Interest Tax Act-Review of Interest tax cases of Scheduled banks. - Income Tax - 1805/1989

INSTRUCTION NO. 1805/1989 Dated: January 20, 1989 Under section 18 of the Interest Tax Act, 1974, interest-tax payable by a scheduled bank for any assessment year is deductible in computing the taxable profits of the bank for that assessment. 2. The Revenue Audit have pointed out a case where the liability of scheduled bank for payment of interest-tax for the assessment years 1981-83 was reduced in appeal by a very substantial amount. As deduction in respect of the larger amount originally charged by the assessing officer had been allowed as deduction under section 18 of the Interest-tax Act in computing the taxable profits of the bank, the assessing officer should have simultaneously revised the income-tax assessments for the relevant assessment years with a view to reducing the deduction in respect of interest-tax allowed on the basis of the original assessment. The assessing officer, however, did not carry out this consequential rectification. According to the Revenue Audit, this resulted in aggregated short levy of income-tax of the order of Rs. 50/- lakhs for the two assessment years. 3. With a view to ensure that similar lapses do not recur in future, the Board desires that assessing officers exercising jurisdiction in the case of scheduled banks should immediately review the cases in which the liability of the bank for payment of interest-tax has been reduced in appeal, revision or other proceeding under the Interest-tax Act. The assessing officers should then ensure that, in all such cases, consequent revision of the income-tax assessment of the bank for the relevant year is immediately carried out by reducing the deduction allowed with reference to the original interest-tax demand. 4. A compliance report, indicating the number of cases so reviewed and the additional income-tax demand raised as a result thereof should be communicated to the Board by 20th March, 1989. 5. Apart from this quick review of past cases, the Board desires that whenever assessing officers hereafter give effect to any appellate or other order under the Interest-tax Act for any assessment year, they should simultaneously revise the income-tax assessment for the relevant assessment year, appropriately reducing or, as the case may be, increasing the deduction in respect of the interest-tax allowed in computing the taxable profits of the bank in the original assessment. 6. while carrying out inspection of the work of assessing officers, the Deputy Commissioners should examine whether the aforesaid instructions have been complied with by the assessing officers. 7. The Internal Audit parties should also take note of these instructions and ensure that lapses of the type pointed out by the Revenue Audit do not occur in future.