Income-Tax Officer vs Hindustan Commercial Bank Ltd.
1988 Latest Caselaw 375 Del

ORDER

Per Shri Ch. G. Krishnamurthy, President - The Income-tax Officer, Central Circle V, Kanpur is the appellant in this appeal filed against the order of the Commissioner (A)-I, Kanpur.

2. In the first grounds taken in the grounds of appeal objection was raised against the deletion of an addition of Rs. 30,000 representing a provision made for payment of legal charges. While the Commissioner (A) allowed the claim of the assessed on the ground that this provision was in respect of an ascertained liability, which arose during the accounting year under appeal, the grounds of appeal states that the Commissioner (A) had not ascertained the full facts relating to the liability provided for and therefore its allowance was uncalled for. The learned Commissioner (A) observed in his order :

"The amount relates to provisions made in the year and the ground taken by the ITO us that the reason for which this liability arose was not given by the appellant. It is contended that this provision was for law charges payable to M/s Khetan & Co. in connection with a suit for realisation of outstanding dues of Rs. 6,18,862 from M/s Leslie Motors & Others. The bill in question was received during the relevant accounting period and the same was shown to me. In view of the foregoing it is held that provision was for a liability arising during the year connected with the business activities of the appellant."

Based upon this reasoning adduced by the learned Commissioner (A), there could be no objection to the allowance of the claim as a provision made for an ascertained liability. But what is interesting to note from the order of the Income-tax Officer is that he mentions in his order that though particulars were not furnished before him in respect of this liability, during the course of hearing before the Inspecting Asstt. Commissioner, the assessed furnished the details by way of a letter. It thus means that the disallowance was made by the Income-tax Officer not for the reason that these details were not furnished before him although they were furnished before the Inspecting Asstt. Commissioner as well as before the Commissioner (A). When the Commissioner (A) and the Inspecting Asstt. Commissioner were satisfied about the nature, the purpose and the ascertainment of this liability, we fail to see how the department can still feel aggrieved by this direction so as to compel them to file an appeal before the Tribunal. In ground No. 2 It was mentioned that this evidence was not produced before the Inspecting Asstt. Commissioner during the course of proceeding under section 144B of the Act but the order passed by the Income-tax Officer belies this fact. This ground is therefore rejected.

3. In the next ground objection was taken to the allowance of a bad debt of Rs. 1,29,780 on the sole ground that the Commissioner (A) had accepted additional evidence in contravention of provisions of Rule 46A. This is an amount due from one Shri Ram Marolia, which was written off as bad debt. This claim was made earlier in the assessment year 1967-68. The matter came up for consideration before the Tribunal, Allahabad Bench in ITA No. 1818 (All.) of 1972-73 on 30-9-1974 and the claim was not allowed not on the ground that the immovable properties offered as security had till then not being auctioned. That amount had now been claimed as deduction. The Income-tax Officer remarked that details in respect of this claim were not furnished before him and in any case this ground was not pressed before the Inspecting Asstt. Commissioner under section 144B. The Commissioner (A) then went into the records and found that there was no evidence on record of the Inspecting Asstt. Commissioner showing that this ground was withdrawn or was not pressed but there was note in the handwriting of the Inspecting Asstt. Commissioner that the ground was not pressed. There was no signature of any one appearing on behalf of the assessed. From this circumstance, the Commissioner (A) appeared to have inferred that this ground was not given up and he proceeded to consider the merits of the case and further found that a sum of Rs. 2,10,000 was due from this party and as a consequence of Court proceedings, a settlement was reached on 21-2-1979 according to which a sum of Rs. 1,29,780 came to be written off. It is to be seen that none of the details were admittedly not before the Inspecting Asstt. Commissioner or the Income-tax Officer. It is also to be seen that the file of the Inspecting Asstt. Commissioner contained a note in the handwriting of the Inspecting Asstt. Commissioner that this ground was not pressed before him. Even though the note did not bear the signature of any one appearing on behalf of the assessed, still a noting made by a public officer in the course of the discharge of his duties was evidence in itself about its contents and no further proof is necessary to prove the contents unless a strong evidence comes forth to disprove that noting. There was no such proof coming forth from the side of the assessed. It is therefore to be presumed that the assessed had given up this ground consciously before the Inspecting Asstt. Commissioner. When a ground was not pressed before the Inspecting Asstt. Commissioner, the assessed could not be said to be aggrieved by this decision of Inspecting Asstt. Commissioner. Therefore the assessed could not prefer an appeal against that ground. The Commissioner (A) to our mind was not justified in entertaining this ground and in giving relief to the assessed particularly without following the provisions of Rule 46A. We think there is substance in the ground raised by the department in this behalf and we uphold this objection and reverse the finding of the Commissioner (A) on this point.

