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TMI Blog2018 (3) TMI 1306X X X X Extracts X X X X X X X X Extracts X X X X ..... account of interest accrued on the loans advanced by the assessee. 2. The Ld. CIT(A) erred in ignoring the fact that Revenue s appeal on identical issue in assessee s own case for A.Ys 2005-06 to 2007-08 are pending before the Hon ble High Court. 2. Briefly stated relevant facts of the case are that the assessee-company is engaged in the business of investment in capital markets. Assessee filed the return of income for the A.Y. 2013-14 on 27.09.2013 declaring a loss of ₹ 5,35,493/-. During the assessment proceedings, Assessing Officer observed that there were unsecured loans to the extent of ₹ 19.25 Crs under advances recoverable in cash or kind . The A.O. verified the advances recoverable in cash or credit and found that the assessee did not charge interest on three parties as per the details given below: Sl No. Name of the Party Amount as on 31.03.2013 1. Goldstone Trading Co. Pvt Limited 10,40,75,151/- 2. Realstone Trading Co. Pvt Limited 1,03,52,909/- 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. CIT(A), Revenue is in appeal before the Tribunal. 7. During the appeal hearing, Learned Counsel for the Assessee argued that the issue of notional interest is squarely covered by the order of this Tribunal in the assessee s own case for the AYs 2005-06 2006-07 (ITA Nos. 468/H/2009 and others, dated 05.09.2014) and for the A.Y. 2007-08 (ITA Nos. 841 1176/Hyd/2012, dated 03.12.2014). For the sake of ready reference, the relevant portions from the said Tribunal s order (dated 03.12.2014) (supra) is extracted as under:- 21. We have considered the rival submissions and perused the impugned orders of the Revenue authorities and other material on record. We have also gone through the written submissions filed and the decisions relied upon by the parties before us. We are of the opinion that to arrive at a real income, accrual basis cannot be a justifying factor and the commercial and business realties of the assessee, should be considered. The interest income has been recognized in the books of accounts only to ITA No.468/Hyd/2009 3 others M/s. Maruti Securities Limited, Secunderabad. to the extent of actual collection, which is the recommended/ recognized method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 746 (SC), The view expressed was that if income does not result at all, there cannot be any tax and that if an income has not materialized, then merely an entry made about a hypothetical income by following book keeping methods, the liability to tax cannot be attracted. b) Andhra bank(225 ITR 447)(SC): It was held, that there cannot be a tax if no income resulted, despite the entry in the book keeping. The case deals with s. 148. Assessee changed method of accounting from AY 1960 onwards. But during AY 1963-64, the AO objected the change and reopened assessments for AY 1960 onwards. Apex court held that this amounts to change of opinion and re-assessment is not valid. 23. Further, the learned counsel for the assessee relied on the decision of the Hon ble Supreme Court CIT vs. Excel Industries Ltd. Ors. (358 ITR 295) and submitted that going by the accounting standard though the revenue is collectible by certainty, the assessee in the present case, in fact, had not received any interest and hence, interest in question remained only notional interest. As canvassed by the learned counsel for the assessee, some of the parties did not repay even the princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide its decision in UCO Bank (237 ITR 889) wherein it has been held as follows: The question whether interest earned, on what have come to be known as sticky loans, can be considered as income or not until actual realisation, is a question which may arise before several Income-tax Officers exercising jurisdiction in different parts of the country. Under the accounting practice, interest which is transferred to the suspense account and not brought to the profit and loss account of the company is not treated as income. The question whether in a given case such accrual of interest is doubtful or not, may also be problematic. If, therefore, the Board has considered it necessary to lay down a general test for deciding what is a doubtful debt, and directed that all Income-tax Officers should treat such amounts as not forming part of the income of the assessee until realised, this direction by way of a circular cannot be considered as travelling beyond the powers of the Board under section 119 of the Income-tax Act. Such a circular is binding under section 119. The circular of October 9, 1984, therefore, provides a test for recognising whether a claim for interest can be tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k upon this circular as being in conflict with section 12(1B). A similar view of the Central Board of Direct Taxes circulars has been taken in the case of K.P. Varghese v. ITO [1981] 131 ITR 597, by a Bench of two judges consisting of P.N. Bhagwati and E.S. Venkataramiah, JJ. The Bench has held that circulars of the Central Board of Direct Taxes are legally binding on the Revenue and this binding character attaches to the circulars even if they be found not in accordance with the correct interpretation of the section and they depart or deviate from such construction. Citing the decision of Navnit Lal (C.) Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 (SC), this court observed that circulars issued by the Central Board of Direct Taxes under section 119 of the Act are binding on all officers and persons employed in the execution of the Act even if they deviate from the provisions of the Act. In Keshavji Ravji and Co. v. CIT [1990] 183 ITR 1, a Bench of three judges of this court has also taken the view that circulars beneficial to the assessee which tone down the rigiour of the law and are issued in exercise of the statutory powers under section 119 are binding on the authorities i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vances which have been debited to the customer but taken to the interest suspense account by a banking company. The majority judgment has referred to the circular of October 6, 1952, and its withdrawal by the second circular of June 20, 1978. The majority appears to have proceeded on the basis that by the second circular of June 20, 1978, the Central Board had directed that interest in the suspense account on sticky advances should be includible in the taxable income of the assessee and all pending cases should be disposed of keeping these instructions in view. The subsequent circular of October 9, 1984, by which, from the assessment year 1979-80 the banking companies were given the benefit of the circular of October 9, 1984, does not appear to have been pointed out to the court. What was submitted before the court was, that since such interest had been allowed to be exempted for more than half a century, the practice had transformed itself into law and this position should not have been deviated from. Negativing this contention, the court said that the question of how far the concept of real income enters into the question of taxability in the facts and circumstances of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly issued under section 119 of the Income-tax Act for proper administration of the Act and for relieving the rigour of too literal a construction of the law for the benefit of the assessee in certain situations would not be binding on the departmental authorities. This would be contrary to the ratio laid down by the Bench of five judges in Navnit Lal (C.) Javeri v. K.K. Sen [1965] 56 ITR 198 (SC). In fact State Bank of Tranvancore v. CIT [1986] 158 ITR 102 (SC), has already been distinguished in the case of Keshavji Ravji and Co. v. CIT [1990] 183 ITR 1 (SC), by a Bench of three judges in a similar fashion. It is held only as laying down that a circular cannot alter the provisions of the Act. It being in the nature of a concession, could always be prospectively withdrawn. In the present case, the circulars which have been in force are meant to ensure that while assessing the income accrued by way of interest on a sticky loan, the notional interest which is transferred to a suspense account pertaining to doubtful loans would not be included in the income of the assessee, if for three years such interest is not actually received. The very fact that the assessee, although generally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as income of the assessee and taxable as such. It is said that ultimately, if the advance takes the shape of a bad debt, refund of the tax paid on the interest would become due and the same can be claimed by the assessee in accordance with law. For reasons set out above, we are not in agreement with the said judgment. The relevant circulars of the Central Board of Direct Taxes cannot be ignored. The question is not whether a circular can override or detract from the provisions of the Act; the question is whether the circular seeks to mitigate the rigour of a particular section for the benefit of the assessee in certain specified circumstances. So long as such a circular is in force it would be binding on the departmental authorities in view of the provisions of section 119 to ensure a uniform and proper administration and application of the Income-tax Act. 27. In the light of the foregoing discussion and the case-law on the point, we delete the addition of ₹ 2,76,38,140 made by the assessing officer and sustained by the CIT(A), allowing the grounds of the assessee on this issue. 8. Learned Counsel for the Assessee also brought our attention to the Ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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