ACIT, Circle-16(2), Hyd, Hyderabad V. Maruti Securities Ltd., Hyd, Secunderabad

ITA 1260/HYD/2015

• Counselvise Citation: 126022514 RSA 2015
• Duration Of Justice: 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 04-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Difference of opinion; Notional interest; Revised return; Reason to believe; Change of opinion
• Section: 143(3); 145; 11

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 1260, 1261 & 1262/HYD/2015 ASSESSMENT YEARS: 2008-09, 2009-10 & 2010-11 ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 16(2), HYDERABAD VS. MARUTI SECURITIES LTD., HYDERABAD PAN AABCM 3651 M (APPELLANT) (RESPONDENT) REVENUE BY : SHRI B. KURMI NAIDU ASSESSEE BY : SHRI K.A. SAI PRASAD DATE OF HEARING : 04-12-2015 DATE OF PRONOUNCEMENT : 18-12-2015 O R D E R PER BENCH: THESE THREE APPEALS ARE PREFERRED BY REVENUE, PERT AINING TO ONE ASSESSEE, AGAINST A COMMON ORDER OF CIT(A)-4, HYDERABAD DATED 20/08/2015 FOR THE AYS 2008-09, 2009-10 & 201 0-11. SINCE IDENTICAL ISSUES ARE INVOLVED IN THESE APPEALS, THE Y WERE CLUBBED AND HEARD TOGETHER, THEREFORE, WE FIND IT CONVENIENT TO DISPOSE OF THE SAME BY WAY OF COMMON ORDER. 2. TO DISPOSE OF THESE APPEALS, WE REFER TO THE FAC TS FROM AY 2008-09 IN ITA NO. 1260/HYD/2015. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF INVESTMENTS AND SECURITI ES. IT FILED ITS RETURN OF INCOME OF THE AY 2008-09 ON 29/09/2008 AD MITTING INCOME OF RS. 1,00,81,711. SUBSEQUENTLY, IT FILED REVISED RETURNS OF INCOME ON 31/03/2010 ADMITTING TAXABLE INCOME OF RS. NIL AFTE R SET OFF OF BROUGHT FORWARD LOSSES. THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSEES AR FURNISHED THE INFORMATION/DETAILS CALLED FOR AGA INST THE NOTICES 2 ITA NOS. 1260, 1261 & 1262/H/15 MARUTI SECURITIES LTD. ISSUED U/S 143(2) AND 142(1). THE AO COMPLETED THE ASSESSMENT U/S 143(3) BY MAKING THE ADDITION OF RS. 33,29,096/- ON ACCOUNT OF UNACCOUNTED INTEREST INVESTMENT INCOME FOLLOWING TH E ASSESSMENT ORDER FOR AY 2006-07. 3.1 SIMILAR ADDITIONS WERE MADE BY THE AO FOR AYS 2 009-10 AND 2010-11 AS UNDER: FOR AY 2009-10 - ADDITIONS ON ACCOUNT OF INTEREST OF RS. 97,51,118/- AND RS. 32,22,000/- ON LOANS AND ADVAN CES. FOR AY 2010-11 - ADDITIONS ON ACCOUNT OF INTEREST OF RS. 96,46,509 AND RS. 31,20,000/- ON LOANS AND ADVANCE S. 4. AGGRIEVED BY THE ORDERS OF AO, THE ASSESSEE PREF ERRED APPEALS BEFORE THE LD. CIT(A). 5. LD. CIT(A) DECIDED THE APPEALS UNDER CONSIDERATI ON IN A CONSOLIDATED ORDER AND DELETED THE ADDITIONS MADE B Y THE AO FOLLOWING THE DECISION OF THE COORDINATE BENCH OF T HIS TRIBUNAL IN ASSESSEES OWN CASE FOR AYS 2005-06 AND 2006-07 IN ITA NOS. 468/HYD/09 AND OTHERS DATED 05/09/14 AND AYS 2006-0 7 AND 2007-08 IN ITA NOS. 841 & 1176/HYD/12 DATED 03/12/14. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL FOR AYS. 2008-09, 2009-10 AND 2010-11 CHALLENGING THE D ELETION OF THE SAID ADDITIONS MADE BY THE CIT(A). 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE ORDERS OF RE VENUE AUTHORITIES. WE FIND THAT THE ISSUE IN DISPUTE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2005-06, 2006-07 AND 200 7-08 (SUPRA). COPIES OF THE SAID ORDERS HAVE BEEN PLACED ON RECOR D. IN AYS. 2006- 07 AND 2007-08, THE COORDINATE BENCH FOLLOWING THE DECISION OF THE TRIBUNAL IN AYS 2005-06 & 2006-07 , DELETED SIMILAR ADDITION AS 3 ITA NOS. 1260, 1261 & 1262/H/15 MARUTI SECURITIES LTD. RAISED IN THE PRESENT APPEALS. THE RELEVANT PORTION OF THE SAID ORDER, IS EXTRACTED BELOW FOR THE SAKE OF CLARITY: 5. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS OTHER MATERIAL ON RECORD. A PERUSAL OF THE ASSESSMENT ORDER AS WELL AS ORDER PASSED BY LD. CI T(A) WOULD MAKE IT CLEAR THAT ADDITION OF NOTIONAL INTEREST WAS MADE ON THE BASI S OF ORDERS PASSED FOR THE PRECEDING AYS. HOWEVER, WHEN THE ISSUE WAS AGITATED BEFORE I TAT, BY ASSESSEE IN ITA NOS. 468/HYD/09 AND 1111/HYD/11 FOR AYS 2005-06 AND 200 6-07, THE COORDINATE BENCH OF THIS TRIBUNAL WHILE DELETING THE ADDITIONS HELD AS UNDER: 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AN D PERUSED THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERI AL ON RECORD. WE HAVE ALSO GONE THROUGH THE WRITTEN SUBMISSIONS FILED AND THE DECI SIONS RELIED UPON BY THE PARTIES BEFORE US. WE ARE OF THE OPINION THAT TO ARRIVE AT A REAL INCOME, ACCRUAL BASIS CANNOT BE A JUSTIFYING FACTOR AND THE COMMERCIAL AND BUSINES S REALTIES OF THE ASSESSEE, SHOULD BE CONSIDERED. THE INTEREST INCOME HAS BEEN RECOGNIZE D IN THE BOOKS OF ACCOUNTS ONLY TO THE EXTENT OF ACTUAL COLLECTION, WHICH IS THE RECO MMENDED/ RECOGNIZED METHOD AS PER ACCOUNTING STANDARD 9 OF ICAI WHICH LAYS DOWN THAT WHEN UNCERTAINTIES EXIST REGARDING THE DETERMINATION OF THE AMOUNT OR ITS COLLECTABIL ITY, THE REVENUE SHALL NOT BE TREATED AS ACCRUED AND HENCE SHALL NOT BE RECOGNIZED UNTIL CO LLECTION. THE RECOGNITION OF REVENUE ON ACCRUAL BASIS PRESUPPOSES THE SATISFACTION OF T WO CONDITIONS- THE REVENUE IS MEASURABLE (B) THE REVENUE IS COLLECTABLE WITH CERTAINTY. THE INTEREST INCOME HAS BEEN ADMITTEDLY RECOGNISED ONLY ON RECEIPT BASIS. THE CONTENTION OF THE REVENUE THAT THE LOAN AGREEMENTS HAVE INTEREST CLAUSE PERMITTING THE ASSESSEE TO CHARGE INTEREST AT THE RATE OF 14% IS N OT TENABLE. THE TERMS OF THE AGREEMENTS, WHICH ENABLED THE ASSESSEE COMPANY TO D EMAND INTEREST WERE ONLY ENABLING PROVISIONS AND THOSE ENABLING PROVISIONS D ID NOT GUARANTEE THE COLLECTION OF OVERDUE INTEREST. THEY ONLY GAVE A CAUSE OF ACTION TO THE APPLICANT. 22. THE METHOD OF ACCOUNTING, AS FOLLOWED BY TH E ASSESSEE, DOES NOT CREATE ANY INCOME; BUT THE METHOD OF ACCOUNTING ON LY RECOGNIZES INCOME. THERE IS SOME MERIT IN THE SUBMISSION OF THE ASSESSEE THAT WHEN THE PRINCIPAL ITSELF IS OVERDUE AND NOT COLLECTED, THERE IS NO BASIS FOR MAKING OU T A CASE THAT INTEREST INCOME WOULD BE COLLECTABLE WITH CERTAINTY. EVEN WHERE AN ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, IT IS ONLY ACCRUAL OF REAL INCOME W HICH IS CHARGEABLE TO TAX, THAT ACCRUAL IS A MATTER TO BE DECIDED ON COMMERCIAL BELIEF HAVING REGARD TO THE NATURE OF BUSINESS OF THE ASSESSEE AND CHARACTER OF THE TRANSACTION. ACC ORDINGLY, FOR THE PURPOSE OF DETERMINING WHETHER THERE HAS BEEN ACCRUAL OF REAL INCOME OR NOT, RECOURSE IS TO BE MADE TO ASCERTAIN THE NATURE OF BUSINESS AND CHARA CTER OF THE TRANSACTION AND THE REALITIES AND PECULIARITIES OF THE SITUATIONS. THE DECISION VERY HEAVILY RELIED UPON BY THE FIRST APPELLATE AUTHORITY IN THE CASE OF STATE BAN K OF TRAVANCORE VS CIT (1986) 158 ITR 102 WAS SUBSEQUENTLY OVERRULED IN ITS LAND MARK DE CISION IN THE CASE OF UCO BANK VS CIT 237 ITR 889. IN THIS REGARD, WE PLACE RELIANCE ON THE RATIO LAID DOWN BY VARIOUS JUDICIAL AUTHORITIES ON THE PROPOSITION THAT THE I NCOME CANNOT BE TAXED ON HYPOTHETICAL BASIS, AND IT IS ONLY THE REAL INCOME THAT IS TO B E BROUGHT TO TAX. IN THIS