4. The next ground relates to the deletion of an addition of Rs. 1,10,493 on the ground that it represented loss on sale of stocks and shares, which formed part of the stock-in-trade of the assessed bank. The point raised before us was that the Commissioner (A) ignored the factual position that the assessed bank had never been dealing in shares and stocks in the past and that since shares were always shown as investment and never dealt in shares as a dealer, the loss on the sale of shares should not have been held to be on revenue account. The order of the Income-tax Officer does not given any reasons as to why this particular loss was treated as disallowable but the order of the Commissioner (A) does give certain reasons but they are in our opinion untenable. This is what the learned Commissioner (A) observed :-

"15. Another objection is regarding disallowance of claim of Rs. 1,10,493 on account of loss on sale of stocks and investment, details are available. In some transactions there were profits while in others there was loss, the net result of which is loss of Rs. 1,10,493. This question was considered by me in the case of the appellant, in the asst. year 1967-68. For reasons mentioned in the said order I hold that claim for deduction of loss is admissible. Therefore, the appellant get relief of Rs. 1,10,493."

It will be seen from these lines that the Commissioner (A) had held that in some transactions there were profits while in others there were loss, the net result of which was loss of Rs. 1,10,493. What weighed with him mostly was that he considered this matter in the appeal relating to the assessment year 1967-68. We do not exactly know what has happened in the assessment year 1967-68. Neither party before us is able to throw any light on as to what happened in the assessment year 1967-68. That apart we are now in the assessment year 1980-81 roughly 14 years thereafter. In this long period of duration the assessed even if it had been a dealer in the past could have changed the portfolio of the shares from that of stock-in-trade to that of investment. So placing reliance on an order passed for the assessment year 1967-68 to decide an issue for the assessment year 1980-81 appear to us to be far removed in point of time. Nor is the fact that in some transactions there were profits while in others there was loss could be said to be an adequate ground to hold that these stocks were held as stock-in-trade. Even in the case of investments also it is always possible to sell some securities incurring loss and some earning profits. That by itself would not convert the investment into stock-in-trade or vice versa. This has to be gathered from a set of relevant facts, which were not discussed at all in the order passed by the Commissioner (A). In these circumstances, we find it difficult to uphold the view taken by the Commissioner (A) on this point.

5. The next objection taken in the grounds of appeal was against setting aside the assessment on the point of interest on sticky advances directing the Income-tax Officer to re-examine the position of interest in the light of the order passed for the assessment year 1979-80. This point has been conclusively decided by a decision of the Supreme Court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102. While dealing with the assesseds appeal on this point in ITA No. 302 (Del.) of 1984, we had occasion to observe that in the light of the Supreme Court decision, the interest on these advances was income liable to tax and was not to be treated as contingent interest. For the elaborate reasons discussed in the appeal filed by the assessed in ITA No. 302 (Del.) of 1984, we hold that the view taken by the Commissioner (A) on this point to re-examine the issue does not arise and the matter has to be decided in favor of the Revenue and against the assessed holding that this interest is taxable on the ratio of the decision of the Supreme Court referred to above. It is not in dispute as to the computation of this interest.

6. In the result, the appeal is allowed in part.