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State Bank of India Vs. Inspecting Assistant - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Kolkata
Decided On
Judge
Reported in(1983)6ITD225(Kol.)
AppellantState Bank of India
Respondentinspecting Assistant
Excerpt:
1. the assessee is the state bank of india which is established under the state bank of india act, 1955. these appeals are taken together and are disposed of by a common order. the assessment for the assessment year 1972-73 was completed on 25-7-1974. a notice under section 148 of the income-tax act, 1961 ('the act') was issued upon the assessee on 7-3-1977 indicating that the ito had reason to believe, in consequence of information in his possession, that income chargeable to tax has escaped assessment for the assessment year 1972-73. the notice issued under section 148 for initiating proceedings under section 147(b) of the act was served upon the assessee on 10-3-1977. the assessee filed its return showing an income of rs. 14,18,69,048. further, the assessee, in a covering letter,.....
Judgment:
1. The assessee is the State Bank of India which is established under the State Bank of India Act, 1955. These appeals are taken together and are disposed of by a common order. The assessment for the assessment year 1972-73 was completed on 25-7-1974. A notice under Section 148 of the Income-tax Act, 1961 ('the Act') was issued upon the assessee on 7-3-1977 indicating that the ITO had reason to believe, in consequence of information in his possession, that income chargeable to tax has escaped assessment for the assessment year 1972-73. The notice issued under Section 148 for initiating proceedings under Section 147(b) of the Act was served upon the assessee on 10-3-1977. The assessee filed its return showing an income of Rs. 14,18,69,048. Further, the assessee, in a covering letter, stated that according to the knowledge of the assessee no income has escaped assessment for the year 1972-73.

The ITO found that the assessee was allowed incorrect relief under Section 80M of the Act which was discovered in course of audit. The ITO having in mind the decision in Addl. CIT v. Cloth Traders (P.) Ltd. [1974] 97 ITR 140 (Guj.) rejected the contention of the assessee. The assessee came in appeal before the Commissioner (Appeals) and contended that the action of the ITO under Section 147(b) was illegal. The Commissioner (Appeals) did not accept the argument of the assessee. He observed as follows: The first four grounds of appeal relate to the reopening of the assessment under Section 147(b) of the Income-tax Act, 1961. It is claimed that the reopening is not justified. The reopening has been done in consequence of information received from the revenue audit.

It has been held by the Supreme Court in the case of R.K. Malhotra, ITO v. Kasturbhai Lalbhai [1977] 109 ITR 537 that a note received from the revenue audit would constitute 'information' within the meaning of Section 147(b). The reopening of the case is, accordingly, upheld and the first four grounds of appeal fail.

2. The counsel of the assessee, Shri P.T. Sanyal, urged that the assessment under Section 147(b) was illegally reframed by the assessing officer when the assessing officer did not have any fresh information after the completion of the assessment. He stated that the original assessment was completed on 25-7-1974 and the decision in Cloth Traders (P.) Ltd.'s case (supra) was delivered on 28-11-1973. However, the Calcutta High Court, prior to that, on the same issue, delivered a judgment in favour of the assessee on 14-4-1969 in CIT v. Darbhanga Marketing Co. Ltd. [1971] 80 ITR 72. The Bombay High Court in CIT v.New Great Insurance Co. Ltd. [1973] 90 ITR 348 and the Madras High Court in CIT v. Madras Motor & General Insurance Co. Ltd. [1975] 99 ITR 243 took the similar view. Therefore, when the original assessment was completed by the ITO, the decision of the Gujarat High Court was against the assessee and the decisions of the Calcutta, Madras and Bombay High Courts in favour of the assessee were available and the ITO following these decisions allowed deduction under Section 80M. Under the above circumstances there was no information within the meaning of Section 147(b) with the ITO. Shri P.T. Sanyal further contended that the reason recorded by the ITO is not known. If it is correct that the action was taken on the basis of the audit note, the audit note is not an information according to the latest decision of the Supreme Court in Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996 and, therefore, even on this ground the assessment fails. He further urged that the Commissioner (Appeals) relied on R.K. Malhotra, ITO v.Kasturbhai Lalbhai [1977] 109 ITR 537 (SC). Shri P.T. Sanyal stated that for the purpose of Section 147(b) only those materials can be considered which were available when the action was taken by the ITO.He relied on the decision in CIT v. Assam Oil Co. Ltd. [1982] 133 ITR 204 (Cal.) and urged that the reliance placed by the Commissioner (Appeals) in Kasturbhai Lalbhai's case (supra) is not fair because that decision materially was not available when the ITO took necessary action for reopening of the assessment. Contrary to that decision, on the same point in Kasturbhai Lalbhai v. R.K. Malhotra, ITO [1971] 80 ITR 188 the decision of the Gujarat High Court was in favour of the assessee in which it was held that the opinion of the audit about correct state of law was not an information. Subsequently, the decision in Kasturbhai Lalbhai's case (supra) on which the reliance was placed by the Commissioner (Appeals) was reversed [by] the Supreme Court in Indian & Eastern Newspaper Society's case (supra). Shri P.T. Sanyal, therefore, urged that the assessment made by the ITO pursuant to notice under Section 148 is illegal.

3. Shri A. Sengupta, the standing counsel of the department, on the other hand, contended that the assessment was not reopened on the opinion of the audit. The audit only suggested that the assessment has not been correctly made by the ITO and the ITO only took into consideration the decision in Cloth Traders (P.) Ltd.'s case (supra) which was pronounced on 28-11-1973 but it was reported in the later part of 1974 after July 1974 in the ITR. He further distinguished the case of the assessee in Darbhanga Marketing Co. Ltd.'s case (supra) and stated that the case was not based upon the provisions of Section 80M.It was further stated relying on Ganpatrai Sagarmal v. CIT [1982] 138 ITR 294, that the Calcutta High Court decision is an information within the meaning of Section 147(b). It was further stated by the standing counsel that Section 80M was retrospectively amended by introduction of Sections 80AA and 80AB of the Act from 1-4-1968 and 1-4-1981.

Therefore, even otherwise, the deduction was not available to the assessee because deduction under Section 80M was amended with retrospective effect. Once the section was amended retrospectively, it would be deemed that the amended provision was applicable during the assessment year 1972-73 when the deduction was allowed on the gross amount. The standing counsel relied on CIT v. Kelvin Jute Co. Ltd. [1980] 126 ITR 679, 682 (Cal.). He further, relying on H.A. Nanji & Co.

v. ITO [1979] 120 ITR 593 (Cal.) at pages 599 and 602, stated that it was not necessary that the ITO should record all the reasons. He also relied on ITO v. Textile Mills Agents (P.) Ltd. [1981] 130 ITR 733 (Cal.) and distinguished the case of the assessee in Assam Oil Co.

Ltd.'s case (supra).

4. The assessment of the assessee for the assessment year 1972-73 was completed on 25-7-1974 and the deduction under Section 80M was allowed on the gross figure. The action under Section 147(b) was taken by the ITO and, accordingly, a notice under Section 148 dated 7-3-1977, was served on the assessee on 10-3-1977. The department has filed the reasons recorded by the ITO on the order sheet on 7-3-1977 which are as under: Seen IAC, R-II's Memo No. R-II/8654/11-10/75-76 dated 3-3-1976 forwarding extracts from IAC, Audit Range-III's comments in the case of United Bank of India P.A. No. 11-000-Co-6489/ CAL/C III (C) respect of the assessment year 1971-72.

In consequence of information, now in my possession I have reasons to believe that the income represented by excessive deduction allowed in the original assessment under Section 80M from dividend which was wrongly taken for the purpose of such deduction at a figure equal to the gross amount before deduction of expenses incurred for earning the dividend instead of the net amount, escaped assessment. Hence, action under Section 147(b) is called for.

The reasons recorded by the ITO refer to the note of the IAC, dated 3-3-1976 and 25-2-1976. A copy of the extract dated 25-2-1976 has been filed and is reproduced below: Extract of IAC Audit Range III's comments in respect of audit objection of United Bank of India. Assessment year 1971-72.

'Board have taken the view that the relief is admissible only on net amount of dividend. In many cases we have gone up to High Court/Supreme Court in appeal against adverse decisions regarding relief admissible under Section 80M, etc. So ask ITO to take remedial action immediately under Section 263 for which the limitation period is expiring on 24-3-1976.' It is evident from the reasons recorded by the ITO that Section 147 was taken on the basis of the information conveyed by the IAC. In the note, no doubt reference has been made to the decision of the High Court. But the High Court decision in Cloth Traders (P.) Ltd.'s case (supra) mentioned in the assessment order had not been indicated in the note forwarded by the IAC. The action under Section 147(b) could be taken if the ITO has reason to believe that income has escaped assessment and it should be in consequence of information received after the original assessment. The Supreme Court in Sheo Nath Singh v. AAC [1971] 82 ITR 147 stated at page 153 that there can be no manner of doubt that the words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The ITO would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist on is not material or relevant to the belief required by the section. The various decisions of the High Courts were available on the subject when the assessment was completed by the ITO, on 25-7-1974, even the decisions of the Calcutta, Bombay and Madras High Courts were in favour of the assessee. Therefore, it could not be said that the ITO had honest belief when he took action under Section 147(b). The above view is supported in S. Narayanappa v. CIT [1967] 63 ITR 219 (SC). The following tests and principles were laid down by the Supreme Court in Kalyanji Mavji & Co. v. CIT [1976] 102 ITR 287-see Taxmann's Supreme Court on Direct Taxes at page 381: a. whether the information is as to true and correct state of law derived from relevant judicial decision; b. whether, in original assessment, the income liable to tax has escaped assessment due to the ITO's oversight, inadvertence or mistake; c. whether information is derived from external source, including discovery of new and important matters or knowledge of fresh facts which were not present at the time of original assessment; and d. whether the information is obtained from the record of the original assessment, from an investigation of the materials on the record or the facts disclosed thereby or from other enquiry or research into facts or law.

