756 was not pressed by assessee s ld. counsel at time of hearing before us. We accordingly uphold CIT(A) s order in this regard. [Paras Nos. 19 to 34 not being relevant to main issues, are omitted from reproduction.] 3 5 . In result appeals for asst. yr. 1976-77 to 1979-80 are allowed in part. *** BANK OF TOKYO LIMINTED v. INSPECTING ASSISTANT COMMISSIONER