(a) Income-tax---

----Revision---Order of ITO following decision of Tribunal in earlier year--- ITO's order is not erroneous and cannot be revised---Reference pending from order of. Tribunal---Not a ground for revising order---Indian Income Tax Act, 1961, S.263.

The Commissioner of Income-tax proposed to revise the order of the Income Tax Officer on the ground that interest income on doubtful debts which had been credited to a suspense account and the actual realisation of which had been shown as interest income of the assessee was the real income and, therefore, was assessable to tax. As regards interest allowable under section 214 of the Income Tax Act, 1961, the Commissioner held that since the assessee had not filed a statement of advance tax under section 209A(1)(a) while making deposit of Rs.4,05,355 on September 15, 1978, it was not entitled to interest under section 214. Therefore, the order of the Income Tax-Officer granting interest under section 214 was held to be erroneous and prejudicial to the interests of the Revenue. The Tribunal observed that, by its earlier order for the assessment years 1974-75, 1975-76 and 1976-77, it had directed exclusion of interest on doubtful debts from computation of total income. The said order was available to the Income Tax Officer when he made the draft assessment order and also to the Inspecting Assistant Commissioner when he gave directions to the Income Tax Officer under section 144B and, therefore, it could not be said that the order passed by the Income Tax Officer was made without proper enquiry. So far as grant of interest was concerned, the Department itself had treated the payment as advance tax and due credit had been given while calculating the tax payable on regular assessment. The amount was taken as advance tax, just as the subsequent instalments paid after the service of the notice under section 210 on the assessee. The Tribunal concluded that it was not proper to hold that the amount did not represent advance tax only for the purpose of section 214. It noticed that the assessee paid the amount when nothing was due from him by using a challan prescribed for payment of advance tax. It observed that the mere fact that an estimate or a statement did not accompany the said payment did not mean that the amount was anything other than advance tax. The order granting interest was upheld and the order of revision was set aside. On a reference:

Held, (i) that from the order passed by the Commissioner under section 263, it was clear that interest on doubtful debts was held to be taxable income because reference applications against the orders of the Tribunal had been filed in the High Court. No other reason was indicated by the Commissioner in support of his conclusion that the order of the Income Tax Officer was erroneous and prejudicial to the interests of the Revenue. His conclusion that interest on doubtful debts was real income because the matter was pending under reference before the High Court could certainly not be a ground to attract the operation of section 263.

Russell Properties (Pvt.) Ltd. v. A. Chowdhury, Addl. CIT (1977) 109 ITR 229 (Cal.) fol.

(b) Income-tax---

----Revision---Advance tax---Amount paid without filing statement of advance tax under S.209A(1)(a), Indian Income Tax Act, 1961---Finding that amount was paid towards advance tax---Order granting interest under S.214 was not erroneous----Could not be revised---Indian Income Tax Act, 1961, Ss.209, 210, 214 & 263.

On the facts found by the Tribunal, it was justified in holding that non filing of the statement of estimate did not mean that payments made by the assessee was not advance tax. The order granting interest was not erroneous.

Therefore, the Tribunal was justified in cancelling the order under section 263.

CIT v. Traub (India) P. Ltd. (1979) 118 ITR 525 (Bom.) ref.

A.K. Ray for the Commissioner.

B.K. Mahanti, Bibek Mahanti and S.P. Choudhry for the Assessee.

JUDGMENT

A. PASAYAT, J.---Pursuant to the direction given by this Court under section 256(2) of the Income Tax Act, 1961 (in short, "the Act"), the Income Tax Appellate Tribunal, Cuttak Bench (in short, "the Tribunal"), has referred the following questions for opinion:

"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in cancelling the order under section 263 of the Act passed by the Commissioner of Income-tax?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the interest accrued on debts difficult to realise cannot be treated as income of the assessee though it adopted the mercantile system of accounting for the relevant assessment year; and

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that non-filing of the statement of estimate does not mean that payment made by the assessee was not advance tax in view of the specific provisions contained in section 209A(1)(a) of the Act?"