However, the Supreme Court reconsidered the above decision in Indian & Eastern Newspaper Society's case (supra) and it was held that observation in Kalyanji Mavji & Co.'s case (supra) to the effect that an error discovered on reconsideration of the same materials empowers the ITO to reopen the assessment, does not lay down the correct law.

The assessment, according to the standing counsel, was reopened on the basis of the decision of the Gujarat High Court in Cloth Traders (P.) Ltd.'s case (supra). The standing counsel has rightly stated that the decision of a High Court is an information within the meaning of Section 147(b). The view expressed by the standing counsel is supported by the decision of the Supreme Court in R.B. Bansilal Abirchand Firm v.CIT [1968] 70 ITR 74 in which it was said that the decision of the Tribunal or High Court as to which assessable entity is chargeable in respect of a particular income will constitute 'information'. But the question is that when the ITO completed the original assessment on 25-7-1974, the decision in favour of the assessee was available in Darbhanga Marketing Co. Ltd.'s case (supra), Madras Motor & General Insurance Co. Ltd.'s case (supra) and New Great Insurance Co. Ltd.'s case (supra) whereas the decision against the assessee was in Cloth Traders (P.) Ltd.'s case (supra). The assessee was under the jurisdiction of the Calcutta High Court. The decision of the Calcutta High Court was binding upon the assessing officer as well as on the assessee. See the decision of the Calcutta High Court in Raja Benoy Kumar Sahas Roy v. CIT [1953] 24 ITR 70 which was affirmed by the Supreme Court in CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466.

The decision of the Calcutta High Court was available in Darbhanga Marketing Co. Ltd.'s case (supra). Therefore, it could not be said that there was any information within the meaning of Section 147(b) even on the basis of the High Court decision that the ITO consequent upon which could have taken action under Section 147(b). It could not even be said that the ITO committed any error when he completed the assessment in allowing deduction under Section 80M when three decisions were in favour of the assessee and only one decision was against it which was subsequently reversed in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243 (SC).

5. The standing counsel sought to distinguish the case of Darbhanga Marketing Co. Ltd. (supra) on the ground that it was not rendered under Section 80M. The argument of the assessee's counsel was equally correct that even the decision in Cloth Traders (P.) Ltd.'s case (supra) was not on the subject but Sections 85, 85A and 99(1)(iv) of the Act are pari materia with Section 80M. The standing counsel supported the action of the ITO on the ground that deduction under Chapter VIA was amended retrospectively and, therefore, it could be taken that the amended law stood during the assessment year and the ITO did not allow deduction correctly under Section 80M. Sections 80AA and 80AB were introduced in Chapter VIA by the Finance (No. 2) Act, 1980, with retrospective effect from 1-4-1968 and 1-4-1981. It has been stated earlier that for reopening the assessment under Section 147(b), only those materials could be considered which were available when the action was taken by the assessing officer. The assessing officer took action when he issued a notice under Section 148 on 7-3-1977 which was served upon the assessee on 10-3-1977. Definitely, the provision was not amended when the action was taken by the ITO. The assessing officer could not have foreseen that at a much later date, the section would be amended retrospectively, empowering the ITO to correct the assessment which was in accordance with the decision of the High Court under which he was working. Therefore, once a provision is amended and retrospective effect is given from a particular date, the presumption would be that the amended provision stood on that date but that may not be material for reopening of the assessment. The knowledge of the amended provision was neither with the assessing officer nor it was ever communicated by the assessing officer to the assessee to have its reply--Export Enterprises (P.) Ltd. v. ITO [1983] 142 ITR 641 (Cal.).

Therefore, the conclusion arrived at earlier would not be affected by the above argument of the standing counsel.

6. It has been concluded earlier that the reassessment made by the ITO under Section 147(b) was illegal. However, it would not be fair to rest upon the above conclusion and it would be in the interest of the assessee as well as the revenue, that the Tribunal must give its finding on merits on various grounds of the assessee and the department. Before the grounds of the assessee and the revenue are taken up, a preliminary objection was raised by Shri P.T. Sanyal that only such income which escaped assessment could be taken into consideration by the assessing officer, but the assessing officer could not have taken action in respect of other matters which were finally decided. He relied on the decision in Hiralal v. CIT [1980] 121 ITR 89 (Raj.). The standing counsel, on the other hand, urged that once the assessment was reopened, all the income that escaped assessment can be brought to tax irrespective of the fact that action was taken for a particular income which, in the opinion of the ITO, escaped assessment.

He referred to Assam Oil Co. Ltd.'s case (supra) at page 224--CIT v.Ramsevak Paul [1977] 110 ITR 527 (Cal.) and CIT v. Bombay Dyeing & Mfg.

Co. Ltd. [1971] 82 ITR 892 (SC).

7. The direct decision of the Supreme Court on the issue is available in V. Jaganmohan Rao v. CIT [1970] 75 ITR 373. The Supreme Court in the above decision observed that once the assessment is reopened by issuing a notice under Section 34(1)(b) of the Indian Income-tax Act, 1922, the previous under-assessment is set aside and the whole assessment proceedings start afresh. The above decision of the Supreme Court has been considered by some of the High Courts and they have come to the conclusion that the reassessment should not include only the income for which action was taken but it may include all the other items which escaped assessment. The equitable and fair interpretation of the said decision will have to be taken which may not impair the interest of the revenue and the assessee.

8. It is well established principle that there could not be two assessment orders for the same income and for the same previous year.

It is possible only if the protective assessments are made. The Supreme Court in Lalji Haridas v. ITO [1961] 43 ITR 387 observed: . . .In cases where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or B or by both together, it would be open to the relevant income-tax authorities to determine the said question by taking appropriate proceedings both against A and B . . .

This view was also taken in Jagannath Hanumanbux v. ITO [1957) 31 ITR 603 (Cal.), Smt. Hemlata Agarwal v. CIT [1967] 64 ITR 428 (All.) and Sidh Gopal Gajanand v. ITO [1969] 73 ITR 226 (All.). Therefore, if the reassessment is made either under Section 147(a) or 147(b) the original assessment cannot sustain. If it is not done, then partial original assessment will stand and partial another assessment will be made pursuant to Section 148 which is not permissible under the Act.

Therefore, the decision will have to be read that once the assessment is set aside, the previous assessment becomes non est. It is open to the ITO to bring new items which escaped assessment when the original assessment was framed. At the same time, the assessee can make fresh claim for exemption and deduction which were not made earlier. The confusion starts because, while making the reassessment the ITO takes some of the income as assessed under the original assessment. It is a matter of convenience that the ITO does not disturb those items for which he did not have hesitation in accepting that those items had correctly been computed even earlier and, therefore, he adopts those figures in the reassessment. But it does not mean that the superstructure of the earlier assessment stands partially whereas fresh structure is erected for those items which escaped assessment.

Therefore, following the decision of the Supreme Court in V. Jaganmohan Rao's case (supra) it is concluded that once the assessment was reopened under Section 147(b), it was open to the ITO to bring all the items which escaped assessment. But it was also open to the assessee to put claim for deductions and/or exemptions which were not claimed in the original assessment.

9. The next objection of the assessee is about the inclusion of interest of Rs. 24,94,717 for the assessment year 1972-73 and Rs. 96,19,928 for the assessment year 1975-76. The IAC found that the assessee has credited interest chargeable on doubtful debts to suspense account in the assessment year 1972-73. The IAC vide his letter dated 7-2-1978 requested the assessee to file the particulars of such interest. The details were not available to the IAC. The IAC referring to Section 5(1)(b) of the Act stated that all income from whatever source derived which accrued or arose or deemed to have accrued or arisen in any year was the income chargeable for that year. The IAC, therefore, estimated the interest at Rs. 60,00,000 in the assessment year 1972-73. The IAC found credit of Rs. 96,19,928 in suspense interest account in the assessment year 1975-76. Following his reasoning for the assessment year 1972-73 and further relying on B.C.G.A. (Punjab) Ltd. v. CIT [1937] 5 ITR 279 (Lahore), Balraj Virmani v. CIT [1974] 97 ITR 69 (All.) and State Bank of Travancore v. CIT [1977] 110 ITR 336 (Ker.) he included the same in the total income of the assessee.