BEHALF, WE ALSO RELY, GIVING BELOW SUMMARY OF THE RATIO LAID DOWN, ON THE FOLLOWING DECISIONS- A) CIT VS. GODHRA ELECTRICITY CO. 225 ITR 746 (SC ), THE VIEW EXPRESSED WAS THAT IF INCOME DOES NOT RESU LT AT ALL, THERE CANNOT BE ANY TAX AND THAT IF AN INCOME HAS NOT MATERIALIZED, THE N MERELY AN ENTRY MADE ABOUT A 4 ITA NOS. 1260, 1261 & 1262/H/15 MARUTI SECURITIES LTD. HYPOTHETICAL INCOME BY FOLLOWING BOOK KEEPING METHO DS, THE LIABILITY TO TAX CANNOT BE ATTRACTED. B) ANDHRA BANK(225 ITR 447)(SC): IT WAS HELD, THAT THERE CANNOT BE A TAX IF NO INCOM E RESULTED, DESPITE THE ENTRY IN THE BOOK KEEPING. THE CASE DEALS WITH S. 148. ASSESSEE CHANGED METHOD OF ACCOUNTING FROM AY 1960 ONWARDS. BUT DURING AY 1963 -64, THE AO OBJECTED THE CHANGE AND REOPENED ASSESSMENTS FOR AY 1960 ONWARDS . APEX COURT HELD THAT THIS AMOUNTS TO CHANGE OF OPINION AND RE-ASSESSMENT IS N OT VALID. 23. FURTHER, THE LEARNED COUNSEL FOR THE ASSES SEE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT CIT VS. EXCEL INDUSTRIES LTD. & ORS. (358 ITR 295) AND SUBMITTED THAT GOING BY THE ACCOUNTING STANDARD TH OUGH THE REVENUE IS COLLECTIBLE BY CERTAINTY, THE ASSESSEE IN THE PRESENT CASE, IN FA CT, HAD NOT RECEIVED ANY INTEREST AND HENCE, INTEREST IN QUESTION REMAINED ONLY NOTIONA L INTEREST. AS CANVASSED BY THE LEARNED COUNSEL FOR THE ASSESSEE, SOME OF THE PAR TIES DID NOT REPAY EVEN THE PRINCIPAL AMOUNT AND SOME OF THE PARTIES SETTLED THE ACCOUNT S BY PAYING SOME INTEREST AND HENCE, WE AGREE THAT COMPUTATION OF NOTIONAL INTER EST AT 14% ON ALL THE ADVANCES AND MAKING ADDITIONS ON THAT BASIS TO THE INCOME OF TH E ASSESSEE, IS NOT JUSTIFIED. 24. WE MAY, AT THIS JUNCTURE, REFER TO THE AHM EDABAD BENCH DECISION OF THE TRIBUNAL IN THE CASE OF ITO VS. CJ RATHOD (11 ITR (TRIB.) 252), RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE. IN THIS CASE T HE ASSESSEE HAD GIVEN INTEREST FREE LOANS TO SOME PERSONS. THE ASSESSING OFFICER ADDE D CERTAIN SUMS AS DEEMED INTEREST ON SUCH LOANS. IT WAS HELD THAT THERE WAS NO AGRE EMENT BETWEEN THE ASSESSEE AND THE PERSONS TO WHOM THE MONEY HAD BEEN ADVANCED REGARD ING CHARGES OF INTEREST AND THE ASSESSEE HAD ACTUALLY NOT CHARGED ANY INTEREST AND THESE LOANS WERE INTEREST FREE LOANS. AS THERE WAS NO CHARGE OF INTEREST IT WAS HELD THAT THE ASSESSEE WAS NOT ENTITLED TO ANY INCOME AND THE DEEMED ADDITION MADE BY THE ASSESSING OFFICER IS TO BE DELETED. 25. WE MAY FURTHER REFER TO THE DECISION OF TH IS TRIBUNAL IN CCI FINANCE V/S. ACIT (91 ITD 573), ALSO RELIED UPON BY THE LE ARNED COUNSEL FOR THE ASSESSEE, WHEREIN IT WAS HELD THAT ACCRUAL OF INTEREST INCOM E ON NON-PERFORMING ASSETS ACCOUNT HAS TO BE JUDGED FROM REALISTIC POINT OF VIEW. NO N RECOGNITION OF INTEREST INCOME ON THE GROUND THAT THE INTEREST HAD NOT REALLY ACCRUED AS THE REALISABILITY OF PRINCIPAL OUTSTANDING ITSELF WAS DOUBTFUL WAS HELD TO BE LEG ALLY CORRECT UNDER THE MERCANTILE SYSTEM OF ACCOUNTING. 