TMI Blog2002 (2) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... ner was right in assuming jurisdiction under section 263 of the Income-tax Act, 1961. The facts briefly stated are that: The assessee is a nationalised bank wholly owned by Government of India. The assessee bank has inter alia income from interest on securities and for the assessment years under consideration it had taken into account in the books of account broken period interest on these securities calculated up to 31st March. In the assessment made under section 143(3), the Assessing Officer followed the instructions issued by the CBDT to the Chief Commissioners of Income-tax not to bring to tax the broken period interest as such interest had not been accrued. However, while completing the assessment for the assessment year 1995-96 in the case of the assessee-bank, despite the instruction of the CBDT the Assessing Officer included the broken period interest in the total income of the assessee for that year and simultaneously proposed the Commissioner of Income-tax to initiate action under section 263 for the assessment years under consideration, on the ground that the action of the Assessing Officer in not including the broken period interest was erroneous and prejudicial to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Dr. R.B. Krishnan argued on behalf of Revenue that the decision of the Supreme Court relied on behalf of the assessee is distinguishable on facts. He stated that the Supreme Court in the said decision has categorically held that the Commission is right in invoking the provisions of section 263 if the view adopted by the Assessing Officer is unsustainable in law. He further argued that after the deletion of the Chapter dealing with income from interest on securities the income of the nature in the present situation is taxable under the head 'profits and gains of business or profession'. According to him the income under the head 'profits and gains of business or profession' is to be computed under section 145 i.e. as per the method of accounting regularly employed by an assesse. Since the assessee bank itself had credited the interest on securities for the broken period to its profit and loss account and since this method is regularly employed by it, the Assessing Officer was not correct in deleting the same and holding that the income has not accrued to the assessee. Dr. Krishnan submitted that this view was unsustainable in law and hence applying the same decision of the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Board pertains to assessment year 1992-93. There is no amendment in the law after assessment year 1992-93 in respect of charging the same income. It can, therefore, be held that the view which is correct for the assessment year 1992-93 can still prevail for assessment years 1993-94 and 1994-95 also. This is one of the possible view which the Assessing Officer has followed. The Commissioner of Income-tax acting under section 263 might not agree with the view of the Assessing Officer. However, so long as the view adopted by the Assessing Officer is not proved to be unsustainable in law, the Commissioner cannot assume jurisdiction under section 263. Respectfully following the decision of the Hon'ble Supreme Court in Malabar Industrial Co. Ltd's case we hold that the Commissioner was not correct in invoking the provisions of section 263 and hence the order passed by him thereunder is set aside. 7. We could also examine the provisions of section 263 from another angle i.e. whether the order is prejudicial to the interests of the Revenue or not. In the assessment years 1993-94 and 1994-95 the loss returned by the assessee was Rs. 262,41,52,430 and Rs. 210,41,59,100 while the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an still be included in the assessee's total income on the merits of its case or not. The ld. authorised representative stated that interest on Government securities accrues to the assessee only on specified dates and not day-today basis. The assessee has no right to claim interest at the close of the financial year. The income which can be said to have been accrued is only that portion which the assessee is entitled to receive or on which the assessee has a right to receive. In the absence of any right of the assessee to claim the interest for the broken period interest at the end of the relevant previous year cannot be said to have been accrued to the assessee and hence even applying the provisions of section 145 no interest can be charged. In the absence of accural of income to the assessee the position will not change, whether it was taxed as per the earlier provision of interest on securities or by subsequent amendment whereby such income is taxed under the head 'profits and gains of business'. He also relied upon the Karnataka High Court's decision in the assessee's own case in CIT v. Canara Bank [1992] 195 ITR 66 and the decision of the Tribunal, Jaipur Bench in State Bank o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but cannot be said that it has not accrued to it. The income of the nature of interest accrues day to day and not on specific date when the same is payable. The concept of income accruing and income due is different and whatever income that has accrued till the end of the previous year has to be taxed only in the relevant previous year and not in the subsequent year when the same is due. 9. In reply, the ld. counsel for the assessee also argued that though there is amendment in the provision relating to taxation of interest on securities, yet section 5 of the Act is not amended. What is not an income as per section 5 cannot be said to have accrued to the assessee and by invoking section 145 the same cannot be taxed. He further relied on the decision of the Supreme Court in United Commercial Bank v. CIT [1999] 240 ITR 355 for the proposition that the assessee though have made an entry in the books of account, however for the purpose of taxation the assessee is free to follow the method as permissible under law and he cannot be precluded by saying that once the income has been shown to have accrued in the books of account the assessee is not allowed to withdraw the same from the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of section 145 cannot override section 5. If an income has neither accrued nor received within the meaning of section 5 whatever section 145 may say, such income cannot be charged to tax even though the accounting entry has been made in the books of account. The computation provision of section 145 cannot enlarge or even restrict the content of taxable income. 11. We are not convinced by the argument that section 145(1) confer a discretionary power upon the Assessing Officer to compute the income correctly. Along with power there is a statutory duty upon the Assessing Officer to examine in every case whether the income chargeable to tax in the relevant year has been correctly calculated by the assessee or not. If on proper appreciation of facts if the accounting entry includes any income which has not been accrued to the assessee, the Assessing Officer is supposed to tax only those income which in fact had accrued to the assessee within the meaning of section 5. The Hon'ble Supreme Court has time and again held that the income is not calculated based on accounting entry but only on the accrual principle. Unless and until the assessee has a right to receive the income, such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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