10. The assessee came in appeal before the Commissioner (Appeals) and the Commissioner (Appeals) following his order for the assessment year 1975-76 confirmed the inclusion of interest of Rs. 60 lakhs in the assessment year 1972-73. For the assessment year 1975-76, the assessee relied on the CBDT's Circular dated 16-4-1975 and in Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC). The assessee also relied on Sirpur Paper Mill Ltd. v. CWT [1970] 77 ITR 6 (SC), J.K. Synthetics Ltd. v.CBDT [1912] 83 ITR 335 (SC) and A.L.A. Finn v. CIT [1976] 102 ITR 622 (Mad.). The Commissioner (Appeals) found that the circular which was referred to by the assessee was withdrawn in June 1978. Consequently, he found that on the basis of the circular the matter could not be decided in favour of the assessee. The assessee further argued that the interest on suspense account was being credited directly to the suspense account and not to the profit and loss account. This method had been regularly followed by the assessee in the earlier years. There had been no change in the method of accounting during the previous year for the year under appeal. The assessee relied on J.K. Bankers v. CIT [1974] 94 ITR 107 (All.), Balraj Virmani's case (supra), CIT v.E.A.E.T. Sundararaj [1975] 99 ITR 226 (Mad.), CIT v. Eastern Bengal Jute Trading Co. Ltd. [1978] 112 ITR 575 (Cal.), Reform Flour Mills (P.) Ltd. v. CIT [1978] 114 ITR 227 (Cal.), Fatehchand Firm Chhakodilal v. CIT [1945] 13 ITR 198 (Nag.), CIT v. M.A.L. Chettiyar Firm [1935] 3 ITR 193 (Rangoon), Indo-Commercial Bank Ltd. v. CIT [1962] 44 ITR 22 (Mad.) and Forest Industries Travancore Ltd. v. CIT [1964] 51 ITR 329 (Ker.). The assessee also relied in the order of the Bangalore Bench of the Tribunal dated 25-10-1978. The Commissioner (Appeals) did not agree with the view of the assessee and further placed reliance on State Bank of Travancore's case (supra) on the basis of which he came to the conclusion that the interest credited to the suspense account was liable to tax. Thereafter the Commissioner (Appeals) proceeded to consider whether the assessee can change its method of accounting for bona fide reason. He observed that in the present case, the right of the assessee to change its method of accounting was not being questioned. The question for consideration was whether income had actually accrued under the provisions of the Act. He stated that where the debts had not been written off, and the interest was credited to the suspense account according to the system of accounting followed by the assessee, the income accrued when it was so credited. This was so, even if it was not brought to the profit and loss account. Once it was credited, there could be no question of not bringing it to tax. He relied on T.N.K. Govindarajulu Chetty v. CIT [1973] 87 ITR 22 (Mad.) and finally he considered that the assessee had not written off those debts as bad debts and so long as there was a ray of hope left, debts could not be said to have really become bad. He relied on T.S. PL.P.Chidambaram Chettiar v. CIT [1967] 64 ITR 181 (Mad.).

11. Shri P.T. Sanyal, the counsel for the assessee, made three submissions. The first submission of Shri P.T. Sanyal was that only the real income can be taxed. The assessee was a dealer in money. The assessee had sticky advances. The sticky advances were doubtful debts and the assessee was not hopeful of realising either the principal or any interest. Consequently, the interest was credited to suspense account and it was not disclosed in the profit and loss account of the assessee. As the amount was not realisable, the assessee rightly did not show the interest suspense account as the income of the assessee.

The second argument of Shri P.T. Sanyal was that, even according to the method of accounting followed by the assessee, the interest in suspense account cannot be treated as income of the assessee. Even otherwise the assessee changed its method of accounting from mercantile to cash system for interest suspense account during the assessment year 1972-73. The assessee relied on the unreported decision of the Madras High Court in CIT v. Devi Films (P.) Ltd. [TC Nos. 588 to 592 of 1977] [Since reported in [1983] 143 ITR 386 (Mad.)] appearing at page 32 of the assessee's paper book. The assessee further relied on the cases of J.K. Bankers (supra), E.A.E.T. Sundararaj (supra), Eastern Bengal Jute Trading Co. Ltd. (supra), Reform Flour Mills (P.) Ltd. (supra), Indo-Commercial Bank Ltd. (supra), Forest Industries Travancore Ltd. (supra) and CIT v. Rajas than Investment Co. (P.) Ltd. [1978] 113 ITR 294 (Cal.). He also referred to the CBDT's Letter F. No. 207/10/73 IT(A-II), dated 16-4-1973 written by the Under Secretary of the Board to the Income-tax Adviser and ex-officio Deputy Secretary, Finance Department, Haryana Civil Secretariat in which it had been indicated that the Board is of the view that the amounts kept in suspense account under the heads interest, commission, etc., would not be assessable to tax. He further urged that the circular of 1952 was withdrawn only in 1978. Therefore, the circular was in existence during the assessment years 1972-73 and 1975-76. The Kerala High Court in CIT v. B.M. Edward, India Sea Foods [1979] 119 ITR 334 (FB) held that the circular issued by the CBDT as it stood at the beginning of the assessment year would be applicable and the subsequent modification of the circular would have no relevancy. The above circular was followed in the case of CIT v. Geeva Films [1983] 141 ITR 632 (Ker.). The department went in special leave before the Supreme Court and the Supreme Court dismissed the special leave petition. The necessary papers are filed by the assessee at pages 8 to 31 of the second paper book. Therefore, Shri P.T. Sanyal urged that even following the circular of 1952 which was in existence in these two years, the interest credited to suspense account could not have been charged to tax. The third argument of Shri P.T.Sanyal was that the assessee was following this system on the basis of circular of 1952 of the CBDT since long and the department had accepted it. It was changed only during the assessment year 1972-73. He referred to the paper book filed by him and urged that five Benches of the Tribunal had taken the decision by which the Tribunal had come to the conclusion that interest suspense account could not be included in the total income of the assessee. He relied on IT Appeal Nos. 822 (Coch.) of 1976-77 and 600 (Coch.) of 1977-78, IT Appeal Nos. 264 and 268 (Bang.) of 1977-78, IT Appeal Nos. 195 to 200 (Bang.) of 1979, IT Appeal No. 658 (Bang.) of 1980 and IT Appeal No. 1466 (Cal.) of 1972.

12. Shri A. Sengupta, the standing counsel, urged that the assessee has made three submissions and further it relied on the Tribunal decisions.

The assessee's counsel has taken three concepts that interest in suspense account could not be taxed if the concept of real income is taken into consideration. Shri A. Sengupta urged that all the three concepts taken by the assessee's counsel have been elaborately discussed by the Hon'ble Calcutta High Court in James Finlay & Co. v.CIT [1982] 137 ITR 698. He referred specifically the above decision at pages 701 to 705. He said that the assessee was following mercantile method of accounting and the debts had not been written off or it had not been proved that the debts became bad during these years.

Therefore, interest accrued to the assessee. He further stated that the assessee cannot change its method of accounting for a part of source of one head. This is clear from the decision in the case of James Finlay & Co. (supra). He further stated that if the decision of the Supreme Court is available, the circular is not binding. There is no finding that the debts were not realisable. He relied on State Bank of Travancore's case (supra). He also relied on for the change of the method of accounting in the case of Reform Flour Mills (P.) Ltd. v. CIT [1981] 132 ITR 184 (Cal.). The reliance was placed by Shri A. Sengupta in 1982 Tax Case No. 207. It was further urged that even otherwise the assessee cannot escape the interest in suspense account on the basis of 1952 circular. He referred to the circular of 1952 as given in the assessee's first paper book at page 1. He referred to first paragraph of the circular and stated that the plea taken by the assessee could only be accepted provided the ITO is satisfied that the recovery is practically improbable. He referred to the order of the IAC as well as the Commissioner (Appeals) specifically for this purpose to show that there is no finding to this effect. Rather the Commissioner (Appeals) has observed that so long as there is a ray of hope of realisation, the debt cannot be treated as bad debt. He distinguished the case cited by the assessee in CIT v. Raigharh Jute Mills Ltd. [1981] 132 ITR 702 (Cal.).

13. Shri P.T. Sanyal, the counsel for the assessee, urged that the assessee can change its method of accounting and the decision cited by the standing counsel in James Finlay & Co.'s case (supra) is on a different point and, therefore, the same could not be applicable to the facts of the present case. It was further stated that the decision in James Finlay & Co.'s case (supra) was delivered on 22/23-12-1980, whereas the decision in Raigharh Jute Mills Ltd.'s case (supra) was delivered on 28-7-1981. The latter decision is in favour of the assessee. Shri P.T. Sanyal relied on the commentary of Kanga and Palkhivala's Income-tax, Supplement to Seventh Edition at page I 168.

14. The assessee has not included the interest on sticky advances in its total income. The interest charged on sticky advances has been credited to interest suspense account and has been carried over in the balance sheet. The assessee was following the circular of the CBDT of 1952 supra and, accordingly, the interest charged in the suspense account was not brought to tax in the earlier years. Under the scheme of the Act, income is taxable when it accrues, arises or is received, or by fiction deem to accrue, arise or is deemed to be received. A receipt is not the only test of charge-ability to tax. The tax is levied on the income of the assessee. The tax collected on the income is a share to the State and the State is not interested in collecting a pie more or less than its share. Therefore, only the income can be brought to tax. The concept of income was considered in CIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144 (SC). It was stated that-- . . . Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a 'hypothetical income', which does not materialise.

Where income has, in fact, been received and is subseqnently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. . . .

Again it was considered in Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC) where it was said: The income can thus be said to accrue when it becomes due. The postponement of the date of payment has a bearing only in so far as the time of payment is concerned, but it does not affect the accrual of income. . .

