State Bank of Hyderabad (Presently State Bank of India), Hyderabad V. DCIT, Circle-3(2), Hyderabad

MA 2/Hyd/2001

AI Insights

The case revolves around the State Bank of Hyderabad's appeal against the Income Tax Appellate Tribunal's earlier decision which upheld the taxability of notional interest on sticky advances. Initially, the Tribunal had rejected the rectification application citing no apparent mistake in their decision, referencing the Supreme Court's decision in UCO Bank v. CIT as postdating their order. However, upon the High Court's remand for fresh consideration, the Tribunal re-evaluated the matter in light of the Supreme Court's principles, leading to the rectification of their earlier order and relief to the assessee.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129920 (ITAT-HYDERABAD)
• Duration Of Justice: 22 year(s) 4 month(s) 9 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 25-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 25-05-2023
• Assessment Year: misc
• Appeal Filed On: 15-01-2001
• Other Referred Cases: UCO Bank v. CIT, State Bank of Travancore v. CIT, Kerala Financial Corporation v. CIT, Reliance Telecom v. State
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Rectification of order; Notional interest; Set aside
• Section: 145; 154; 143(1); 200A; 254(2); 64; 119

Judgement Text

MA No 2 of 2001 State Bank of Hyderabad Page 1 of 11 आयकर अपीलȣय अͬधकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘B‘ Bench, Hyderabad Before Shri R.K. Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member M.A. No.2/Hyd/2001 (Arising out of Interest Tax Appeal No.9/Hyd/1992) Assessment Year: 1985-86 State Bank of Hyderabad Hyderabad PAN:AAAAA Vs. Dy. C. I.T Circle 3(2) Hyderabad (Appellant) (Respondent) Assessee by : Shri Sistla Venkateswarlu Revenue by: Shri Kumar Aditya, DR Date of hearing: 26/05/2023 Date of pronouncement: 26/05/2023 ORDER Per Laliet Kumar, J.M This M.A filed by the assessee is directed against the order dated 22.10.1997 passed by this Tribunal in Interest Tax Appeal No. 9/Hyd/1992 for the A.Ys 1985-86 and 1986-87 on the ground that the Tribunal was not justified in rejecting the rectification application. 2. In the above order, the Tribunal has upheld the order of the Assessing Officer holding that notional interest estimated on sticky advances is taxable. The Tribunal observed that the decision rendered by the Hon'ble Supreme Court in the case of UCO Bank v. CIT (237 ITR 889) was subsequent to the aforesaid order of the Tribunal and hence there is no mistake apparent MA No 2 of 2001 State Bank of Hyderabad Page 2 of 11 from record in that order since the scope of rectification is very limited and if the Tribunal accepts the petition of the assessee, it would amount to review of the decision of the Tribunal which the Tribunal is not empowered to do. 3. Thereafter the assessee filed an appeal before the Hon'ble jurisdictional High Court against the dismissal of the M.A filed by it before the Tribunal. The Hon'ble jurisdictional High Court vide its order in I.T.T.A No.103 of 2001 dated 7.9.2022 remanded the matter back to the Tribunal for a fresh hearing on the ground that there was an error apparent on record in the order of the Tribunal dated 22.10.1997 passed by the ITAT due to non-following of the decision of the Supreme Court in the case of UCO Bank vs. CIT(Supra). 4. The learned AR for the assessee prays the Tribunal to allow the Miscellaneous Petition and modify/rectify its orders cited above based on the principles of law delivered by the Hon'ble Supreme Court in the case of UCO Bank (Supra) and delete the addition of interest of Rs.2,65,51,147/- on sticky advances made by the Assessing Officer. 5. On the other and the learned DR for the revenue submitted that the order passed by the Tribunal cannot be rectified by the Tribunal after the decision of the Hon’ble Supreme Court in the Case of Reliance Telecom dated 3/12/2021 wherein it was held as under: “5. From the impugned judgment and order passed by the High Court, it appears that the High Court has dismissed the writ petitions by observing that (i) the Revenue itself had in detail gone into merits of the case before the ITAT and the parties filed detailed submissions based on which the ITAT passed its order recalling its earlier order; (ii) the Revenue had not contended that MA No 2 of 2001 State Bank of Hyderabad Page 3 of 11 the ITAT had become functus officio after delivering its original order and that if it had to relook/revisit the order, it must be for limited purpose as permitted by section 254(2) of the Act; and (iii) that the merits might have been decided erroneously but ITAT had the jurisdiction and within its powers it may pass an erroneous order and that such objections had not been