26. WE MAY FURTHER REFER TO THE DECISION OF THI S TRIBUNAL IN THE CASE OF NSL POWER INFRASTRUCTURE LTD. V/S. CIT IN ITA NO. 1219 /HYD/2011 DATED 24.1.2013, RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFOR E US, DULY POINTING THAT THE HIGH COURT IN ITTA NO. 607 OF 2013, HAS DISMISSED THE A PPEAL BY THE DEPARTMENT, BY HOLDING THAT NON-OFFERING OF INTEREST INCOME IS DISTINGUIS HED WHEN THERE IS NO CERTAINTY AND THE COMPANY HAS NOT DERIVED ANY INTEREST. AS FOR THE DECISION OF STATE BANK OF TRAVANCORE V/S. CIT (158 ITR 102), RELIED UPON BY THE LEARNED CIT(A) IN THE IMPUGNED ORDER, AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESS EE THE HONBLE SUPREME COURT HAS REVERSED THE VIEW TAKEN IN THAT CASE, VIDE ITS DEC ISION IN UCO BANK (237 ITR 889) WHEREIN IT HAS BEEN HELD AS FOLLOWS: THE QUESTION WHETHER INTEREST EARNED, ON WHAT HA VE COME TO BE KNOWN AS 'STICKY' LOANS, CAN BE CONSIDERED AS INCOME OR NOT UNTIL ACTUAL REALISATION, IS A QUESTION WHICH MAY ARISE BEFORE SEVERAL INCOME-TAX OFFICERS EXERCISING JURISDICTION IN DIFFERENT PARTS OF THE COUNTRY. UND ER THE ACCOUNTING PRACTICE, INTEREST WHICH IS TRANSFERRED TO THE SUSPENSE ACCOU NT AND NOT BROUGHT TO THE 5 ITA NOS. 1260, 1261 & 1262/H/15 MARUTI SECURITIES LTD. PROFIT AND LOSS ACCOUNT OF THE COMPANY IS NOT TREAT ED AS INCOME. THE QUESTION WHETHER IN A GIVEN CASE SUCH 'ACCRUAL' OF INTEREST IS DOUBTFUL OR NOT, MAY ALSO BE PROBLEMATIC. IF, THEREFORE, THE BOARD HAS CONSID ERED IT NECESSARY TO LAY DOWN A GENERAL TEST FOR DECIDING WHAT IS A DOUBTFUL DEBT , AND DIRECTED THAT ALL INCOME- TAX OFFICERS SHOULD TREAT SUCH AMOUNTS AS NOT FORMI NG PART OF THE INCOME OF THE ASSESSEE UNTIL REALISED, THIS DIRECTION BY WAY OF A CIRCULAR CANNOT BE CONSIDERED AS TRAVELLING BEYOND THE POWERS OF THE BOARD UNDER SECTION 119 OF THE INCOME- TAX ACT. SUCH A CIRCULAR IS BINDING UNDER SECTION 1 19. THE CIRCULAR OF OCTOBER 9, 1984, THEREFORE, PROVIDES A TEST FOR RECOGNISING WH ETHER A CLAIM FOR INTEREST CAN BE TREATED AS A DOUBTFUL CLAIM UNLIKELY TO BE RECOV ERED OR NOT. THE TEST PROVIDED BY THE SAID CIRCULAR IS TO SEE WHETHER, AT THE END OF THREE YEARS, THE AMOUNT OF INTEREST HAS, IN FACT, BEEN RECOVERED BY THE BANK O R NOT. IF IT IS NOT RECOVERED FOR A PERIOD OF THREE YEARS, THEN IN THE FOURTH YEAR AN D ONWARDS THE CLAIM FOR INTEREST HAS TO BE TREATED AS A DOUBTFUL CLAIM WHIC H NEED NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE UNTIL IT IS ACTUALLY RECOVER ED. IN THE CASE OF NAVNIT LAL (C.) JAVERI V. K.K. SEN, AAC [1965] 56 ITR 198, THE LEGAL EFFECT OF SUCH CIRCULAR IS, INTER ALIA, CONSI DERED BY A BENCH OF FIVE JUDGES OF THIS COURT. SECTION 2(6A)(E) AND SECTION 12(1B) WER E INTRODUCED IN THE INCOME- TAX ACT BY THE FINANCE ACT 15 OF 1955, WHICH CAME I NTO FORCE ON APRIL 1, 1955. THE GOVERNMENT, HOWEVER, REALISED THAT THE OPERATIO N OF SECTION 12(1B) WOULD LEAD TO EXTREME HARDSHIP BECAUSE IT WOULD HAVE COVE RED THE AGGREGATE OF ALL OUTSTANDING LOANS OF PAST YEARS AND WOULD IMPOSE AN UNREASONABLY HIGH LIABILITY ON THE SHAREHOLDERS TO WHOM THE LOANS MIG HT HAVE BEEN ADVANCED. THE MINISTER, THEREFORE, GAVE AN ASSURANCE IN PARLIAMEN T THAT OUTSTANDING LOANS AND ADVANCES WHICH ARE OTHERWISE LIABLE TO BE TAXED AS DIVIDENDS IN THE ASSESSMENT YEARS 1955-56 WILL NOT BE SUBJECTED TO T AX IF IT IS SHOWN THAT THEY HAD BEEN GENUINELY REFUNDED TO THE RESPECTIVE COMPA NIES BEFORE JUNE 30, 1955. ACCORDINGLY, A CIRCULAR WAS ISSUED BY THE CEN TRAL BOARD OF REVENUE ON MAY 10, 1955, POINTING OUT TO ALL INCOME-TAX OFFICE RS THAT IT WAS LIKELY THAT SOME OF THE COMPANIES MIGHT HAVE ADVANCED LOANS TO THEIR SHAREHOLDERS AS A RESULT OF GENUINE TRANSACTIONS OF LOANS, AND THE IDEA WAS NOT TO AFFECT SUCH TRANSACTIONS AND NOT TO BRING THEM WITHIN THE MISCH IEF OF THE NEW PROVISION. THE OFFICERS, THEREFORE, WERE ASKED TO INTIMATE TO ALL THE COMPANIES THAT IF THE LOANS WERE REPAID BEFORE JUNE 30, 1955, IN A GENUINE MANN ER, THEY