It is also said that it is the real income which attracts tax and the tax cannot be levied on book entry. This is clear from the observation of the Supreme Court in the cases of Shoorji Vallabhdas & Co. (supra) and Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114. It was indicated in Bihar State Co-operative Bank Ltd.'s case (supra) by the Supreme Court that tax cannot attract even in the manner the income has been returned by the assessee. The assessee was a banker and the income from security was returned by the assessee which was subsequently considered to be exempted. The plea was taken that the income had been returned by the assessee and, therefore, it was rightly taxed. The Supreme Court observed that nothing turns on the return. The principle that 'the Crown is not entitled to take a mere book entry as conclusive evidence of the existence of a profit' was observed in Doughty v. Taxes Comr. [1927] AC 327, 336 (PC). Similar observation was made by the Supreme Court in Shoorji Vallabhdas & Co.'s case (supra) at page 148.

The concept of real income was considered by the Supreme Court n Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521: . . . Income-tax is a tax on the real income, i.e., the profits arrived at on commercial principles subject to the provisions of the Income-tax Act. The real profit can be ascertained only by making the permissible deductions. There is a clear-cut distinction between deductions made for ascertaining the profits and distributions made out of profits. In a given case whether the outgoings fall in one or the other of the heads is a question of fact to be found on the relevant circumstances, having regard to business principles.

Another distinction that shall be borne in mind is that between the real and the statutory profits, i.e., between the commercial profits and statutory profits. The latter are statutorily fixed for a specified purpose. . .

If the concept of income and real income is taken into consideration, it is to be seen whether the assessee had income from interest during these years. The assessee had sticky loans. The interest in question is related to the sticky loans. The Supreme Court in the case of Poona Electric Supply Co. Ltd. (supra) at page 530 while considering the concept of real income stated that the profits should be arrived at on commercial principles subject to the provisions of the Act. The assessee was of the view that the loans themselves were not realisable and, therefore, no part of the interest could be realised upon which the assessee was to pay tax. This view was not taken by the assessee only in these years but the similar view, on the same facts, was taken by the assessee in the earlier years which was accepted by the department. It was observed in Parimi Venkatasubba Rao v. CIT [1972] 85 ITR 145 (AP) as follows: . . . We do not expect the income-tax authorities to arbitrarily and capriciously depart from the findings arrived at in past years. If they do so we will certainly interfere in appropriate cases when the matters come to us. But that is not to say that the income-tax authorities can never depart from their previous findings. If new facts come to light or if an Income-tax Officer finds that his predecessor failed to take into consideration some material facts though available he would certainly be entitled to arrive at his own decision unhampered by the decision of his predecessor, of course, after giving due weight to what was said by him. . .

No additional facts have come to the knowledge of the ITO during these years. The interest is related to sticky loans. Even if they may not be bad but if they are doubtful and the assessee thinks that even the principal amount could not be realised, there is no point in taxing the interest. This fact is supported by the decision in Raigharh Jute Mills Ltd.'s case (supra). Though the assessee followed mercantile system of accounting but when the principal amount is in dispute, the accrual of interest is postponed because the assessee shall not add profit by mere book entry. Therefore, if the debt is doubtful itself, no prudent commercial man will charge interest and inflate his profit and pay tax to the State which is not due. It may be clarified by examples. If an assessee deals in money-lending and unfortunately major portion of the loans had become sticky and are not reliable finally. The assessee follows mercantile method of accounting. The interest is brought to tax year after year. The assessee may not have fund. He may not have other source of income too and ultimately it would result arrear of demand on one side and unrealisable sticky loans with interest on the other side.

The second case would be that the assessee had income from sticky loans as well as income from other sources. If the interest on sticky loans is brought to tax, the assessee will have to pay tax only out of the other income if the same is more than the tax, if not by realising those assets which are yielding income to the assessee. The third case would be where definitely the other income of the assessee is more than the interest on the sticky loans but by gradual process of paying tax out of income-yielding assets, circulating capital of the assessee would diminish year by year. No prudent man would like to adopt such a method which would compel him to pay tax when in reality there was no income at all. Hence, inclusion of interest was not proper.

15. The other point taken by the assessee is the method of accounting.

The assessee was following mercantile method of accounting at least up to the immediately earlier year. The income under Section 145(1) of the Act is computed in accordance with the method of accounting regularly employed by the assessee. The well-known methods of accounting are mercantile or cash. Even hybrid system of accounting is permissible under the Act. It is also clear by the judicial decision that the assessee may follow one method for one head while other method for the other head. It was said by the Supreme Court in CIT v. A. Gajapathy Naidu [1964] 53 ITR 114 that an income accrues or arises when the assessee acquires the right to receive the same. It is common knowledge that there are two principal methods of accounting for the income, profits or gains of a business. One is the cash basis and the other is the mercantile basis. The cash and mercantile system had been explained by the Supreme Court in Nonsuch Tea Estate Ltd. v. CIT [1975] 98 ITR 189 and CIT v. Prabhu Dayal [1971] 82 ITR 804 (SC). According to the mercantile method of accounting the income accrues on a particular point and it is taken into consideration, whereas according to cash system it is included when it is received. If the assessee follows mercantile method of accounting, the postponement of receipt does not alter the taxability of the amount. There could not be any dispute possibly over the principles of these two principal methods of accounting referred to by the Supreme Court and other Courts. But the fine point in the definition is that accrual will be taken no doubt as the income of the assessee irrespective of the fact that the income is received or not. But the position cannot be the same if the income is not to be realised at all. Under the above circumstances even following the mercantile method of accounting, the income cannot be taken as the income of the assessee. The Madras High Court in CIT v. Motor Credit Co. (P.) Ltd. [1981] 127 ITR 572 by the head note, supports the above view. It has been observed: The regular mode of accounting determines only the mode of computing the taxable income and the point of time at which the tax liability is attracted. It cannot determine or affect the range of taxable income or the ambit of taxation. Where no income has resulted it cannot be said that income has accrued merely on the ground that the assessee had been following the mercantile system of accounting.

Even if the assessee makes a debit entry to that effect, still no income can be said to have accrued to the assessee. If no income has materialised, there can be no liability to tax on a hypothetical income. It is not the hypothetical accrual of income based on the mercantile system of accounting followed by the assessee that has to be taken into account, but what should be considered is whether the income has really materialised or resulted to the assessee. The question whether real income has materialised to the assessee has to be considered with reference to commercial and business realities of the situation in which the assessee has been placed and not with reference to his system of accounting.

The conclusion is supported by the decision in the case of CIT v.Ferozepur Finance (P.) Ltd. [1980] 124 ITR 619 (Punj. & Har.): Income-tax is levied on income, whether the accounts are maintained on mercantile system or on cash basis. If income does not result at all, there cannot be levy of tax. Even if an entry of hypothetical income is made in the books of account, where the income does not result at all as there is neither accrual nor receipt of income, no tax can be levied.

16. The alternative argument of the assessee is that the assessee has changed its method of accounting and it was following cash system for the interest on sticky loans. Shri A. Sengupta, the standing counsel, is right in his plea that this plea has not been taken by the assessee before the authorities below. Moreover, the assessee, no doubt, can change its method of accounting but that can be changed for a particular head but it cannot be changed for some of the items under one head. Therefore, if the assessee has credited during these years only those interest which had been received by the assessee, the plea of the assessee may be correct. But if the assessee takes into consideration the interest on accrual basis on advances other than the sticky loans and takes interest on sticky advances on cash basis it may not be permissible. This view is supported by the decision in the case of James Finlay & Co. (supra).

17. The last argument of Shri P.T. Sanyal is that the amount could not be brought to tax in view of the circular of 1952 of the CBDT supra. It is correct that a circular to this effect, dated 6-10-1952, was issued by the CBDT and the same was withdrawn by another Circular No.201/7/1978 IT (A-II), dated 20-6-1978. The circular of 1952 was only withdrawn on 20-6-1978. Therefore, the circular of 1952 was well in existence during the assessment years 1972-73 and 1975-76. The Kerala High Court in the case of B.M. Edward, India Sea Foods (supra) took a view that if the circular was applicable during the assessment year and even though subsequently it was withdrawn, the circular has its binding effect. This view was followed in Geeva Films' case (supra). The department went in special leave petition before the Supreme Court and the Supreme Court dismissed the special leave petition of the department--See [1983] 140 ITR (St. 1). Therefore, the law laid down originally by the Kerala High Court in the case of B.M. Edward, India Sea Foods (supra) is binding. Doubt was expressed by the standing counsel that once the decision of the Supreme Court is available, the circular did not have its binding effect. Shri A. Sengupta stated that the method of accounting had been explained by the Supreme Court. The assessee was following mercantile method of accounting and accordingly income accrued during these years. Therefore, the circular may not help the assessee. This argument of the standing counsel may not be accepted. The Supreme Court has not expressed its opinion on its taxability. It has only explained the method of accounting. The circular, on the other hand, speaks about the taxability of the item.

Therefore, after the special leave petition was rejected in Geeva Films' case (supra), the circular, which was in existence in the previous years, had binding effect. The other doubt expressed by Shri A. Sengupta was that the circular could only be applicable if there is a finding by the ITO that recovery was practically improbable. The interest on sticky loans is in dispute. The interest on sticky loans had not been brought to tax in earlier years following the circular of 1952. The assessee did not credit its profit and loss account by the amount which was credited in the suspense account on the ground that the loans were not recoverable. The position was accepted in the original assessment for the assessment year 1972-73. Therefore, no further satisfaction of the ITO is necessary when once it is considered that the interest is related to the sticky loans. The circular of 1952 after the dismissal of the special leave petition in Geeva Films' case (supra) is binding and the interest cannot to subjected to tax.

