Commissioner Of Income Tax, Kolkata Ii, Kolkata v. West Bengal Industrial Development Corporation Ltd

IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE ITA/156/2011 COMMISSIONER OF INCOME TAX, KOLKATA II, KOLKATAVS WEST BENGAL INDUSTRIAL DEVELOPMENT CORPORATION LTD. BEFORE : THE HON'BLE JUSTICE SURYA PRAKASH KESARWANI -A N D- THE HON'BLE JUSTICE RAJARSHI BHARADWAJDATED : 1 APRIL, 2024 Appearance :Mr. Om Narayan Rai, Adv.Mr. Prithu Dudheria, Adv.…for appellantMr. Prithu Dudheria, Adv.…for appellantMr. J.P. Khaitan, Sr. Adv.Mr. Sanjay Bhowmik, Adv.Mrs. Swapna Das, Adv.….for respondentMrs. Swapna Das, Adv.….for respondent 1.Heard Mr. Om Narayan Rai, learned senior standing Counsel for theappellant along with Sri Prithu Dudheria, learned junior standingcounsel for the appellant and Sri J.P. Khaitan, learned senior counselassisted by Mr. Sanjay Bhowmik, learned counsel for therespondent/assessee.appellant along with Sri Prithu Dudheria, learned junior standingcounsel for the appellant and Sri J.P. Khaitan, learned senior counselassisted by Mr. Sanjay Bhowmik, learned counsel for therespondent/assessee. 2.This appeal has been admitted on the following substantial questionof law:-of law:- “(i) Whether the learned Tribunal below committed substantial errorof law in reversing the order of the CIT (A) in respect of addition onof law in reversing the order of the CIT (A) in respect of addition on account of the accrued interest on loan and advances amounting toRs.901/- lakh without appreciating the fact that the assessee cannotbe permitted to adopt mercantile basis for payment of interest by itand claim benefit of cash system in respect of interest receivable byhim.” 3.The respondent/assessee is a Government financial corporation. 4.A Sum of Rs. Nine crore was added in the hands of therespondent/assessee invoking Section 145 of the Income Tax Act,1961. The CIT (A) affirmed the order of the assessing officer followingthe order of the ITAT in the case of Ms. K.S. Mehta (HUF) Vs.Commissioner of Income-tax (2005) 278 ITR 59 for the assessmentyears 1986-87, 1987-88 and 1988-89 decided on 16.08.1999.respondent/assessee invoking Section 145 of the Income Tax Act,1961. The CIT (A) affirmed the order of the assessing officer followingthe order of the ITAT in the case of Ms. K.S. Mehta (HUF) Vs.Commissioner of Income-tax (2005) 278 ITR 59 for the assessmentyears 1986-87, 1987-88 and 1988-89 decided on 16.08.1999. 5.The findings recorded by the Tribunal in the impugned order isreproduced below :-reproduced below :- “4. We have considered the rival submissions and we have carefullyconsidered the contention of the Ld. D.R. as well as the Ld. Counselfor the assessee before us. We do find that the assessee is not to betaxed on income which has not been earned by him. In thepublished accounts subject to Govt. Audit, the assessee clearlyindicated its accounting policy with respect to accounting of interestand advances given to borrowers which is to be taken intoconsideration on receipt basis. As per our observation this incomehas been accounted for only for the purpose of maintaining control over the borrowers’ account by intimating them the amount ofinterest they own to the assessee. With a view to improving theviability of banks, financial institutions, State Financial Corporationinterest on sticky loans shall be charged to tax only in the year inwhich the interest has actually been received or in credited to P/LA/c whichever is earlier. We, therefore directed the A.O. to tax theamount of interest only that amount which has been received duringthe year following the direction of the Tribunal in the case of theassessee for earlier years as enumerated by taxing authorities inview of the guidelines being followed by them in Circulars of CBDTwith respect to treatment of such income from time to time. 5. In the result the appeal is allowed as indicated above.” over the borrowers’ account by intimating them the amount ofinterest they own to the assessee. With a view to improving theviability of banks, financial institutions, State Financial Corporationinterest on sticky loans shall be charged to tax only in the year inwhich the interest has actually been received or in credited to P/LA/c whichever is earlier. We, therefore directed the A.O. to tax theamount of interest only that amount which has been received duringthe year following the direction of the Tribunal in the case of theassessee for earlier years as enumerated by taxing authorities inview of the guidelines being followed by them in Circulars of CBDTwith respect to treatment of such income from time to time. 5. In the result the appeal is allowed as indicated above.” 6.It is not disputed before us by learned Counsel for the appellant thatin earlier assessment years, similar direction has been issued by theI.T.A.T. as issued in the impugned order, which has beenimplemented by the appellant. That apart, we find that the order ofthe CIT(A) is based on the order of the I.T.A.T. in the case of K.S.Mehta, which was set aside by this Court by judgment and orderdated 11.02.2005 in I.T.A. No. 35 of 2000 reported in (2005) 278 ITR59.in earlier assessment years, similar direction has been issued by theI.T.A.T. as issued in the impugned order, which has beenimplemented by the appellant. That apart, we find that the order ofthe CIT(A) is based on the order of the I.T.A.T. in the case of K.S.Mehta, which was set aside by this Court by judgment and orderdated 11.02.2005 in I.T.A. No. 35 of 2000 reported in (2005) 278 ITR59. 7.In view of the aforesaid, we do not find any merit in this appeal. Theappeal deserves to be dismissed and is hereby dismissed.appeal deserves to be dismissed and is hereby dismissed. 8.The substantial question of law as quoted above is answered infavour of the assessee and against the revenue on the facts of thepresent case.favour of the assessee and against the revenue on the facts of thepresent case. (SURYA PRAKASH KESARWANI, J.) (RAJARSHI BHARADWAJ, J.) sg/GH.