WOULD NOT BE TAKEN INTO ACCOUNT IN DETERMINING THE TAX LIABILITY OF THE SHAREHOLDERS TO WHOM THEY MAY HAVE BEEN ADVANCED DESPITE THE NEW SECTION . THIS CIRCULAR WAS HELD BY THIS COURT AS BINDING ON THE REVENUE, THOUGH LIM ITING THE OPERATION OF SECTION 12(1B) OR EXCLUDING CERTAIN TRANSACTIONS FR OM THE AMBIT OF SECTION 12(1B). IT WAS SO HELD BECAUSE THE CIRCULAR WAS CON SIDERED AS ISSUED FOR THE PURPOSE OF PROPER ADMINISTRATION OF THE PROVISIONS OF SECTION 12(1B) AND THE COURT DID NOT LOOK UPON THIS CIRCULAR AS BEING IN C ONFLICT WITH SECTION 12(1B). A SIMILAR VIEW OF THE CENTRAL BOARD OF DIRECT TAXES CIRCULARS HAS BEEN TAKEN IN THE CASE OF K.P. VARGHESE V. ITO [1981] 131 ITR 597 , BY A BENCH OF TWO JUDGES CONSISTING OF P.N. BHAGWATI AND E.S. VENKATARAMIAH, JJ. THE BENCH HAS HELD THAT CIRCULARS OF THE CENTRAL BOARD OF DIRECT TAXES ARE LEGALLY BINDING ON THE REVENUE AND THIS BINDING CHARACTER ATTACHES TO THE CIRCULARS EVEN IF THEY BE FOUND NOT IN ACCORDANCE WITH THE CORRECT INTERPRETA TION OF THE SECTION AND THEY DEPART OR DEVIATE FROM SUCH CONSTRUCTION. CITING TH E DECISION OF NAVNIT LAL (C.) JAVERI V. K.K. SEN, AAC [1965] 56 ITR 198 (SC), THI S COURT OBSERVED THAT CIRCULARS ISSUED BY THE CENTRAL BOARD OF DIRECT TAX ES UNDER SECTION 119 OF THE ACT ARE BINDING ON ALL OFFICERS AND PERSONS EMPLOYE D IN THE EXECUTION OF THE ACT EVEN IF THEY DEVIATE FROM THE PROVISIONS OF THE ACT . IN KESHAVJI RAVJI AND CO. V. CIT [1990] 183 ITR 1, A BENCH OF THREE JUDGES OF TH IS COURT HAS ALSO TAKEN THE VIEW THAT CIRCULARS BENEFICIAL TO THE ASSESSEE WHIC H TONE DOWN THE RIGIOUR OF THE LAW AND ARE ISSUED IN EXERCISE OF THE STATUTORY POW ERS UNDER SECTION 119 ARE BINDING ON THE AUTHORITIES IN THE ADMINISTRATION OF THE ACT. THE BENEFIT OF SUCH CIRCULARS IS ADMISSIBLE TO THE ASSESSEE EVEN THOUGH THE CIRCULARS MIGHT HAVE 6 ITA NOS. 1260, 1261 & 1262/H/15 MARUTI SECURITIES LTD. DEPARTED FROM THE STRICT TENOR OF THE STATUTORY PRO VISION AND MITIGATED THE RIGOUR OF THE LAW. THIS COURT, HOWEVER, CLARIFIED THAT THE BOARD CANNOT PREEMPT A JUDICIAL INTERPRETATION OF THE SCOPE AND AMBIT OF A PROVISION OF THE ACT. ALSO A CIRCULAR CANNOT IMPOSE ON THE TAXPAYER A BURDEN HIG HER THAN WHAT THE ACT ITSELF, ON A TRUE INTERPRETATION, ENVISAGES. THE TASK OF IN TERPRETATION OF THE LAWS IS THE EXCLUSIVE DOMAIN OF THE COURTS. HOWEVER, THE BOARD HAS THE STATUTORY POWER UNDER SECTION 119 TO TONE DOWN THE RIGOUR OF THE LA W FOR THE BENEFIT OF THE ASSESSEE BY ISSUING CIRCULARS TO ENSURE A PROPER AD MINISTRATION OF THE FISCAL STATUTE AND SUCH CIRCULARS WOULD BE BINDING ON THE AUTHORITIES ADMINISTERING THE ACT. IN THE CASE OF C.B. GAUTAM V. UNION OF INDIA [1993] 199 ITR 530 AT PAGE 546, A BENCH OF FIVE JUDGES OF THIS COURT CONSIDERED AS EN FORCEABLE, INSTRUCTION NO. 1A-88 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES R ELATING TO THE ENFORCEMENT OF THE PROVISIONS OF CHAPTER XX-C OF THE INCOME-TAX ACT. THE CENTRAL BOARD POINTED OUT IN THE SAID INSTRUCTION THAT IN ADMINIS TERING THE PROVISIONS OF THE SAID CHAPTER, IT HAS TO BE ENSURED THAT NO HARASSMENT IS CAUSED TO BONA FIDE AND HONEST PURCHASERS OR SELLERS OF IMMOVABLE PROPERTY AND THAT THE POWER OF PRE- EMPTIVE PURCHASE HAS TO BE EXERCISED BY THE APPROPR IATE AUTHORITY ONLY WHEN IT HAS GOOD REASON TO BELIEVE THAT THE PROPERTY HAS BE EN SOLD AT AN UNDERVALUE AND THERE IS PAYMENT OF BLACK MONEY IN THE TRANSACT ION. THE INSTRUCTION THAT WHEN