raised before ITAT. 6. None of the aforesaid grounds are tenable in law. Merely because the Revenue might have in detail gone into the merits of the case before the ITAT and merely because the parties might have filed detailed submissions, it does not confer jurisdiction upon the ITAT to pass the order de hors section 254(2) of the Act. As observed hereinabove, the powers under section 254(2) of the Act are only to correct and/or rectify the mistake apparent from the record and not beyond that. Even the observations that the merits might have been decided erroneously and the ITAT had jurisdiction and within its powers it may pass an order recalling its earlier order which is an erroneous order, cannot be accepted. As observed hereinabove, if the order passed by the ITAT was erroneous on merits, in that case, the remedy available to the Assessee was to prefer an appeal before the High Court, which in fact was filed by the Assessee before the High Court, but later on the Assessee withdrew the same in the instant case. 7. In view of the above and for the reasons stated above, the impugned common judgment and order passed by the High Court as well as the common order passed by the ITAT dated 18-11-2016 recalling its earlier order dated 6-9-2013 deserve to be quashed and set aside and are accordingly quashed and set aside. The original orders passed by the ITAT dated 6-9-2013 passed in the respective appeals preferred by the Revenue are hereby restored. 8. Considering the fact that the Assessee had earlier preferred appeal/s before the High Court challenging the original order passed by the ITAT dated 6-9-2013, which the Assessee withdrew in view of the subsequent order passed by the ITAT dated 18-11- 2016 recalling its earlier order dated 6-9-2013, we observe that if the Assessee/s prefers/prefer appeal/s before the High Court against the original order dated 6-9-2013 within a period of six weeks from today, the same may be decided and disposed of in accordance with law and on its/their own merits and without raising any objection with respect to limitation.” 6. We have heard the rival arguments made by both the sides and perused the material available on record. We have also considered the various decisions cited before us by both sides. In the present case the Hon’ble jurisdictional high court in the case MA No 2 of 2001 State Bank of Hyderabad Page 4 of 11 of the assessee vide judgment dated 7/9/2022 had held and directed as under: “21. The situation which is before us is that in the original order dated 22.10.1997, Tribunal had allowed the appeal of the respondent by following the two decisions of the Supreme Court in State Bank of Travancore (supra) and Kerala Financial Corporation (supra). These two decisions have since been overruled by the Supreme Court vide the subsequent decision in UCO Bank (supra), which is now the law of the land. On the face of the aforesaid binding judicial pronouncement, the very foundation of the decision rendered on 22.10.1997 no longer survives. 22. It is in the above backdrop that the order of the Tribunal dated 23.02.2001 refusing to rectify the previous order dated 22.10.1997 is required to be considered. 23. Let us now advert to Section 254 of the Act which deals with orders of Appellate Tribunal. Sub-section (2) of Section 254 of the Act says that the Appellate Tribunal may at any time within four years from the date of the order with a view to rectify any mistake apparent from the record amend any order passed by it under sub- section (1) and shall make such amendment if the mistake is brought to its notice by the assessee or the assessing officer within four years. We may mention that the aforesaid period of four years has since been substituted by six months from the end of the month in which the order is passed by the Tribunal vide the Finance Act, 2016, with effect from 01.06.2016. 24. The expression "mistake apparent from the record" or its equivalent expression "error apparent from the record" has received considerable judicial attention. It is not necessary to burden this judgment with the large number of judicial pronouncements on this issue. Suffice it to say that a mistake apparent from the record or an error apparent from the record is a mistake or an error, discovery of which does not require any process of long drawn arguments/hearing. It must be discernible on the face of the record itself. 