TMI Blog1985 (9) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... iled appeal to the Commissioner (Appeals), Pune who decided the same on 26-10-1983. Against this order of the Commissioner (Appeals), the department has come in appeal in IT Appeal Nos. 956 and 957 (Pune) of 1983. 2. On the question of validity of notices under section 148, Shri Parulekar pointed out that the original assessments were completed on 4-1-1974 and 22-11-1976 respectively. There is nothing to show that there is any underassessment in these orders. However, as seen from the inspection of the records, the assessing authority recorded the reasons as below for issuing notices under section 148 on 31-3-1978 and 10-1-1979 respectively. In consequence of information received from the Ministry of Law that the interest due on advances is liable to tax on accrual basis whether charged in the accounts or not, I have reason to believe that the assessee's total income has been underassessed for the assessment year 1973-74 within the meaning of section 147(b) of the Act. Issue notice under section 148. IAC Interest due on some of the advances has not been charged and credited to the profit and loss account, I have, therefore, reason to believe that the assessee's total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DT circulars are not retrospective as explained in CIT v. B.M. Edward, India Sea Foods [1979] 119 ITR 334 (Ker.) (FB). Further as the existing circular of the CBDT warranted acceptance of the contention in view of Dr. T.P. Kapadia v. CIT [1973] 87 ITR 511 (Mys.), a different High Court judgment should not be followed. Withdrawal of a circular does not affect the legal position as explained in Tata Iron Steel Co. Ltd. v. N.C. Upadhyaya [1974] 96 ITR 1 (Bom.). It was further contended, relying on Vimal Chandra Golecha v. ITO [1982] 134 ITR 119 (Raj.) and Ved Parkash Prabhudayal Agarwal v. ITO [1982] 135 ITR 756 (Bom) that failure to give reasons recorded is fatal to the assessment. 3. Shri Parulekar then contended that in spite of the above legal position, the Commissioner (Appeals) erred in upholding the section 147 action. Para 4 of the Commissioner (Appeals) order proceeds on a wrong basis and does not apply to the facts of the case. We are not really concerned with the source of information but whether the 'information' is sufficient to enable the assessing authority to assume jurisdiction under section 148. Judicial pronouncements do constitute information as pointed out by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of view of law then laid down by the Supreme Court. Lastly, Vimal Chandra Golecha's case and Ved Prakash Prabhudayal Agarwal's case deal with cases where material was not given even after the issue of notice. There is no such thing in this case. Reasons recorded need not be communicated as held by the Supreme Court in S. Narayanappa v. CIT [1967] 63 ITR 219. 5. Elaborating the point, Shri Sathe contended that all reasons need not be recorded and that all surrounding circumstances should be seen as explained in H.A. Nanji Co. v. ITO 1973 Tax LR 567 (Cal.). Quoting from H.A. Nanji Co. v. ITO [1979] 120 ITR 593 (Cal.) (page 606), Shri Sathe pointed out that, all that is necessary is that the facts recorded in the reopening should not be inconsistent with the facts on record. The reasons for reopening do not indicate such a position. The IAC/ITO did examine the records and held that irrespective of the accounting method interest is chargeable as income on accrual basis and that in fact there were cases of interest chargeable but not charged. Shri Sathe explained the above position in the light of the following case laws: Kalyanji Mavji Co.'s case, R.K. Malhotra, ITO v. Kastu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest of justice, the matter should be given proper attention. The Commissioner (Appeals) has provided the requisite guidelines. These appeals are dismissed accordingly. 9. Coming to the IT Appeal Nos. 956 and 957 (Pune) of 1983 filed by the revenue, Shri Sathe's contention is that the assessee's method of accounting is mercantile. Such a method makes no distinction between recoverable and irrecoverable items at the time of charging. The issue is decided by test of chargeability in terms of the contract for the advance and not by the prospects of recovery. The assessee is not even keeping a suspense account and cannot get the benefit of the CBDT circular of 1952 which deals with suspense account credit of interest on sticky loans. The assessee does keep a register for advances where no interest is charged but the register has not been produced for scrutiny. The CBDT circular says that the suspense account credits are not immune from scrutiny of the ITO. If as contended there is any departure from the pure mercantile method, the ITO would be at liberty to apply section 145 of the Act. The Commissioner (Appeals), thus, erred in deciding in favour of the assessee. Shri Sathe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g is neither time honoured nor custom approved. If at the end of the 3 years the assessee received accumulated interest, it cannot be assessed in one year and has to be related back as held in Addl. CIT v. Ganesh Das [1981] 129 ITR 467 (All.). The assessee does not waive the interest at any time. When he goes to a court of law, interest due is claimed whether charged in accounts or not. Expenses, however, are debited at actuals. Shri Sathe then distinguished the case of CIT v. E.A.E.T. Sundararaj [1975] 99 ITR 226 (Mad.) on which reliance is placed by the Commissioner (Appeals) in that it pertained to cash method of accounting for sales tax which is a statutory liability on the assessee irrespective of collection from the buyers. 11. Shri Sathe then referred to the case law relied upon by the assessee regarding suspense account and submitted that the same does not apply to the assessee for the simple reason that the assessee has no suspense account. He further pointed out that if the assessee is permitted to choose his own year of offering income for assessment, it would create chaos and defeat the very purpose of section 145 which pins the assessee to a regular method of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e seen from the report dated 26-2-1981. Sending the matter back for scrutiny would, thus, be a futile exercise. Shri Parulekar wound up his arguments pointing out that in the case of Central Bank, where similar issue was involved, special leave petition has been rejected by the Supreme Court. 14. In the first order of the Commissioner (Appeals), clear directions were given for resolving the doubts, if any, regarding the registers. The report of the IAC dated 26-2-1981 indicates that the revenue did not doubt the bona fides at any time and did not hold that there is any unwarranted or subjective transfer of a good debt to the sticky register. The assessee gave a detailed reply dated 24-2-1981, explaining the concept of sticky advance, uniformity in the method adopted all along and the extent of scrutiny made by auditors and the RBI. The method of accounting is, thus, time honoured from 1956-57. It is also approved by the accounting profession as seen from the Cochin Bench judgment in Federal Bank's case in which the impact of the various judgments has been explained. The judgments in American Express International Banking Corpn. v. IAC [1983] ITD 373 (Bom.) (SB) and State Bank of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s bona fide consistently followed and is not inconsistent with the various methods of accounting as recognised by the profession---Indo Commercial Bank Ltd. v. CIT [1962] 44 ITR 22 (Mad.). As rightly pointed out by Shri Parulekar, the peculiar factors of banking business and the methods adopted by various banks have to be taken note. There is no bank which adopts what may be called pure mercantile method. Some banks adopt suspense account method as explained in the Central Bank case. Some others, like the Federal Bank and the assessee-bank do not keep a separate suspense account, but maintain a register of advances on which interest accrued being illusory is not charged. The assessee was up to 1956-57 adopting the suspense account method. Even in such a method as per executive instructions (1952 circular), credits (subject to scrutiny if necessary) were not to be taken as income. The assessee discontinued this manner of keeping track of the advances interest on which is illusory, and adopted a method in which such entries are not made at all, because even otherwise such entries would not represent real income. For all practical purposes there is no difference between the State Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X
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