ALLAHABAD BANK Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) In this reference under Section 256(1) of the Income-tax Act, 1961, the following question has been referred to this court at the instance of the assessee, for the assessment year 1962-63 : "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the assessee had omitted to disclose fully and truly all material facts and in consequence thereof interest income had escaped assessment and in confirming the initiation of proceedings under Section 147(a) of the Income-tax Act, 1961 ?"

(2.) The facts leading to this reference are that the assessee is a nationalised bank and carrying on banking business. The original assessment for the assessment year 1962-63 was made on a total income of Rs. 41,09,172. The assessment was made on the basis of facts disclosed relating to loans and advances considered bad and doubtful of recovery. The assessee neither charged any interest on bad and doubtful debts nor credited any sums to the interest suspense account. The justification for following such a method was the Circular No. 41 (V-6) dated October 6, 1962, of the Central Board of Revenue. In the original assessment, accordingly, no addition on account of interest in respect of those bad and doubtful debts was made accepting the method of accounting of interest on such debts. Subsequently, on March 26, 1979, the Inspecting Assistant Commissioner of Income-tax, Special Range-I, Calcutta, issued a notice under Section 148 reopening the assessment for the year. The assessee objected to the reassessment proceedings on various grounds, vide its letter dated November 9, 1982. Subsequently, a notice under Section 142(1) was issued by the Income-tax Officer, "C", Ward, Company District III, Calcutta, asking the assessee-bank to produce books of account and all other papers relating to the assessment year 1962-63. The notice under Section 142(1) was duly complied with. A copy of the statement of bad and doubtful debts as well as the letter dated November 9, 1982, inter alia, stating that no amount of interest was credited to the "interest suspense account" were duly filed on the date of hearing fixed on November 10, 1982, in terms of the said notice. In the course of reassessment proceedings, it was also categorically made clear to the Income-tax Officer that no amount of interest was credited to the "interest suspense account" in respect of the assessment year under consideration and as such the proceedings under Section 147(a) did not lie. As regards the non-charging of interest in cases where suits had been filed, it was submitted before the Income-tax Officer that the interest from the date of filing of the suit to the date of decree and from the date of decree to the date of payment depends upon the discretion of the court in view of the provisions of Section 34 of the Civil Procedure Code. Moreover, in accordance with the regular method of accounting followed by the assessee, interest on bad and doubtful debts has all along been taxed by the Department on realisation basis. The Income-tax Officer, however, holding that, from the statement filed by the bank, the amount of interest credited to the suspense account was not ascertainable and the representative of the bank could not also enlighten him in the matter, resorted to the proviso to Section 145 and completed the assessment ex parte under Section 144/147(a) after adding an estimated sum of Rs. 7,10,264 which, according to him, had been credited to the suspense account, although there was no such credit to the said account.

(3.) The assessee preferred an appeal before the Commissioner of Income-tax (Appeals)-II, Calcutta, against the reassessment order passed by the Income-tax Officer taking as many as 31 grounds against the reassessment order. The Commissioner of Income-tax (Appeals) found that no amount of interest was credited to the "interest suspense account" by the assessee-bank. Certain amount of interest was not credited to the profit and loss account on the ground that recovery suits filed against the loan-debtors were pending before courts for disposal. In such cases, the question of charging interest and crediting the same to the profit and loss account or the "interest suspense account" does not arise. Relying on the decisions of this court in CIT v. Raigharh Jute Mills Ltd. [1981] 132 ITR 702, and in CIT v. Naskarpara Jute Mills Co. Ltd. [1983] 141 ITR 384, the Commissioner of Income-tax (Appeals) held that the initiation of proceedings under Section 147(a) was ab initio void. He, therefore, cancelled the reassessment proceedings as well as the reassessment order.