25. The issue which is staring at us is whether the subsequent decision of the Supreme Court which had overruled its earlier two decisions which formed the substratum of the decision of the Tribunal can be the basis of rectification under sub-section (2) of Section 254 of the Act. 26. In Saurashtra Kutch Stock Exchange Ltd.'s case (supra) the facts before the Supreme Court were that while deciding the appeal by the Tribunal, the decision of the jurisdictional High Court i.e., High Court of Gujarat was not brought to the notice of the Tribunal. MA No 2 of 2001 State Bank of Hyderabad Page 5 of 11 Assessee contended that there was thus a mistake apparent from the record which required rectification. Supreme Court considered as to whether non-consideration of the decision of the jurisdictional Court or of the Supreme Court could be said to be a mistake apparent from the record. Supreme Court answered the above issue in the affirmative holding that such a mistake can be said to be a mistake apparent from the record which can be rectified under Section 254(2) of the Act. Supreme Court thereafter analysed the situation from a jurisprudential perspective and thereafter held that if a subsequent decision alters an earlier one, it does not make any new law; it only discovers the correct principles of law which has to be applied retrospectively. Overruling is retrospective except on matters where principles of res judicata apply. Thereafter, Supreme Court further held that rectification of an order stems from the fundamental principle that justice is above all. It is exercised to remove the error and to disturb the finality. In the facts of that case, Supreme Court noted that though the decision of the jurisdictional High Court was pronounced a few months prior to the decision of the Tribunal, the same was not brought to the notice of the Tribunal by the assessee. Therefore, no fault could be found with the Tribunal in passing the order. 27. Delhi High Court in Lakshmi Sugar Mills Co. Ltd. (supra) reiterated the proposition that overruling is retrospective. Once the law is settled by the Supreme Court which operates retrospectively, it has to be construed to be the law as it existed when the order was passed by the Tribunal. Therefore, there is clear mistake apparent from the record. The mistake cannot be allowed to remain. The only limitation for rectification is limitation. 28. A Division Bench of this Court in B.V.K.Seshavataram's case was confronted with a similar situation. In that case, this Court was examining the provision of Section 154 of the Act. As submitted by learned counsel for the appellant, Section 154 of the Act provides for rectification of mistake by an income tax authority. As per sub- section (1) thereof, with a view to rectify any mistake apparent from the record, an income tax authority referred to in Section 116 of the Act may amend the order passed by it; amend any intimation or deemed intimation under Section 143(1) of the Act; amend any intimation under sub-section (1) of Section 200A of the Act; and amend any intimation under sub-section (1) of Section 206CB of the Act. In the facts of that case, this Court held that subsequent decision can validly form the basis for rectifying an order of assessment under Section 154 of the Act. It was held as follows: "8. There is no dispute that the decision of the Supreme Court in Seth Banarsi Dass Gupta's case MANU/SC/0552/1987 : [1987] 166 ITR 783 (SC) was rendered after the original assessments were finalised giving the benefit of depreciation allowance to the assessees. Based upon the said Supreme Court decision, rectification orders MA No 2 of 2001 State Bank of Hyderabad Page 6 of 11 were passed by the successor assessing authority. Whether a subsequent decision can be the basis for "rectifying" an earlier order in exercise of the powers under section 154 of the Income-tax Act? Although the opening words of section 154(1) - "with a view to rectifying any mistake apparent from the record, the income-tax authority. . . . may give the impression that a judgment which came subsequently, not being part of the record at the time when the assessment was finalised, could not be the basis for rectification of any mistake under section 154, the legal position is no longer in doubt in view of the authoritative pronouncement of the Supreme Court in S. A. L. Narayana Row, CIT v. Model Mills Nagpur Ltd. MANU/SC/0168/1966 : [1967] 64 ITR 67 (SC). In that case, the assessing authority subjected excess dividends to income-tax. Subsequently, the Bombay High Court in Khatau Makanji Spinning and Weaving Co. Ltd. v. CIT MANU/MH/0348/1956 : [1956] 30 ITR 841 (Bom), held that levy of tax on excess dividends was illegal. On the basis of that decision, a claim for refund was made by the assessee requesting the assessing authority to rectify the earlier order mistakenly made. That plea was rejected by the assessing authority and also by the Commissioner of Income-tax when a revision application was filed before him. The High Court of Bombay allowed the writ petition filed by the assessee and directed the Income-tax Officer to revise the order of assessment and grant refund to the extent of the tax levied on the excess dividends. By the time the matter was carried to the Supreme Court, the decision of the Bombay High Court in Khatau Makanji Spinning and Weaving Co. Ltd.'s case MANU/MH/0348/1956 : [1956] 30 ITR 841 (Bom) was affirmed in CIT v. Khatau Makanji Spinning and Weaving Co. Ltd. MANU/SC/0188/1960 : [1960] 40 ITR 189 (SC). The Supreme Court affirmed the view taken by the Bombay High Court that the assessee was entitled to refund of the amount. This ruling is a clear authority for the proposition that a subsequent decision can validly form the basis for rectifying an order of assessment under section 154 of the Income-tax Act, 1961." 