1985 (9) TMI 154 - AT - Income Tax

Summary

Issues Involved:
1. Validity of notices under section 148 of the Income-tax Act, 1961.
2. Method of accounting and its implications on income assessment.

Detailed Analysis:

1. Validity of Notices Under Section 148:

Arguments by the Assessee:
- The original assessments were completed on 4-1-1974 and 22-11-1976, with no evidence of underassessment.
- The reasons recorded for issuing notices under section 148 were based on information from the Ministry of Law regarding the taxability of interest on an accrual basis.
- The assessee argued that the information from the Ministry of Law did not constitute valid information under section 147(b) and that the authorities did not apply their minds to this aspect.
- The assessee cited various case laws, including Vimal Chandra Golecha v. ITO and Ved Parkash Prabhudayal Agarwal v. ITO, to argue that the failure to provide reasons recorded is fatal to the assessment.

Arguments by the Revenue:
- The Revenue contended that the IAC and ITO had concurrent jurisdiction and that the notices were issued based on valid information.
- The Revenue relied on judicial pronouncements, including Indian & Eastern Newspaper Society v. CIT, to argue that judicial pronouncements constitute valid information.
- It was argued that the IAC was prepared to test the point in an open assessment and that the information from the Ministry of Law resolved the conflict between executive circulars and High Court decisions.
- The Revenue cited case laws such as Vashist Bhargava v. ITO and Kalyanji Mavji & Co. v. CIT to support the validity of the notices.

Tribunal's Decision:
- The Tribunal upheld the decision of the Commissioner (Appeals), agreeing that the conditions for assuming jurisdiction under section 148 were met.
- The Tribunal noted that the IAC and ITO had examined the facts and found a prima facie case of underassessment.
- The Tribunal dismissed the appeals on this point, stating that the state of mind of the authority issuing the notice was crucial and that the authorities had valid reasons for issuing the notices.

2. Method of Accounting and Its Implications on Income Assessment:

Arguments by the Revenue:
- The Revenue argued that the assessee's method of accounting was mercantile and that interest should be charged on an accrual basis.
- The Revenue contended that the assessee's method of not charging interest on sticky advances was not justified and that the ITO was correct in applying section 145 of the Act.
- The Revenue cited various case laws, including CIT v. A. Krishnaswami Mudaliar and CIT v. Confinance Ltd., to argue that the method of accounting adopted by the assessee was not acceptable.

Arguments by the Assessee:
- The assessee argued that the method of accounting had been consistently followed since 1956-57 and was approved by auditors and the RBI.
- The assessee contended that the peculiarities of banking business justified the method of not charging interest on sticky advances.
- The assessee cited case laws, including American Express International Banking Corpn. v. IAC and State Bank of India v. IAC, to support the acceptability of their method of accounting.

Tribunal's Decision:
- The Tribunal upheld the decision of the Commissioner (Appeals), agreeing that the method of accounting adopted by the assessee was acceptable.
- The Tribunal noted that the method was time-honored, consistently followed, and approved by the accounting profession.
- The Tribunal dismissed the appeals, stating that the method of accounting did not call for the application of section 145 proviso and that the CBDT circular regarding non-assessability of interest taken to suspense account applied to the assessee's method.

Conclusion:
The Tribunal dismissed all appeals, upholding the decisions of the Commissioner (Appeals) on both the validity of notices under section 148 and the method of accounting adopted by the assessee.