THE PROPERTY IS PUT UP FOR SALE BY THE APPROPR IATE AUTHORITY, THE RESERVE PRICE SHOULD BE FIXED AT A MINIMUM OF 15 PER CENT. ABOVE THE PURCHASE PRICE SHOWN AS THE APPARENT CONSIDERATION UNDER THE AGREE MENT BETWEEN THE PARTIES, WAS HELD TO BE BINDING ON THE AUTHORITY. THE CONSTI TUTION BENCH IN THE ABOVE CASE ALSO APPROVED OF THE DECISION OF THIS COURT IN K.P. VARGHESE V. ITO [1981] 131 ITR 597. THERE ARE, HOWEVER, TWO DECISIONS OF THIS COURT WHI CH HAVE BEEN STRONGLY RELIED UPON BY THE RESPONDENTS IN THE PRESENT CASE. THE FI RST DECISION IS THE MAJORITY JUDGMENT IN STATE BANK OF TRAVANCORE V. CIT [1986] 158 ITR 102, DECIDED BY A BENCH OF THREE JUDGES OF THIS COURT BY A MAJORITY O F TWO TO ONE. THIS JUDGMENT DIRECTLY DEALS WITH INTEREST ON 'STICKY ADVANCES' W HICH HAVE BEEN DEBITED TO THE CUSTOMER BUT TAKEN TO THE INTEREST SUSPENSE ACCOUNT BY A BANKING COMPANY. THE MAJORITY JUDGMENT HAS REFERRED TO THE CIRCULAR OF OCTOBER 6, 1952, AND ITS WITHDRAWAL BY THE SECOND CIRCULAR OF JUNE 20, 1978. THE MAJORITY APPEARS TO HAVE PROCEEDED ON THE BASIS THAT BY THE SECOND CIRC ULAR OF JUNE 20, 1978, THE CENTRAL BOARD HAD DIRECTED THAT INTEREST IN THE SUS PENSE ACCOUNT ON 'STICKY' ADVANCES SHOULD BE INCLUDIBLE IN THE TAXABLE INCOME OF THE ASSESSEE AND ALL PENDING CASES SHOULD BE DISPOSED OF KEEPING THESE I NSTRUCTIONS IN VIEW. THE SUBSEQUENT CIRCULAR OF OCTOBER 9, 1984, BY WHICH, F ROM THE ASSESSMENT YEAR 1979-80 THE BANKING COMPANIES WERE GIVEN THE BENEFI T OF THE CIRCULAR OF OCTOBER 9, 1984, DOES NOT APPEAR TO HAVE BEEN POINT ED OUT TO THE COURT. WHAT WAS SUBMITTED BEFORE THE COURT WAS, THAT SINCE SUCH INTEREST HAD BEEN ALLOWED TO BE EXEMPTED FOR MORE THAN HALF A CENTURY, THE PR ACTICE HAD TRANSFORMED ITSELF INTO LAW AND THIS POSITION SHOULD NOT HAVE BEEN DEV IATED FROM. NEGATIVING THIS CONTENTION, THE COURT SAID THAT THE QUESTION OF HOW FAR THE CONCEPT OF REAL INCOME ENTERS INTO THE QUESTION OF TAXABILITY IN TH E FACTS AND CIRCUMSTANCES OF THE CASE, AND HOW FAR AND TO WHAT EXTENT THE CONCEP T OF REAL INCOME SHOULD INTERMINGLE WITH THE ACCRUAL OF INCOME, WILL HAVE T O BE JUDGED 'IN THE LIGHT OF THE PROVISIONS OF THE ACT, THE PRINCIPLES OF ACCOUNTANC Y RECOGNISED AND FOLLOWED, AND FEASIBILITY'. THE COURT SAID THAT THE EARLIER C IRCULARS BEING EXECUTIVE IN CHARACTER CANNOT ALTER THE PROVISIONS OF THE ACT. T HESE WERE IN THE NATURE OF CONCESSIONS WHICH COULD ALWAYS BE PROSPECTIVELY WIT HDRAWN. THE COURT ALSO OBSERVED THAT THE CIRCULARS CANNOT DETRACT FROM THE ACT. THE DECISION OF THE CONSTITUTION BENCH OF THIS COURT IN NAVNIT LAL (C.) JAVERI V. K.K. SEN, AAC [1965] 56 ITR 198, OR THE SUBSEQUENT DECISION IN K. P. VARGHESE V. ITO [1981] 131 ITR 597 (SC), ALSO DO NOT APPEAR TO HAVE BEEN P OINTED OUT TO THE COURT. SINCE THE LATER CIRCULAR OF OCTOBER 9, 1984, WAS NO T POINTED OUT TO THE COURT, THE 7 ITA NOS. 1260, 1261 & 1262/H/15 MARUTI SECURITIES LTD. COURT NATURALLY PROCEEDED ON THE ASSUMPTION THAT TH E BENEFIT GRANTED UNDER THE EARLIER CIRCULAR WAS NO LONGER AVAILABLE TO THE ASS ESSEE AND THOSE CIRCULARS COULD NOT BE RESORTED TO FOR THE PURPOSE OF OVERCOM ING THE PROVISIONS OF THE ACT. INTERESTINGLY, THE CONCURRING JUDGMENT OF THE SECOND JUDGE HAS NOT DEALT WITH THIS QUESTION AT ALL BUT HAS DECIDED THE MATTE R ON THE BASIS OF OTHER PROVISIONS OF LAW. THE SAID CIRCULARS UNDER SECTION 119 OF THE INCOME- TAX ACT WERE NOT PLACED BEFORE THE COURT IN THE CORRECT PERSPECTIVE