18. The view taken above is well supported unanimously by the decisions of the Tribunal in IT Appeal Nos. 822 (Coch.) of 1976-77 and 600 (Coch.) of 1977-78, IT Appeal Nos. 264 and 268 (Bang.) of 1977-78, IT Appeal Nos. 195 to 200 (Bang.) of 1979, IT Appeal No. 658 (Bang.) of 1980 and IT Appeal No. 1466 (Cal.) of 1972. It is the same point that has been decided in favour of the assessee, on the same facts, in the cases of Ferozepur Finance (P.) Ltd. (supra), Motor Credit Co. (P.) Ltd. (supra) and Devi Films (P.) Ltd. (supra). It would be relevant to mention that a decision of the Kerala High Court was given against the assessee in the case of State Bank of Travancore (supra). This decision as well as the decision of the Calcutta High Court in James Finlay & Co.'s case (supra) had been considered in Devi Films' case (supra) by the Madras High Court. The decision of the Kerala High Court was based upon the decision in Catholic Bank of India Ltd. v. CIT which according to the authors of the Income-tax Reports, is not available for reporting. Therefore, the reasoning adopted by the Kerala High Court in State Bank of Travancore's case (supra) is not available. It is seen that five Benches of the Tribunal and three High Courts unanimously had taken decision in favour of the assessee and had held that interest in suspense account cannot be taken into taxable income of the assessee.

The position that suspense account interest was not taxable was subsequently confirmed by the CBDT in its Letter F. No. 207/10/1973 IT (A-II), dated 16-4-1973 which was addressed to the Income-tax Adviser and ex-officio Deputy Secretary, Finance Department, Haryana Civil Secretariat. Even if the decision of the Kerala High Court is considered along with the above decisions, it can be said that two views are possible. When two views are available, one which is favourable to the assessee may be adopted--CIT v. Kulu Valley Transport Co. (P.) Ltd. [1970] 77 ITR 518 (SC), CIT v. Naga Hills Tea Co. Ltd. [1973] 89 ITR 236 (SC), CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) and Mahendrakumar Ishwarlal & Co. v. Union of India [1973] 91 ITR 101, 115 (Mad.). Therefore, it is held that interest in suspense account could not be taxed during these years.

19. The common objection taken by the assessee as well as the department is the deduction under Section 80M for the assessment years 1972-73 and 1975-76. The IAC while computing income from other sources in the assessment year 1972-73, allowed deduction under Section 57(iii) of the Act. It was stated by him that the assessee had invested a sum of Rs. 2,16,85,400 in shares which yielded dividend. The investment had come out of borrowed money. Therefore, interest payable on this money was expenditure laid out for earning income under Section 57(iii). He calculated the interest at 4.5 per cent and, therefore, deducted from the gross dividend a sum of Rs. 9,75,843. On the same ground interest at the rate of 6 per cent was deducted at Rs. 48,63,180 in the assessment year 1975-76. The assessee came in appeal before the Commissioner (Appeals) and relied on various decisions of the Tribunal as well as the decision of the Calcutta High Court in Darbhanga Marketing Co. Ltd.'s case (supra) and urged that deduction under Section 80M should have been allowed by the IAC on the gross dividend.

The Commissioner (Appeals) took into consideration the Supreme Court decision in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 and came to the conclusion that deduction under Section 80M could not be allowed on the gross amount. He found that the bank charges 12 paise for 100 rupees as collection charges which includes its profit. Accordingly, he directed that 10 per cent should be deducted from the gross dividend. The same view was taken by him for the assessment year 1975-76. The Commissioner (Appeals), in the assessment year 1975-76, further held that the dividend of Rs. 38,75,308 received by the bank from the Unit Trust of India should be treated as income from dividend. The Commissioner (Appeals) having in mind the provisions of the Unit Trust of India Act, 1963 and the provisions of Sections 2(17)(i) and 2(26)(ia) of the Act came to the conclusion that the amount received by the assessee from the Unit Trust of India was dividend.

20. The assessee is in appeal on the ground that the Commissioner (Appeals) was not justified in deducting 10 paise per 100 rupees out of dividend income for collection charges. The department, on the other hand, is in appeal on the ground that the income from dividend should be computed after deducting interest on borrowed capital under Section 57(iii) and further the amount received from Unit Trust of India at Rs. 38,75,308 was not dividend in the hands of the assessee.

21. The finding given by the IAC that the assessee purchased shares out of borrowed capital was challenged by the assessee's counsel in course of the argument. The order of the IAC as well as the Commissioner (Appeals) was looked into and no material was found to this effect that the shares were purchased out of the borrowed fund. The assessee, in course of the argument, placed reliance on CIT v. Cotton Fabrics Ltd. [1981] 131 ITR 99 (Guj.), CIT v. J.K. Industries (P.) Ltd. [1980] 125 ITR 218 (Cal.), CIT v. New India Investment Corpn. Ltd. [1978] 113 ITR 778 (Cal.), CIT v. Chugandas & Co. [1965] 55 ITR 17 (SC), CIT v.Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306 (SC) and Western States Trading Co. (P.) Ltd. v. CIT [1971] 80 ITR 21 (SC). These cases were no doubt distinguished by the standing counsel. However, all the cases cited by the assessee are in its favour wherein it has been indicated that the interest cannot be deducted from the income from dividend. The other point on which the assessee is in appeal is that the Commissioner (Appeals) was not justified in deducting 10 paise per 100 rupees as collection charges. The assessee was a banker and, therefore, it was a dealer in money. The money held by the assessee was its stock in-trade.

The assessee was assessable as earning income from business. This view is supported by the decisions in Bihar State Co-operative Bank Ltd. (supra), U.P. Co-operative Bank Ltd. v. CIT [1966] 61 ITR 563 (All.), Berhampur Co-operative Central Bank Ltd. v. Addl. CIT [1974] 93 ITR 168 (Ori.), Addl. CIT v. Ahmedabad District Co-operative Bank Ltd. [1975] 101 ITR 733 (Guj.) and Madras Co-operative Central Land Mortgage Bank Ltd. v. CIT [1968] 67 ITR 89 (SC). The bank has earned dividend in course of its normal business. Money is stock-in-trade of the assessee and the surplus money was invested in shares. Under these circumstances, the collection charge paid by the assessee, if any, was deductible as business expenditure of the assessee Hence, the same could not be deducted from the dividend income.

22. The same position would be available for interest. Firstly, the finding was challenged by the assessee's counsel by producing extract from the balance sheet that no borrowed fund was used for investment in shares. Even otherwise, the plea taken by the assessee was that even if the interest was payable by the assessee on borrowed fund, the assessee would have got deduction as its business expenditure. Therefore, even a portion of the interest cannot be allocated towards dividend.

23. The third point is the nature of amount received from the Unit Trust of India at Rs. 38,75,308. The assessee treated this amount as its dividend. The IAC after considering Section 2(22) found that it was not declared by a company registered under the Companies Act, 1956 out of its accumulated profit. The assessee came in appeal before the Commissioner (Appeals) and referred to Section 32(3)(a) of the Unit Trust of India Act and Section 2(17)(i) and 2(26)(ia) and the Commissioner (Appeals) came to the conclusion that the amount received by the assessee from the Unit Trust of India was the assessee's income from dividend.

24. Shri A. Sengupta, the standing counsel, referred to the Unit Trust of India Act, 1963 and especially he referred to Section 2(b), (c), (d), (o) and (q), Section 25A, Section 32(3)(a) and stated that the assessee was not a unit-holder within the meaning of the Unit Trust of India Act. The assessee was a contributory and, accordingly, it was issued a contribution certificate under Section 6 of that Act. Section 32(3)(a) was applicable only to the unit-holders and, therefore, the amount received by the contributory was not dividend but interest. He relied on CIT v. Oriental Co. Ltd. [1982] 137 I.TR 777 (Cal.) and CIT v. Thomas Duff & Co. (India) (P.) Ltd. [1982] 137 ITR 798 (Cal.). He also cited the definition of 'dividend' from Words and Phrases Legally Defined by John B. Saunders, Vol. 2 and urged that the Commissioner (Appeals) was not justified in treating the amount as dividend.

25. The assessee, on the other hand, referred to pages 48 to 67 of the second paper book and urged that the assessee received dividend from the Unit Trust of India and the deduction of tax under Section 194 of the Act was made. Accordingly, a certificate to this effect was issued which was appearing at page 48 of the paper book. No tax was deductible from the unit-holders. Therefore, Section 32(3)(a) was not applicable to the unit-holders but it was only applicable to the contributories to whom the dividend was paid by the Unit Trust. The assessee, therefore, supported the order of the Commissioner (Appeals) on this issue.

26. Section 2(22) defines 'dividend' which includes any distribution by a company of accumulated profits, whether capitalised or not by the company to its shareholders. The Unit Trust was a corporation according to Sub-section (3) of the Unit Trust of India Act. Section 25A of the Unit Trust of India Act speaks about the distribution of income.

