2014 (4) TMI 1253 - HC - Income Tax

High Court upholds exclusion of accrued interest in tax appeal

Commissioner of Income Tax­2, Mumbai Versus M/s. IndusInd Bank Ltd  

The High Court dismisses the appeal challenging the Income Tax Appellate Tribunal's order, as it does not raise any substantial question of law. The ... Accrual of income - interest which had accrued, but not fallen due or received - HELD THAT:- Identical question and with regard to the same assessee, was raised before this Court in Income tax Appeal No.1621/11. That Appeal of the Revenue was dismissed by this Court in M/S. INDUSLAND BANK LTD. [2013 (2) TMI 893 - BOMBAY HIGH COURT] . The Division Bench followed a judgment and order of this Court in BANK OF BAHRAIN & KUWAIT BSC [2013 (2) TMI 725 - BOMBAY HIGH COURT]. Change in Accounting pattern - HELD THAT:- Matter stands concluded by the Hon'ble Supreme Court in the UNITED COMMERCIAL BANK VERSUS COMMISSIONER OF INCOME-TAX [1999 (9) TMI 4 - SUPREME COURT] has held that banks are following a mercantile system of accounting both for book keeping as well as tax purpose. This is a consistent practice and for more than three decades, that has been accepted by the Revenue. The insistence on a different accounting pattern was held not to be justified. Following the judgment of the Supreme Court question (b) also cannot be termed as substantial question of law. Issues Involved:Challenging order of Income Tax Appellate Tribunal dated 17th June 2011, Exclusion of accrued but not received interest from total income, Application of mercantile system of accounting by banks.Analysis:1. Challenging Order of Income Tax Appellate Tribunal:The appeal challenges the order of the Income Tax Appellate Tribunal dated 17th June 2011, which partly allowed the assessee's appeal and completely dismissed that of the Revenue. The appellant argues that the two questions framed in the appeal memo are substantial questions of law. However, the High Court notes that a similar question was raised in a previous case, Income tax Appeal No.1621/11, where the Revenue's appeal was dismissed by the Court on 12th February 2013. Referring to another judgment in Income Tax Appeal No.1738/11, the Court concludes that the Tribunal's order in the present case does not raise any substantial question of law.2. Exclusion of Accrued but Not Received Interest from Total Income:Regarding the exclusion of accrued but not received interest amounting to Rs. 84,71,62,630 from the total income of the assessee company, the Court relies on previous judgments, including one by the Division Bench in the case of Director of Income Tax (International Taxation) Vs. Bank of Bahrain and Kuwait, BSC. The Court observes that the matter is settled based on these judgments, and the Tribunal's decision does not pose a substantial question of law. The Court emphasizes the consistency in the application of accounting practices by banks, following a mercantile system for both bookkeeping and tax purposes, as established by the Supreme Court's ruling in United Commercial Bank Vs. Commissioner of Income Tax. Consequently, the Court dismisses the appeal, affirming the application of the mercantile system of accounting by banks.3. Application of Mercantile System of Accounting by Banks:The judgment highlights the long-standing practice of banks following the mercantile system of accounting for over three decades, which has been accepted by the Revenue. Citing the Supreme Court's decision in United Commercial Bank Vs. Commissioner of Income Tax, the Court upholds the application of this accounting pattern by banks, emphasizing that a different accounting approach is not justified. Therefore, the Court concludes that the insistence on a different accounting pattern, as raised in the appeal, does not constitute a substantial question of law. As a result, the appeal is dismissed based on the consistent application of the mercantile system of accounting by banks.In conclusion, the High Court of Bombay dismisses the appeal challenging the order of the Income Tax Appellate Tribunal, as it does not raise any substantial question of law. The Court affirms the exclusion of accrued but not received interest from the total income of the assessee company based on established legal precedents. Additionally, the Court upholds the application of the mercantile system of accounting by banks, as recognized by previous judgments, including the Supreme Court's ruling in United Commercial Bank Vs. Commissioner of Income Tax.