BECAUSE THE LATER CIRCULAR CONTINUING CERTAIN BENEFITS TO THE ASSESSEES WAS OVERLOOKED AN D THE WITHDRAWN CIRCULAR WAS LOOKED UPON AS IN CONFLICT WITH LAW. SUCH CIRCU LARS, HOWEVER, ARE NOT MEANT FOR CONTRADICTING OR NULLIFYING ANY PROVISION OF TH E STATUTE. THEY ARE MEANT FOR ENSURING PROPER ADMINISTRATION OF THE STATUTE, THEY ARE DESIGNED TO MITIGATE THE RIGOURS OF THE APPLICATION OF A PARTICULAR PROVISIO N OF THE STATUTE IN CERTAIN SITUATIONS BY APPLYING A BENEFICIAL INTERPRETATION TO THE PROVISION IN QUESTION SO AS TO BENEFIT THE ASSESSEE AND MAKE THE APPLICATION OF THE FISCAL PROVISION, IN THE PRESENT CASE, IN CONSONANCE WITH THE CONCEPT OF INCOME AND IN PARTICULAR, NOTIONAL INCOME AS ALSO THE TREATMENT OF SUCH NOTIO NAL INCOME UNDER ACCOUNTING PRACTICE. IN THE PREMISES THE MAJORITY DECISION IN THE STATE BANK OF TRAVANCORE V. CIT [1986] 158 ITR 102 (SC), CANNOT BE LOOKED UPON AS L AYING DOWN THAT A CIRCULAR WHICH IS PROPERLY ISSUED UNDER SECTION 119 OF THE I NCOME-TAX ACT FOR PROPER ADMINISTRATION OF THE ACT AND FOR RELIEVING THE RIG OUR OF TOO LITERAL A CONSTRUCTION OF THE LAW FOR THE BENEFIT OF THE ASSESSEE IN CERTA IN SITUATIONS WOULD NOT BE BINDING ON THE DEPARTMENTAL AUTHORITIES. THIS WOULD BE CONTRARY TO THE RATIO LAID DOWN BY THE BENCH OF FIVE JUDGES IN NAVNIT LAL (C.) JAVERI V. K.K. SEN [1965] 56 ITR 198 (SC). IN FACT STATE BANK OF TRANVANCORE V. CIT [1986] 158 ITR 102 (SC), HAS ALREADY BEEN DISTINGUISHED IN THE CASE OF KESHAVJI RAVJI AND CO. V. CIT [1990] 183 ITR 1 (SC), BY A BENCH OF THREE JUDG ES IN A SIMILAR FASHION. IT IS HELD ONLY AS LAYING DOWN THAT A CIRCULAR CANNOT ALT ER THE PROVISIONS OF THE ACT. IT BEING IN THE NATURE OF A CONCESSION, COULD ALWAYS B E PROSPECTIVELY WITHDRAWN. IN THE PRESENT CASE, THE CIRCULARS WHICH HAVE BEEN IN FORCE ARE MEANT TO ENSURE THAT WHILE ASSESSING THE INCOME ACCRUED BY WAY OF I NTEREST ON A 'STICKY' LOAN, THE NOTIONAL INTEREST WHICH IS TRANSFERRED TO A SUS PENSE ACCOUNT PERTAINING TO DOUBTFUL LOANS WOULD NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE, IF FOR THREE YEARS SUCH INTEREST IS NOT ACTUALLY RECEIVED. THE V ERY FACT THAT THE ASSESSEE, ALTHOUGH GENERALLY USING A MERCANTILE SYSTEM OF ACC OUNTING, KEEPS SUCH INTEREST AMOUNTS IN A SUSPENSE ACCOUNT AND DOES NOT BRING THESE AMOUNTS TO THE PROFIT AND LOSS ACCOUNT, GOES TO SHOW THAT THE ASSESSEE IS FOLLOWING A MIXED SYSTEM OF ACCOUNTING BY WHICH SUCH INTEREST IS INCL UDED IN ITS INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. LOOKING TO THE METHOD OF A CCOUNTING SO ADOPTED BY THE ASSESSEE IN SUCH CASES, THE CIRCULARS WHICH HAVE BE EN ISSUED ARE CONSISTENT WITH THE PROVISIONS OF SECTION 145 AND ARE MEANT TO ENSURE THAT ASSESSEES OF THE KIND SPECIFIED WHO HAVE TO ACCOUNT FOR ALL SUCH AMOUNTS OF INTEREST ON DOUBTFUL LOANS ARE UNIFORMLY GIVEN THE BENEFIT UNDE R THE CIRCULAR AND SUCH INTEREST AMOUNTS ARE NOT INCLUDED IN THE INCOME OF THE ASSESSEE UNTIL ACTUALLY RECEIVED IF THE CONDITIONS OF THE CIRCULAR ARE SATI SFIED. THE CIRCULAR OF OCTOBER 9, 1984, ALSO SERVES ANOTHER PRACTICAL PURPOSE OF LAYI NG DOWN A UNIFORM TEST FOR THE ASSESSING AUTHORITY TO DECIDE WHETHER THE INTER EST INCOME WHICH IS TRANSFERRED TO THE SUSPENSE ACCOUNT IS, IN FACT, AR ISING IN RESPECT OF A DOUBTFUL OR 'STICKY' LOAN. THIS IS DONE BY PROVIDING THAT NO N-RECEIPT OF INTEREST FOR THE FIRST THREE YEARS WILL NOT BE TREATED AS INTEREST ON A DO UBTFUL LOAN. BUT