Section 32 speaks about the income-tax and other taxes and Section 32(3) indicates that subject to the previous sub-sections, any distribution of income received by a unit-holder from the trust shall be deemed to be his income by way of dividends and the trust shall be deemed to be a company. Therefore, according to the Unit Trust of India Act, the Unit Trust was a corporation and at the same time under Section 32(3)(b) it was declared to be a company. Under Section 32(3)(a) it was specifically stated that the income received by the unit-holders shall be treated as dividend. The distinction was made by the standing counsel that the assessee was only a contributory and it was not a unit-holder. The distinction is not material in the sense that a contributory as well as a unit-holder both contribute to the capital of the Unit Trust and, accordingly, they get return on their investments. Therefore, it could not be said that the contributory receives interest whereas the unit-holder gets dividend. If the distinction brought out by the standing counsel is correct, it would have been provided in the Act that the contributory gets interest on the capital whereas the unit-holder gets dividend. There is a common clause for distribution of income under Section 25A of the Unit Trust of India Act. It does not make any distinction between the unit-holder and the contributory. The definition of dividend filed by the standing counsel from Words and Phrases Legally Defined has been carefully considered along with the provisions of the Unit Trust of India Act.

Further, the 'company' has been defined under Section 2(17) whereas the definition of 'Indian company' under Section 2(26)(ia) includes a corporation under the same Act. Moreover, Section 32(3)(b) of the Unit Trust of India Act declares the Unit Trust as a company and the distribution of income has been treated as income under Section 32(3)(a). Therefore, the amount of Rs. 38,75,308 received by the assessee was only dividend from the Unit Trust of India and the finding given by the Commissioner (Appeals) is correct.

27. The next common objection is about the allowance of development rebate. The assessee did not make any claim for development rebate in the original assessment for the assessment year 1972-73. However, when it filed return in reply to notice under Section 148, it claimed development rebate of Rs. 44,75,115. The IAC did not entertain the claim of the assessee on the ground that no such claim was made in the original assessment proceedings. He relied on Anchor Pressings (P.) Ltd. v. CIT [1975] 100 ITR 347 (All.) and Sharda Prasad v. CIT [1975] 100 ITR 373 (All.). Further, relying on Sir Shadi Lal & Sons v. CIT [1973] 92 ITR 453 (All.) he stated that the controversy of reassessment is confined to matters which are relevant in respect of the income which had not been brought to tax during the course of the original assessment. He rejected the claim of the assessee for the assessment year 1972-73. The assessee claimed development rebate of Rs. 14,79,210 on the following items: (i) Additions on Safe Deposit Vault including Strong 5,69,700 Room (ii) Additions on Safe Deposit Lockers 11,48,000 (iii) Additions on Safe 7,34,000 (iv) Additions on Typewriters and Calculators 3,47,140 (v) Additions on Furniture & Fixtures such as cup- boards, counters and storewels 70,12,560 98,61,400 The IAC found that the assessee only created necessary reserve in the year 1979. The assessee relied on Board's Circular F. No. 228/8/72 IT(A-II), dated 31-12-1975. The IAC examined the circular, however, he was not satisfied that the assessee hand genuine difficulty and, therefore, he disallowed the claim.

28. The assessee went in appeal before the Commissioner (Appeals) and the Commissioner (Appeals) following the decision in CIT v. Union Bank of India Ltd. [1976] 102 ITR 270 (Bom.) allowed development rebate on additions of safe deposit lockers and safe. He also allowed development rebate on the addition of Rs. 3,47,140 for typewriters and calculators.

However, he did not allow development rebate on Rs. 70,12,560 being additions on furniture and fixtures such as cupboards, counters and storewels. The assessee is in appeal against the disallowance of development rebate on the addition of Rs. 70,12,560 whereas the department is in appeal against the allowance of development rebate on the addition of Rs. 3,47,140 on typewriters and calculators.

29. Shri P.T. Sanyal, the counsel of the assessee, referred to page 910 of the Income-tax Act by Chaturvedi, New edn. and urged that cupboards, counters and storewels were plant of the assessee and, therefore, the assessee should be allowed development rebate. He referred to the decision in Union Bank of India Ltd.'s case (supra) and urged that when the assessee came to know this decision, it claimed development rebate on various items. No reserve was created earlier. There was a genuine difficulty of the assessee. The assessee relying on the Board's circular created reserve in 1977. Shri P.T. Sanyal limited his claim on the addition of cupboards, counters and storewels. Shri A. Sengupta, the standing counsel of the department, on the other hand, urged that firstly the cupboards, counters and storewels could not be termed as 'plant' which is defined under Section 43(5). He further stated that without admitting the fact even otherwise, the claim of the assessee could not be allowed. He referred to the circular at page 45 of the assessee's paper book and referred specifically Clauses (b) and (c) of the Circular. Shri A. Sengupta urged that the circular was issued for the genuine difficulty of the assessee by which the assessees were permitted to create additional reserve in the current year in which the assessment was framed. He explained that the assessee did not create any reserve at all. The circular was meant for the creation of additional reserve. Moreover, reserve was to be created in the current year's book of the assessee. The assessee only created reserve in 1977.

Under the above circumstances, the assessee was not entitled for any rebate. Further, arguing on the departmental appeal, Shri A. Sengupta referred specifically the nature of the plant on which the development rebate was allowed by the Commissioner (Appeals). He stated that the Commissioner (Appeals) allowed development rebate on typewriters and calculators. He referred to Section 33(6) of the Act and urged that typewriters and calculators were used by the assessee in its office.

Therefore, these were the office appliances on which specifically the development rebate is not available under Section 33(6). He placed reliance on the order of the IAC and further stated that the assessee could not state as to why it could not create reserve when the decision in Union Bank of India Ltd.'s case (supra) was available which was delivered on 25-6-1975. The assessee could not explain its difficulty, and, therefore, the Commissioner (Appeals) was not justified in allowing development rebate on typewriters and calculators.

30. The development rebate was claimed by the assessee in course of the reassessment proceedings. The claim of the assessee was turned down by the IAC as well as the Commissioner (Appeals) on the ground that the claim for development rebate was not made in course of the original assessment proceedings. We have concluded the matter earlier while the question of validity of the assessment had been taken up. It had been said that once the assessment is reopened, the original assessment becomes non est and the ITO has not only the jurisdiction but also the duty to levy tax on the entire income that had escaped assessment--See Assam Oil Co. Ltd.'s case (supra). It has also been indicated that once reassessment proceedings are taken up, like the ITO, the assessee also can claim deductions and exemptions which were not claimed in the original assessment. Under the circumstances, the assessee was right in claiming development rebate in course of reassessment proceedings which were not claimed in the original assessment. The claim of the assessee is, therefore, admitted for the assessment year 1972-73. As the case has not been discussed by the IAC on merit, the matter on this issue is set aside and referred back to the IAC for fresh adjudication after allowing opportunity of being heard to the assessee.

31. The case for the assessment year 1975-76 is that the assessee had not been allowed development rebate on the addition of Rs. 70,12,560 being additions on furniture and fixtures such as cupboards, counters and storewels. It would be fair to mention at this stage that at the time of hearing, Shri P.T. Sanyal, the counsel of the assessee, could not give details of the items but limited its claim on cupboards, counters and storewels. The department, on the other hand, is in appeal against the allowance of development rebate on the addition of typewriters and calculators.

32. The 'plant' has been defined under Section 43(5). The definition is not exhaustive. The Supreme Court in CIT v. Taj Mahal Hotel [1971] 82 ITR 44, 49 accordingly observed that the intention of the Legislature was to give it a wide meaning and that is why articles like books and surgical instruments were expressly included in the definition of 'plant'. If the decisions in Taj Mahal Hotels case (supra), CIT v.Elecon Engg. Co. Ltd. [1974] 96 ITR 672 (Guj.) and Union Bank of India Ltd.'s case (supra) are taken into consideration, it is clear that the 'plant' in its ordinary sense includes whatever apparatus is used by a businessman for carrying on his business but not the premises under which the business is done. The assessee is a banker. It deals in money. Storewels are necessary for its efficient service. It has been considered well in CIT v. Bank of India Ltd. [1979] 118 ITR 809 (Bom.), it had been observed: . . .The various cases referred to above would show that what is plant and machinery on which development rebate is available for one assessee need not be plant and machinery for another assessee. For example, certain types of fixtures may constitute plant and machinery used in an assessee's business if the assessee's business is a hotel, but such fixtures and fittings would not amount to plant and machinery of another assessee whose business may be totally different, e.g., an ordinary commercial office. In the latter case, it may merely be a part of the building or setting in which the business is carried on and not the apparatus with which the business is carried on ...

Therefore, storewels could be termed as 'plant' of the assessee. It is an important article for a bank. It attracts customers and, therefore, the assessee is entitled for development rebate on the addition of storewels. Cupboards and counters could not be termed as 'plant' even looking to the business of the assessee. Cupboards and counters are furniture and fixtures which are ordinarily used in each and every business and, therefore, it could not be termed as apparatus necessary for the business of the assessee.

33. The assessee rightly urged that it could not claim development rebate earlier due to its ignorance and it claimed development rebate when the decision in Union Bank of India Ltd.'s case (supra) came to its knowledge. Consequently, the reserve was created by it in 1976-77 on the basis of the CBDT's Circular No. 189 [F. No. 228/8/72-IT (A-II)], dated 30-1-1976--see Taxmann's Direct Taxes Circulars, Vol. 1, 1980 Edn., pp. 132-33. The circular is appearing at page 45 of the assessee's paper book and it had been exhaustively discussed by the standing counsel, Shri A. Sengupta. The circular speaks about the deficiency. It also permits the creation of additional reserve.

According to the Board's circular the additional reserve can be created in the genuine difficulty. The reserve was not created earlier due to ignorance of the assessee. It was not within its knowledge that safe deposit vault is a 'plant' for the business of a banker. If the circular of the CBDT is read in the good spirit, the assessee rightly created reserve in 1976-77 and, therefore, the assessee should be allowed development rebate as discussed above.