29. We respectfully agree with the reasonings given by a coordinate Bench of this Court in B.V.K.Seshavataram (supra); rather we are bound by it. If this position is applicable to Section 154 of the Act, we are of the view that it is equally applicable to Section 254(2) of the Act. 30. Summation of our above discussion is that the Tribunal was not justified in rejecting the rectification application of the appellant. MA No 2 of 2001 State Bank of Hyderabad Page 7 of 11 31. Consequently, we answer question No.1 so framed above in the negative and in favour of the assessee. Resultantly, we set aside the order dated 23.02.2001. 32. In view of our above order, answer to question No.2 so framed is not necessary. 33. The matter is remanded back to the Tribunal for a fresh hearing and decision in M.P.No.2/Hyd/2001 in Interest Tax Appeal No.9/Hyd/1992 for the assessment year 1985-86.” 7. From the reading of the above said judgment of the Hon’ble High Court it is abundantly clear that the Tribunal had decided the issue on 22/10/1997 against the assessee bank, after relying upon the decisions of the Hon’ble Supreme Court in the case of state Bank of Travancore (Supra) and also Kerala Financial Corporations (Supra). The above said two decisions of the Hon’ble Supreme Court were considered by the subsequent decision the case of UCO Bank Ltd (104 taxmann 547), whereby the Hon’ble Supreme Court after considering the above two decisions and also the Board Circular had held in paragraph 11 as under: “11. In the premises, the majority decision in State Bank of Travancore's case (supra) cannot be looked upon as laying down that a circular which is properly issued under section 119 for proper administration of the Act and for relieving the rigour of too literal a construction of the law for the benefit of the assessee in certain situations would not be binding on the departmental authorities. This would be contrary to the ratio laid down by the Bench of five Judges in Navnitlal C. Javeri's case (supra). In fact, State Bank of Travancore's case (supra) has already been distinguished in the case of Keshavji Ravji & Co. (supra) by a Bench of three Judges in a similar fashion. It is held only as laying down that a circular cannot alter the provisions of the Act. It, being in the nature of a concession, could always be prospectively withdrawn. In the present case, the circulars which have been in force are meant to ensure that while assessing the income accrued by way of interest on a 'sticky' loan, the notional interest which is transferred to a suspense account pertaining to doubtful loans would not be included in the income of the assessee, if for three years such interest is not actually received. The very fact that the assessee, although generally using a mercantile system of accounting, keeps such interest amounts in a suspense account and MA No 2 of 2001 State Bank of Hyderabad Page 8 of 11 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 included in its income only when it is actually received. Looking to the method of accounting so adopted by the assessee in such cases, the circulars which have been 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 under 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 satisfied. The circular of 9-10-1984 also serves another practical purpose of laying down a uniform test for the assessing authority to decide whether the interest income which is transferred to the suspense account is, in fact, arising in respect of a doubtful or 'sticky' loan. This is done by providing that non-receipt of interest for the first three years will not be treated as interest on a doubtful 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. 12. We do not see any inconsistency or contradiction between the circular so issued and section 145. In fact, the circular clarifies the way in which these amounts are to be treated under the accounting practice followed by the lender. The circular, therefore, cannot be treated as contrary to section 145 or illegal in any form. It is meant for a uniform administration of law by all the income-tax authorities in a specific situation and, therefore, validly issued under section 119. 