IF AFTER THREE YEARS THE PAYMENT OF INTEREST IS NOT RECEIVED, FROM THE FOURTH YEAR ONWARDS IT WILL BE TREATED AS INTEREST ON A DOUBTFUL LOAN AND WILL BE ADDED TO THE INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. WE DO NOT SEE ANY INCONSISTENCY OR CONTRADICTION BE TWEEN THE CIRCULAR SO ISSUED AND SECTION 145 OF THE INCOME-TAX ACT. IN FA CT, THE CIRCULAR CLARIFIES THE 8 ITA NOS. 1260, 1261 & 1262/H/15 MARUTI SECURITIES LTD. WAY IN WHICH THESE AMOUNTS ARE TO BE TREATED UNDER THE ACCOUNTING PRACTICE FOLLOWED BY THE LENDER. THE CIRCULAR, THEREFORE, CA NNOT BE TREATED AS CONTRARY TO SECTION 145 OF THE INCOME-TAX ACT OR ILLEGAL IN ANY FORM. IT IS MEANT FOR A UNIFORM ADMINISTRATION OF LAW BY ALL THE INCOME-TAX AUTHORI TIES IN A SPECIFIC SITUATION AND, THEREFORE, VALIDLY ISSUED UNDER SECTION 119 OF THE INCOME-TAX ACT. AS SUCH, THE CIRCULAR WOULD BE BINDING ON THE DEPARTMENT. THE OTHER JUDGMENT ON WHICH RELIANCE WAS PLACED BY THE DEPARTMENT WAS A JUDGMENT OF A BENCH OF TWO JUDGES OF THIS COURT IN KERALA FINANCIAL CORPORATION V. CIT [1994] 210 ITR 129, WHERE THIS COURT, FOLLOW ING THE MAJORITY VIEW IN STATE BANK OF TRAVANCORE V. CIT [1986] 158 ITR 102 (SC), HELD THAT INTEREST WHICH HAD ACCRUED ON A 'STICKY' ADVANCE HAS TO BE TREATED AS INCOME OF THE ASSESSEE AND TAXABLE AS SUCH. IT IS SAID THAT ULTIMATELY, IF THE ADVANCE TAKES THE SHAPE OF A BAD DEBT, REFUND OF THE TAX PAID ON THE INTEREST WOULD BECOME DUE AND THE SAME CAN BE CLAIMED BY THE ASSESSEE IN ACCORDANCE W ITH LAW. FOR REASONS SET OUT ABOVE, WE ARE NOT IN AGREEMENT WITH THE SAID JU DGMENT. THE RELEVANT CIRCULARS OF THE CENTRAL BOARD OF DIRECT TAXES CANN OT BE IGNORED. THE QUESTION IS NOT WHETHER A CIRCULAR CAN OVERRIDE OR DETRACT F ROM THE PROVISIONS OF THE ACT; THE QUESTION IS WHETHER THE CIRCULAR SEEKS TO MITIG ATE THE RIGOUR OF A PARTICULAR SECTION FOR THE BENEFIT OF THE ASSESSEE IN CERTAIN SPECIFIED CIRCUMSTANCES. SO LONG AS SUCH A CIRCULAR IS IN FORCE IT WOULD BE BIN DING ON THE DEPARTMENTAL AUTHORITIES IN VIEW OF THE PROVISIONS OF SECTION 11 9 TO ENSURE A UNIFORM AND PROPER ADMINISTRATION AND APPLICATION OF THE INCOME -TAX ACT. 27. IN THE LIGHT OF THE FOREGOING DISCUSSION AND T HE CASE-LAW ON THE POINT, WE DELETE THE ADDITION OF RS.2,76,38,140 MADE BY TH E ASSESSING OFFICER AND SUSTAINED BY THE CIT(A), ALLOWING THE GROUNDS OF THE ASSESSEE ON THIS ISSUE. 6. AS FACTS IN THE PRESENT CASE ARE MATERIALLY THE SAME, FOLLOWING THE AFORESAID DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE, WE DELETE THE ADDITION MADE BY AO AND CONFIRMED BY LD. CIT(A). 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. 8. AS THE ISSUE IN THE AYS UNDER CONSIDERATION IS M ATERIALLY IDENTICAL TO THAT OF AYS. 2005-06 TO 2007-08, FOLLO WING THE DECISION OF THE COORDINATE BENCH IN THOSE YEARS, WE UPHOLD THE ORDERS OF CIT(A) AND DISMISS THE APPEALS OF REVENUE FOR AYS UNDER CO NSIDERATION. 9. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMIS SED. PRONOUNCED IN THE OPEN COURT ON 18 TH DECEMBER, 2015. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED:18 TH DECEMBER, 2015 9 ITA NOS. 1260, 1261 & 1262/H/15 MARUTI SECURITIES LTD. KV COPY TO:- 1) MARUTI SECURITIES LTD., PLOT NO. 66, GROUND F LOOR, PARK VIEW ENCLAVE, MANOVIKAS NAGAR, SECUNDERABAD. 2) ACIT, CIRCLE 16(2), AAYAKAR BHAVAN, BASHEERBA GH, HYDERABAD 3) CIT(A)-4, HYDERABAD 4) CIT-4, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYD ERABAD.