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TMI Blog1989 (12) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that interest due on such sticky and doubtful loans would be about Rs. 50 lakhs and made an addition of that amount on the footing that the said interest had accrued to the assessee. Before the Commissioner(A), it was contended that the assessee had neither credited nor in any other way accounted for the interest due on sticky loans and, therefore, the question of taxing it in assessee's case should not arise. The Commissioner(A) took note of the position that the assessee was a nationalised bank and was under the strict scrutiny of the Reserve Bank of India and further that there existed internal audit, statutory audit as well as inspection by the officials of the Reserve Bank of India. He took note of the position that the assessee followed a standard procedure in the matter of identification of sticky loans and there was no suggestion that there existed any mistake on that score. He further noted that the interest was not charged on such loans and this was the practice followed by the assessee. The assessee further submitted that under the commercial principles of accounting the facts did not warrant that such interest should be taxed even when the principal amount itself was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated above. In particular, we may reported the following extracts from the decisions cited at No. (ii) above of internal page 4 of that decision as follows: "............The learned departmental representative relied on the decision of the Supreme Court in State Bank of Travancore vs. CIT (1986) 50 CTR (SC) 290 : (1986) 158 ITR 102 (SC). In that decision Supreme Court has held that where a bank followed mercantile system of accounting interest on "sticky" advances debited to customer but taken to interest suspense account would be deemed to have accrued. This decision clarifies the legal connotation of accrual of interest income when mercantile system of accounting is followed. In the present case, the interest has not been credited to suspense account." 1.5 Similarly, in Tribunal's decision cited at No. (iv) above at internal page 12, Page 12, Para 16 reads as follows: "16. Lastly, heavy reliance was placed by the Revenue on the decision of the Supreme Court in State Bank of Travancore. Here also, we find that the admitted position was that the assessee was following mercantile system of accounting and a particular presentation of the interest was adopted, i.e. instead o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest accrued on them upto the date of transfer known as interest for broken period is claimed as a revenue expenditure. (iii) The Department has held that this interest paid by the Bank to the sellers for the broken period was a capital expenditure as it was spent on purchase of its investments by the Bank in the form of Govt. securities. Accordingly, this interest paid element should be capitalised with the cost of purchase of such securities. (iv) The Bank's representative stated that a similar disallowance made in earlier year was deleted by the appellate authorities. This decision has, however, not been accepted by the Department and a reference to High Court is pending on this issue. (v) Therefore, in line with the view taken by the Department on this issue, the interest paid by the Bank on purchase of securities for the broken period (net Rs. 92,17,225) is added to the income declared." 2.3 Thus, the point involved is of the difference of interest on purchase and sale of securities which is claimed as deduction on revenue account. The Commissioner(A) has dealt with this item in Para 6 of his appellate order and upheld the assessee's claim by citing ITAT decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uses of cl. (b) of s. 35B(1) have been deleted w.e.f. asst. yr. 1981-82 and, hence, quantification of relief under s. 35B would be required to be done more precisely. We further find that even in the original order for asst. yrs. 1976-77 and 1977-78 dt. 23rd Aug., 1982, the Tribunal held that the Assessing Officer should, after hearing the assessee, ascertain (a) whether any of the items of expenditure incurred by the assessee in the overseas branches quantified for relief under s. 35B, and (b) and if yes, to what extent. We would follow the same course and hence, restore the matter of quantification of relief to the file to the Assessing Officer. He would ascertain which of the items, if any, would qualify for the provisions of s. 35B an disallow necessary relief. Even at the cost of repetition, we would mention that in principle, the availability of weighted deduction under s. 35B is decided in favour of the assessee but merely for quantification of relief, the matter is restored to the file of the assessing officer. 4.1 Department's fourth ground of appeal reads as follows: "On the facts and in the circumstances of the case and in law, the learned CIT(A)erred in deleting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket price of the securities on that date was less than the cost price, the difference amounting to Rs. 52,935 was taken as loss arising from the valuation of the closing stock of securities. In the return filed for the asst. yr. 1967-68, a claim was made to deduct the above loss. As there was no actual loss arising on the sale of securities and as there was no debit to the profit and loss account of the alleged loss and as the method of valuation adopted for this year was not in accordance with the method of accounting regularly employed by the assessee, the ITO disallowed the loss. On appeals, the AAC and the Tribunal came to the same conclusion." Thereupon the High Court held vide Para marked (2) of the head notes on page 94 of the Reports read as follows: "The Tribunal was not right in law in rejecting the assessee's claim to deduct the amount of Rs. 52,935, being the loss arising on the valuation of closing stock of Government securities, in determining its total income for the asst. yr. 1967-68. The Tribunal found that the Government securities held by the assessee constituted its stock-in-trade. It is a sound commercial practice to value the closing stock at cost or m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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