2002 (2) TMI 304 - AT - Income Tax

Summary

Issues Involved:
1. Timeliness of the revision u/s 263 for the assessment year 1993-94.
2. Validity of the Commissioner's jurisdiction u/s 263.
3. Prejudice to the interests of Revenue.
4. Accrual of interest on securities for the broken period.

Summary:

Timeliness of the Revision u/s 263:
The assessee initially contested that the revision u/s 263 for the assessment year 1993-94 was time-barred. However, during the hearing, the assessee's counsel conceded that the action was not time-barred. Consequently, this ground of appeal was rejected.

Validity of the Commissioner's Jurisdiction u/s 263:
The primary issue was whether the Commissioner was justified in assuming jurisdiction u/s 263. The assessee, a nationalized bank, had not included broken period interest in its total income based on CBDT instructions and a Karnataka High Court judgment. The Commissioner, however, directed the inclusion of this interest, deeming the Assessing Officer's (AO) omission as erroneous and prejudicial to Revenue. The Tribunal held that the AO's view, supported by CBDT instructions and judicial precedents, was a permissible legal view. Therefore, the Commissioner could not assume jurisdiction u/s 263 merely because he disagreed with the AO's view.

Prejudice to the Interests of Revenue:
The Tribunal examined whether the AO's order was prejudicial to Revenue. It noted that the assessee's method of accounting resulted in no ultimate loss to Revenue, as the interest income was taxed in subsequent years. The Tribunal concluded that there was no prejudice to Revenue, and thus, the Commissioner's action u/s 263 was unwarranted.

Accrual of Interest on Securities for the Broken Period:
On the merits, the Tribunal considered whether the broken period interest had accrued to the assessee. It held that interest on Government securities accrues only on specified dates, not day-to-day. Since the assessee had no right to claim interest at the financial year-end, such interest could not be deemed accrued. The Tribunal emphasized that section 5 of the Income-tax Act, which defines accrual of income, was unamended and took precedence over section 145. Therefore, the broken period interest, though accounted for in the books, had not accrued to the assessee and could not be included in its total income.

Conclusion:
The Tribunal set aside the Commissioner's order u/s 263, ruling in favor of the assessee on all counts. The appeals were allowed.