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 Corpn. v. CIT [1994] 210 ITR 129/ 75 Taxman 573, where this court, following the majority view in State Bank of Travancore's case (supra) held that interest which has accrued on a 'stricky' 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 with law. For reasons set out above, we are not in agreement with the said judgment. The relevant circulars of the Board cannot be ignored. The question is not whether a circular can override or detract from the provisions of the Act; the question is whether the circular seeks to mitigate the rigour of a particular section for the benefit of the assessee in certain specified circumstances. So long as such a circular is in force, it would be binding on the departmental authorities in view of the provisions of section 119 to ensure a uniform and proper administration and application of the Act. MA No 2 of 2001 State Bank of Hyderabad Page 9 of 11 8. In view of the above said categorical pronouncement by the Hon’ble Supreme Court in the case of UCO bank, the issue of sticky loan and interest payable thereon is no more res integra and hence the ground of the assessee raised in ITA No.9 for the Assessment Year 1985-86 is required to be allowed in favour of the assessee bank. 9. In view of the above the mistake committed by the tribunal while passing the order, in paragraph 36 is accordingly rectified and it is held that for the year under reference, no interest had accrued on the sticky loan. 10. So far as the objection of the Revenue that the above said issue cannot be decided by the tribunal in rectification application is concerned, in this regard it is relevant to note that the decision of the Hon’ble Supreme Court was passed on 3/12/2021 and thereafter the Hon’ble High Court had decided the ITTA No.103 of 2001, thereby directing the Tribunal to decide the Miscellaneous Petition of the Assessee vide judgment dated 7/9/2022. It requires no special knowledge that the order of the Hon’ble Supreme Court is binding on all the Courts and Tribunals in the country. Further, when after passing of the decision of the Supreme Court on 3/12/2021, in the case of Reliance Telecom (Supra)the Hon'ble High Court passes the judgment on 7/9/2022, then it is presumed that the Hon’ble High Court was aware of the decision of the Hon’ble Supreme Court and after considering the same, the decision dated 7/9/2022 must have been passed. The Tribunal being subordinate to the Hon’ble High Court, is bound to comply with the judgment of the Hon’ble High Court subsequently issued by it. MA No 2 of 2001 State Bank of Hyderabad Page 10 of 11 11. Even otherwise, in our view, once the earlier decision has been overruled/explained by the latter’s decision, then there is no purpose for the Revenue to take hyper technical approach. In our view, the assessee is entitled to substantial justice, in the light of the decision of the Hon’ble Supreme Court in the case of UCO Bank (Supra) and the relief cannot be refused merely on some technical objections of the Revenue. Needless to say, the tax litigation is not an adverse litigation and the purpose of tax litigation is to recover the legitimate payable taxes from the subject (citizen). 12. In the light of the above, the M.A filed by the assessee is allowed and Para No.36 & 37 of the original order dated 22.10.1997 is substituted with the following Para: “36. After hearing both the sides, we find the issue of interest on sticky loan is now decided by the Hon'ble Supreme Court in the case of UCO Bank (Supra) wherein it has been held that interest on loan whose recovery is doubtful and which has not been recovered by the assessee bank in the last 3 years but has been kept in suspense account and has not been brought to P&L account of the assessee cannot be included in the income of the assessee. In view of the above binding decision of the Hon'ble Supreme Court we hold that the assessee is entitled to relief on account of interest on those sticky loans and no interest was accrued on the sticky loan and cannot be brought to tax in the hands of the assessee. The grounds raised by the Revenue on this issue are accordingly dismissed.” MA No 2 of 2001 State Bank of Hyderabad Page 11 of 11 13. In the result, M.A filed by the assessee is allowed. Order pronounced in the Open Court on 26 th May, 2023. Sd/- Sd/- (R.K. PANDA) ACCOUNTANT MEMBER (LALIET KUMAR) JUDICIAL MEMBER Hyderabad, dated 26 th May, 2023. Vinodan/sps Copy to: S.No Addresses 1 State Bank of Hyderabad, Hyderabad C/o Kalyandas & Co. 15 Venkateswara Colony, Narayanguda, Hyderabad 500029 2 Dy.CIT, Circle 3(2) Hyderabad 3 DR, ITAT Hyderabad Benches 4 Guard File By Order