34. An objection had been taken by the standing counsel for allowing development rebate on the typewriters and calculators. The standing counsel has assailed the order of the Commissioner (Appeals) mainly on the provision of Section 33(6). Section 33(6) does not allow development rebate on any plant installed in the office premises. The assessee is a banker. It deals in money. The business premises of the assessee is different from the administrative building. The typewriters and calculators are needed in the business premises of the assessee as well as in its administrative building. Therefore, a part of the argument of Shri A. Sengupta is correct that development rebate in view of Section 33(6) is not available on those typewriters and calculators which are used in the administrative building but the typewriters and calculators which are used where the business is done by the assessee are eligible for development rebate. Such details are not available.

Under the circumstances, the order of the Commissioner (Appeals) is modified to the extent that the assessee is entitled for development rebate on typewriters and calculators which are used in the business premises where the banking business is done. Consequently, the order of the Commissioner (Appeals) is set aside on this issue and referred back to the IAC for the determination of the correct figures of typewriters and calculators in view of the above direction and, accordingly, allow development rebate to the assessee.

36. The assessee came in appeal. The assessee claimed that the system was changed during the year on the basis of the note given by the auditors. The note given by the auditors was furnished to the Commissioner (Appeals) in the following words: Guarantee commission is accounted for at the time of issue of guarantee notwithstanding that the guarantees may be for the periods covering more than one year. We feel that the guarantee commission on such guarantees should be spread over the duration of the guarantees so that the profits are accounted for largely when accrued as amounts involved in such cases are sizeable.

On the basis of this note, the Commissioner (Appeals) did not accept the explanation of the assessee. However, he found that the figure estimated by the IAC was not correct and he determined the figure at Rs. 91,66,288 and, accordingly, the addition was modified. The Commissioner (Appeals) in this connection observed as follows: It can be seen from the extract that the statutory auditors only expressed the feeling that it would be advisable to spread the guarantee commission over the duration of the guarantees so that the profits are accounted for largely when accrued as amounts involved in such cases are sizeable. However proper observations of the statutory auditors may be so far as accountancy is concerned, the determination of the total income has to be based on the provisions of the Income-tax Act. Under the provisions of the Income-tax Act, the assessee can maintain his accounts either on mercantile basis or on cash basis. In either case, the guarantee commission would be taxable in the year in which it has accrued and has been received.

The fact that the commission relates to guarantees which may cover more than one year is of no significance. Just as there can be no such thing as 'deferred revenue expenditure' under the Income-tax Act (See Hindustan Commercial Bank Ltd. In re. [1952] 21 ITR 353), there can be no such thing as deferred income also. Further, the treatment of an item in the assessee's accounts is not conclusive of whether it is a part of income or expenditure of a particular year for the purposes of income-tax or not. Under these circumstances, the assessment of the entire guarantee commission in the year under appeal is justified. This ground of appeal, therefore, fails. It is however, pointed out by Shri Jangamayya that after there assessment is completed, it has been ascertained that the actual amount is not Rs. 1,80,00,000 but Rs. 91,66,288.

37. Shri P.T. Sanyal, counsel of the assessee, referred to the office note and extracts from the Circles Instructions Letter No. OPR/40260 dated 31-10-1974 which was appearing at page 60 of the assessee's paper book. Shri P.T. Sanyal urged that guarantee letter is issued by the bank covering the payments in instalment which runs for several years.

The assessee earlier was crediting entire guarantee commission in the profit and loss account. This was objected to by the statutory auditors and they suggested that a proportionate amount could only be charged in the profit and loss account. This was considered by the State Bank and ultimately it was found that the auditors' objection was correct. The guarantee letter was issued covering payments for several years and, therefore, only the proportionate guarantee commission accrued during the year under appeal. Shri P.T. Sanyal, under the above circumstances, urged that the total guarantee commission included by the Commissioner (Appeals) was not proper and the additional amount taken by him may be deleted. He relied on Gappumal Kanhiyalal v. CIT [1961] 42 ITR 446 (All.). The standing counsel, on the other hand, specifically referred to the orders of the IAC and the Commissioner (Appeals) on this issue and urged that the guarantee commission was realised during the year under appeal. The assessee was following mercantile system of accounting and the assessee could not prove that though the amount was realised but the entire amount did not accrue during the year under appeal. Hence, the Commissioner (Appeals) was justified in including the total commission during the assessment year 1975-76. He relied on CIT v. K.R M.T.T. Thiagaraja Chetty & Co. [1953] 24 ITR 525 (SC) and Morn Industries Ltd.'s case (supra).

39. Now, the common objection of the department is that the Commissioner (Appeals) should have enhanced the income of the assessee by Rs. 2,74,22,100 and Rs. 1,30,11,737 for the assessment years 1972-73 and 1975-76, respectively. An application was made by the IAC before the Commissioner (Appeals) for enhancement of income of the assessee by the above amounts. The Commissioner (Appeals) did not accept the argument of the assessee for the assessment year 1972-73 on the ground that the plea of the IAC has been rejected for the assessment year 1975-76. The enhancement was proposed by the IAC before the Commissioner (Appeals) on the ground that under Section 36 of the State Bank of India Act, the State Bank has to maintain a special fund known as integration and development fund. Under Sub-section (2) of Section 36 it was provided that the fund shall be utilised exclusively for meeting losses in excess of such yearly sum as may be agreed upon between the Reserve Bank of India and the State Bank of India and attributable to the branches established in pursuance of Sub-section (5) of Section 16. The fund was also to be applied for some other purposes. It was provided under Section 36(4) that no amount applied for any of the purposes specified under sub-section (2) shall be the income of the assessee under the Indian Income-tax Act, 1922. According to the IAC, the assessee during the year under appeal incurred expenditure of Rs. 2,86,80,890 on opening of the branches under Section 16(5) of the State Bank of India Act. A sum of Rs. 1,30,11,737 was provided from the fund. According to the IAC, the loss to this extent which was reimbursed by the fund was not allowable in the computation of the total income of the assessee. The Commissioner (Appeals) did not accept the argument of the IAC. He stated: I am of the opinion that this enhancement application cannot be accepted. Section 36(4) of the State Bank of India Act has specifically stated that no amount applied for any of the purposes specified in Sub-section (2) shall for the purposes of the Indian Income-tax Act, 1922, be treated as income, profits or gains of the State Bank. If the amount reimbursed by the RBI is to be excluded and, at the same time the loss incurred by the assessee in opening new branches has to be reduced by a corresponding amount, the net effect will be that an amount applied for the purposes specified under Section 36(2) is being assessed to tax in the hands of the assessee. Whether an amount is positively included as income or a corresponding amount of loss claimed is disallowed in the assessment, the net effect is the same. In both cases, the particular amount is being subjected to the Income-tax Act. This is forbidden by Section 36(4) of the State Bank of India Act.

This finding was applied by the Commissioner (Appeals) for the assessment year 1972-73.

40. A preliminary objection was taken by the assessee's counsel, Shri P.T. Sanyal, that the Commissioner (Appeals) is not under any obligation to enhance the assessment. Therefore, the IAC was not competent to raise this issue in course of the appeal before the Commissioner (Appeals). It was further stated that if the matter is decided against the assessee, the action would lead to the enhancement of the assessment which is not permissible. Shri A. Sengupta objected to the preliminary objection taken by the assessee's counsel. He stated that appeal had been filed under Section 253 of the Act against the order of the Commissioner (Appeals). The department can file appeal on any of the points on which it was aggrieved by the order of the Commissioner (Appeals). Therefore, the preliminary objection taken by the assessee's counsel is not correct. He further stated that the power of enhancement lies with the Commissioner (Appeals). It is not indicated that such power would only be utilised by the Commissioner (Appeals) suo motu and he cannot come to this conclusion either from the argument of the assessee or the departmental officer before him.

He, therefore, urged that the preliminary objection may be rejected.

41. The contention of Shri A. Sengupta is correct. This point is arising out of the order of the Commissioner (Appeals). The appeal has been filed by the department under Section 253. Like an assessee, the Commissioner can also file art appeal against the order of the Commissioner (Appeals) under Section 253(2) if he objects to any order passed by the Commissioner (Appeals). Therefore, the objection of Shri P.T. Sanyal was not fair. The other question is that the power of enhancement was with the Commissioner (Appeals). The case was heard by him in the presence of the assessee's counsel as well as the IAC. The IAC pointed out that the income of the assessee should have been enhanced. For a moment if the issue would have been decided against the assessee, the assessee definitely would have been aggrieved by the order of the Commissioner (Appeals) and would have come in appeal before the Tribunal under Section 253. If this position is correct, the reverse of it may not be untrue. The point was raised by the IAC. The Commissioner (Appeals) was not satisfied that the income of the assessee should be enhanced and, consequently, the point was rejected.

