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TMI Blog2008 (4) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessee. Ms. Vandana Kuthiala for the Commissioner. JUDGMENT The judgment of the court was delivered by DEEPAK GUPTA J.— The following questions of law have been referred for the opinion of this court at the instance of the assessee: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that interest on sticky loans, a part of which was already assessed by the Revenue in subsequent years by accepting the cash system of accounting adopted by the assessee and for which no appeal was pending, as claimed by the assessee, could be assessed on accrual basis in the year relevant to the assessment year 1982-83 and that it was for the assessee to seek whatever remedy was avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersed. 3. The Assessing Officer held that the assessee was following the mercantile system of accounting right from its inception and only from the year 1974-75 the interest accruing on sticky accounts was not being accounted for. He, therefore, added the amount of Rs. 41,98,744 to the total income of the assessee on account of the amount of interest that had accrued during the relevant year. 4. The assessee filed an appeal before the Commissioner (Appeals) who confirmed the addition as ordered by the Assessing Officer. The assessee went before the Tribunal which also rejected the claim of the assessee. 5. We have heard learned counsel for the parties. Reliance on behalf of the assessee is placed on the judgment of the apex cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular was later withdrawn and a fresh circular was issued on June 20, 1978. This circular reads as follows: "The Board has been advised that where accounts are kept on mercantile basis, interest thereon is taxable irrespective of whether the interest is credited to suspense account or to interest account. The Kerala High Court has also expressed the same view in the case of State Bank of Travancore v. CIT [1977] 110 ITR 336. The amount of such interest is, therefore, includible in the taxable income." 9. Thereafter, on October 9, 1984, the Central Board of Direct Taxes issued another circular which reads as follows: "Interest in respect of doubtful debts credited to suspense account by the banking companies will be subjected to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 recognizing whether a claim for interest can be treated as a doubtful claim unlikely to be recovered or not. The test provided by the said circular is to see whether, at the end of three years, the amount of interest has, in fact, been recovered by the bank or not. If it is not recovered for a period of three years, then in the fourth year and onwards the claim for interest has to be treated as a doubtful claim which need not be included in the income of the assessee until it is actually recovered." 11. It is apparent that none of the, authorities in this case have taken into consideration the circ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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