The assessee is a financial corporation set up under the State Financial Corporations Act, 1951 (in short, "Corporation Act"). It follows the financial year as its period of accounting. Originally, the return of income was filed showing taxable income to be nil. The Income Tax Officer (in short, "the ITO") determined the total income at Rs.2,24,330 by an order of assessment dated September 25, 1982, under section 143(3) read with section 144B of the Act. The Commissioner of Income-tax proposed to revise the order of the Income-tax Officer under section 263 of the Act being of the view that the said order was erroneous and prejudicial to the interests of the Revenue, as the Income Tax Officer had (a) failed to include interest income of Rs.1,31,885, and (b) allowed excess interest of Rs.1,66,196 under section 214 of the Act. The assessee filed its reply primarily taking the stand that the order of the Income Tax Officer suffered from no infirmity and, therefore, the proposed action to cancel the order passed was not warranted in the circumstances of the case. After consideration of the explanation offered, the Commissioner held that interest income on doubtful debts which has been credited to the suspense account and the actual realisation of which has been shown as interest income of the assessee was the real income and, therefore, was assessable to tax. As regards interest allowable under section 214 of the Act, the Commissioner held that, since the assessee had not filed the statement of advance tax under section 209A(1)(a) while making deposit of Rs.4,05,355 on September 15, 1978, it was not entitled to interest under section 214 of the Act. Therefore, the order of the Income Tax Officer was held to be erroneous and prejudicial to the interests of the Revenue. Consequentially, the Commissioner directed enhancement of interest income by Rs.1,31,885 and disallowance of interest amounting to Rs.1,66,196 granted under section 214 of the Act. On appeal, the Tribunal observed that, by its earlier order, dated October 7, 1980, for the assessment years 1974-75, 1975-76 and 1976-77 in Income Tax Applications Nos. 95, 96 and 97 (CTK) of 1980, it had directed exclusion of interest on doubtful debts from the computation of total income. The said order was available to the Income Tax Officer when he made the draft assessment order and also to the Inspecting Assistant Commissioner when he gave directions to the Income Tax Officer under section 144B of the Income Tax Act, 1961, and, therefore, it cannot be said that the order passed by the Income Tax Officer was made without proper enquiry. The Tribunal also pointed out that non acceptance of the order of the Tribunal by the Department and filing of a reference application against the order of the Tribunal did not mean that the subordinate authorities should ignore the order of the Tribunal. At this juncture, it is necessary to refer to the stand of the Revenue before the Tribunal. It was contended that though the Tribunal had in fact held about non-taxability of interest as for previous years, the Department filed reference applications before this Court which were pending. The Tribunal observed that the Income Tax Officer made the assessment under section 143(3) read with section 144B of the Act after discussing the matter with the representative of the assessee. The Inspecting Assistant Commissioner (in short, "the IAC", had occasion to consider the draft assessment order made by the Income Tax Officer. It is true that the order of the Income Tax Officer did not refer to taxability of the sum of Rs.1,31,885. But .the order of the Tribunal dated October 7, 1980, was before the Income Tax Officer when he sent the draft order and the same was also before the Inspecting Assistant Commissioner while he was in seisin of the matter under section 144B of the Act. Hence, the conclusion was that it cannot be said that the assessment was made without proper enquiry when some further enquiry was called for.

According to Mr. Ray, learned counsel for the Revenue, non disclosure by the income Tax Officer and the Inspecting Assistant Commissioner about the order of the Tribunal and non-discussion about taxability shows non-application of mind and failure to cause enquiry which was warranted. Mr. Mahanti, for the assessee, however, submitted that there being no dispute that the earlier order of the Tribunal was both before the Income Tax Officer and the Inspecting Assistant Commissioner, it is evident that they had considered the effect of the order and being bound by it had not specifically referred to matters concluded by the Tribunal in the earlier order.

The Calcutta High Court had occasion to deal with a similar question where the Income Tax Officer did not include a portion of the income, which was treated as taxable by the Commissioner, relying on an earlier decision of the Tribunal. The Court observed that that did not warrant resort of action under section 263 of the Act. (See Russell Properties (Pvt.) Ltd. v. A. Choudhry, Addl. CIT (1977) 109 ITR 229 (Cal.) From the order passed by the Commissioner under section 263 of the Act, we find that interest on doubtful debts was held to be taxable income because reference application against orders of the Tribunal had been filed in this Court. No other reason was indicated by the Commissioner in support of his conclusion that the order of the Income-Tax Officer was erroneous and prejudicial to the interests of the Revenue. His conclusion that he treated the income to be real because the matter was pending under reference before this Court certainly cannot be a ground to attract the operation of section 263 of the Act. We are in agreement with the view expressed by the Calcutta High Court in Russell Properties (Pvt.) Ltd.'s case (1977) 109 ITR 229.

So far as grant of interest under section 214 is concerned, the Department itself has treated the payment as advance tax and due credit had been given while calculating the tax payable on regular assessment. The amount was taken as advance tax just as the subsequent instalments paid after the service of notice under section 210 on the assessee. The Tribunal concluded that it was not proper to hold that the amount did not represent advance tax only for the purpose of section 214. It noticed that the assessee paid the amount when nothing was due from him by using a challan prescribed for payment of advance tax. It observed that the mere fact that an estimate or a statement did not accompany the said payment did not mean that the amount was anything other than advance tax. Reliance was placed on a decision of the Bombay High Court in CIT v. Traub (India) P. Ltd. (1979) 118 ITR 525 to buttress the view. We are in agreement with the view expressed by the Tribunal because of the fact situation depicted by it.

In conclusion, we are of the view that the Tribunal was justified in cancelling the order under section 263 of the Act. Our answer to the first question is, therefore, in the affirmative, in favour of the assessee and against the Revenue. In view of our answer to the first question, it is not necessary to answer questions Nos. (ii) and (iii).

The reference application is, accordingly, disposed of. No costs.

B.N. DASH, J.---I agree..

M.B.A./206/T.F.Reference disposed of.