TMI Blog1999 (9) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Nos. 3 to 7 and the same are rejected as such. Ground Nos. 1 is general in nature and requires no comments. 2. The only ground No. 2 which remains to be decided involves the addition of Rs. 22,60,70,917 on account of alleged accrual of interest on protested advances (sticky advances) made by the Assessing Officer ("AO" in short) which were confirmed by the CIT(A). 3. The assessee is one of the biggest nationalized bank and it filed its return of income for the asst. yr. 1989-90 showing total loss of Rs. 87,33,75,540. During the assessment proceedings the AO noted that assessee had not included in its income the interest on sticky advances which were treated by the bank as "protested advances" i.e. advances which were doubtful of recovery. The AO called upon the assessee to show as to why interest on sticky advances be not added to the income. The assessee submitted vide letter dt.7th Dec, 1991, mentioning therein that interest on sticky advances was not liable to be taxed in view of the method of accounting followed by the assessee bank. According to the assessee it has two categories of customers- (1) customers whose loans and advances were recoverable and regular; and (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee pleaded further that assessee bank was not following that system of accounting in the case of protest advances but for that the assessee was following cash system of accounting for so many years then the said system of accounting should be accepted in view of the provisions of s. 145 of the IT Act. The assessee also placed reliance on the decision of Madras High Court in the case of CIT vs. E.T.E.T. Sunder Rajan (1975) 99 ITR 226 (Mad) to support the plea that assessee can employ one method of accounting for one class of customers and another method for another class of customers. 3.1. The AO considered the submissions and noted that undisputedly the assessee was not charging interest on sticky advances by either crediting the interest to suspense account or debiting to party's account with quantum of interest. However, he noted that as per practice of charging of interest followed by the assessee, interest accrued or arose to the assessee on regular interval even though there may not be any recovery from particular customers. For this the AO took into consideration the agreements executed in between assessee-bank and different customers in which bank was supposed to charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at by the Tribunal was on the basis of CBDT Circular issued in 1952 which was fully applicable. However, the AO was of the view that case of the assessee was fully covered by the decision of the Hon'ble Supreme Court in the case of State Bank of Travancore vs. CIT and he also placed reliance on same case law and made the addition of Rs. 22,60,70,917 on account of interest accrued on protest advances to the total income of the assessee against which the assessee came in appeal before the CIT(A). 3.3. It was pleaded before the CIT(A) that decision of apex Court in the case of State Bank of Travancore vs. CIT was not applicable to the facts before him as in that case the bank was debiting interest to the constituents of the bank and further crediting it to a suspense account, while in the case in hand the assessee was not debiting the interest to the customer's account nor crediting it to the suspense account. The procedure being adopted by the assessee-bank was explained in the way that once assessee-bank found that such accounts have become stagnant or litigation was initiated by the bank against such customers the accounts of such customers were designated as protest advances a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact has also been noted by the AO as well as CIT(A). According to Shri G.C. Sharma. Advocate the issue had been before the Tribunal Delhi Bench since 1973-74 onwards and Tribunal decided this issue in favour of assessee for asst. yr. 1973-74 to 1976-77. A copy of order of Tribunal for these assessment years is appearing at pp. 65 to 117 of the paper book. However in asst. yr. 1977-78 the issue was decided against the assessee but again in asst. yr. 1978-79 to 1979-80 the matter again was decided in favour of the assessee and reference application is pending before the High Court. In asst. yr. 1980-81 again the matter was decided against the assessee and reference application is pending before the Tribunal. According to the learned counsel for the assessee once the authorities below had admitted that assessee was following the cash system of accounting in respect of interest on protest advances and in respect of regular accounts the assessee was following mercantile system, then such action of the assessee has got recognition by different High Courts and reliance was placed on the decision of Madras High Court in the case of E.T.E.T. Sunderrajan vs. CIT. Not only this Tribunal Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who will examine the issue of taxability in view of this Circular dt.9th Oct., 1984, issued by the CBDT which is held to be binding on IT authorities by the Hon'ble apex Court. 6. We have considered the rival submissions and perused the record as well as gone through the case laws cited by the respective representatives of the parties. It has been found admitted fact that assessee had been following cash system in respect of interest amount on sticky loans and mercantile system of accounting in respect of regular advances over a number of years and issue had travelled up to Tribunal since asst. yr. 1973-74 onwards and some times the issue had been decided in favour of assessee and some times against the assessee as referred to by the learned counsel for the assessee. The learned counsel for the assessee has referred to the latest decision of apex Court in the case of UCO Bank vs. CIT during the course of argument and learned Departmental Representative has also placed reliance on this decision. This decision of apex Court is the latest one and their Lordships have noted the facts in detail. The assessee bank viz. UCO Bank was not showing interest on sticky advances in P L a/c bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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