Therefore, the department has got right to come in appeal under Section 42. Shri A. Sengupta referred to Sections 16(5), 36(2) and 36(4) of the State Bank of India Act. It was urged by him that according to Section 16(5) of the State Bank of India Act, the State Bank of India was to establish not less than 400 branches in addition the branches referred to in Sub-section (3) within five years of the appointed day. He further stated that under Section 36(1) the State Bank was to maintain special fund known as integration and development fund. The fund was to be applied for meeting losses in excess of such yearly sum as may be agreed upon between the Reserve Bank of India and the State Bank of India, and attributable to the branches established in pursuance of Sub-section (5) of Section 16 of the State Bank of India Act. He stated that the assessee has not indicated as to what was the sum which had been agreed upon between the Reserve Bank of India and the State Bank of India. Because the assessee was only entitled over that sum which was attributable to the branches established under Section 16(5). He further stated that the amount which was applied from the fund was towards losses and according to Section 16(4), it was not to be treated as income of the assessee. Shri A. Sengupta urged that whatever the amount was applied from the fund was not to be taxed. But the concept of real income and real expenditure will have to be kept in mind while making the assessment, The assessee incurred certain expenditure on the opening of the branches. A portion of it was met by the fund under Section 36(1). Therefore, the correct expenditure and/or loss of the assessee was the actual loss minus the fund received by the assessee.

For this proposition, he relied on Indian Molasses Co. (P.) Ltd. v. CIT [1959] 37 ITR 66 (SC) and urged that the request of the IAC was fair and the same should have been accepted by the Commissioner (Appeals).

43. Shri P.T. Sanyal very strongly supported the order of the Commissioner (Appeals) on this issue. He urged that State Bank of India was under the obligation to establish 400 branches under Section 16(5).

The State Bank of India on the opening of new branches incurred certain expenditure. The Reserve Bank of India, from the fund maintained with the State Bank of India under Section 36(1) granted some amount to meet out the loss incurred by the assessee on the establishment. It was provided under Section 36(4) that whatever the amount would be provided from the fund shall not be treated as income of the assessee. If the amount received by the assessee from the fund is excluded from the purview of the taxation, the income of the assessee could not be enhanced. Once the amount received from the fund is deducted from the losses, the amount received from the fund would indirectly be taxed.

Hence, the order of the Commissioner (Appeals) should be maintained.

44. It would be relevant to quote Sections 16(5), 36(1), 36(2)(a) and 36(4) of the State Bank of India Act, 1955 in order to appreciate the facts as well as the contentions of the parties: 16. (5) Notwithstanding anything contained in Sub-section (4), the State Bank shall establish not less than four hundred branches in addition to the branches referred to in Sub-section (3) within five years of the appointed day or such extended period as the Central Government may specify in this behalf, and the places where such additional branches are to be established shall be determined in accordance with any such programme as may be drawn up by the Central Government from time to time in consultation with the Reserve Bank and the State Bank, and no branch so established shall be closed without the previous approval of the Reserve Bank.

36. (1) The State Bank shall maintain a special fund to be known as the Integration and Development Fund into which shall he paid--(a) the dividends payable to the Reserve Bank on such shares of the State Bank held by it as do not exceed fifty-five per cent of the total issued capital; and (b) such contributions as the Reserve Bank or the Central Government may make from time to time.

(2) The amount in the said Fund shall be applied exclusively for meeting-- (a) losses in excess of such yearly sum as may be agreed upon between the Re-serve Bank and the State Bank and attributable to the branches established in pursuance of Sub-section (5) of Section 16;** ** ** (4) No amount applied for any of the purposes specified in Sub-section (2) shall, for the purposes of the Indian Income-tax Act, 1922, be treated as income, profits or gains of the State Bank.

The State Bank, under Section 16(5), was to open 400 new branches in addition to branches which it was to open under Section 16(3). The State Bank of India was maintaining special fund known as Integration and Development Fund. The fund was the properly of the Reserve Bank of India and it was provided that no shareholder of the State Bank of India or any other person shall have any claim in the amount held in the fund. The fund was to be applied for certain objects which were enumerated under Section 36(2). Section 36(2)(a) is the relevant clause for the purpose of the dispute. Under this clause, there was a provision that an amount will be given out of the fund to meet the loss which the State Bank will incur on the branches established under Section 16(5). The assessee, in the assessment years 1972-73 and 1975-76 had received Rs. 2,74,22,100 and Rs. 1,30,11,737 respectively from the fund towards losses. The amount received in the assessment year 1972-73 was not questioned at all. However, the amount received in 1972-73 and 1975-76 was questioned when the appeal was taken up by the Commissioner (Appeals) against the reassessment made for the assessment year 1972-73 and the regular assessment for the assessment year 1975-76. The IAC made an application for enhancement of the income.

The plea of the IAC may be summarised. It was stated by him that the total loss claimed by the assessee on the opening of the branches under Section 16(5) could not be allowed in toto, because the actual loss incurred by the assessee was much less than the amount which was claimed by the assessee. The loss diminished by the amount which was received by the assessee from the fund maintained under Section 36(1) may be allowed. If this amount is allowed, the amount received by the assessee under Section 36(2)(a) is not taxed as indicated under Section 36(4) of the State Bank of India Act. The proposition given by the IAC was not correct. It is correct that the assessee had been reimbursed a portion of the loss incurred on the opening of the branches under Section 16(5). However, it was specifically provided under Section 36(4) that the amount provided under Section 36(2)(a) shall not be treated as income of the assessee under the Indian Income-tax Act, 1922. The amount which was received by the assessee was not taxable at all. If that amount is deducted from the total loss and the balance loss is allowed to the assessee, indirectly the amount which was received from the fund is taxed which was not permissible under Section 36(4). Shri A. Sengupta, the standing counsel of the department, has given a proposition that the real income and the real expenditure of the assessee should be taken into consideration while completing the assessment. There could not be any dispute over the subject. The amount received from the fund was excluded from the purview of the taxation.

If it is deducted from the total loss, loss incurred is not allowed.

The assessee claimed only the actual loss which it incurred on the opening of the branches under Section 16(5), and, therefore, the conclusion of the Commissioner (Appeals) on this point was fair and he rightly rejected the application of the IAC for the enhancement of the income. The finding of the Commissioner (Appeals) for the assessment years 1972-73 and 1975-76 is maintained.

46. Shri A. Sengupta referred to the balance sheet of the company and stated that the shares and securities held by the assessee were not stock-in-trade but these were the assessee's investments. Shri A.Sengupta, in this connection, referred to the assessee's balance sheet and urged that the assessee has treated them as its investments in the balance sheet. He, therefore, urged that the loss claimed by the assessee was not allowable. He further stated that the Commissioner (Appeals) has not correctly allowed the loss following the decision in Indo Commercial Bank Ltd.'s case (supra). Shri A. Sengupta further stated that the loss, even according to the assessee, on revaluation incurred in the earlier years was never claimed. Each year is a self-contained year and the assessment is made after considering the income and the expenditure for the year. The loss incurred by the assessee in the earlier years could not be allowed if the same was not incurred in the year of assessment. He said, in this connection, that the principle of assessment is that what had been done can be considered but what could be done cannot be taken into consideration.

He relied on Sir Kikabhai Premchand v. CIT [1953] 24 ITR 506 (SC), CIT v. Basant Rai Takhat Singh [1933] 1 ITR 197 (PC), CIT v. Baldeoram Beharilal [1975] 99 ITR 108, 110 (Cal.) and J.H. Young & Co. v. IRC [1925] 12 TC 827.

47. Shri P.T. Sanyal, on the other hand, contended that the Commissioner (Appeals) firstly, was not justified in rejecting the first argument of the assessee. The assessee can support even the finding of the Tribunal on first argument which has been rejected by the Commissioner (Appeals). The assessee referred to pages 62 to 65 of the second paper book and urged that the assessee, under the same method, was valuing its stock and taking into consideration the loss.

However, the loss was never claimed. The assessee further relied on the decision in Indo Commercial Bank Ltd.'s case (supra) and urged that the finding of the Commissioner (Appeals) was fair. He referred to the decision of the Chandigarh Bench of the Tribunal in IT Appeal Nos. 327 and 380 of 1978-79 and 124 of 1979 in the case of State Bank of Patiala v. ITO appearing at page 78 of the second paper book of the assessee.

He also relied on the decision of the Calcutta Bench of the Tribunal, camping at Mangalore in IT Appeal Nos. 195 to 200 (Bang.) of 1979 in the case of Corporation Bank Ltd. appearing at page 25 of the first paper book of the assessee.

48. The assessee has claimed loss on revaluation of its shares which were held by it as stock-in-trade. The assessee is a banker. It deals in money. The shares and securities held by it are stock-in-trade--See Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114 (SC).

Therefore, how the shares and securities had been shown in the balance sheet is not material, once it is found that the assessee being a banker, is a dealer in money. The assessee has filed details of losses at pages 62 to 66 of its second paper book. The assessee is valuing its stock as it was valuing in earlier years. However, it did not claim such losses in the earlier years. The loss has been claimed during the assessment year 1975-76. The income of the assessee could correctly be determined if the loss of the assessee on revaluation of stock is properly considered. This view is supported by the decision of the High Court in Indo Commercial Bank Ltd.'s case (supra). The Commissioner (Appeals) has not accepted that there was any change in the method of valuation but has accepted the second argument of the assessee. On perusal of pages 62 to 65 of the paper book it appears that the assessee was following the same system in the past and on the same principle of valuation claimed the loss during the year under appeal.

Even otherwise the loss claimed by the assessee is supported by the Madras High Court decision. Further the two Tribunal decisions supra had also followed the same conclusion which has been followed by the Commissioner (Appeals) on the basis of the decision of the Madras High Court. Consequently, after considering the cases cited by the standing counsel and the decision of the Madras High Court in Indo Commercial Bank Ltd.'s case (supra) and the decision of the Chandigarh and Calcutta Benches of the Tribunal, the finding of the Commissioner (Appeals) is maintained.


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