- (1.) SIXTEEN civil writ petitions filed by the petitioner for different assessment years are being disposed of. The judgment is prepared in C. W. P. No. 11863 of 1989.
(2.) IN this petition filed under articles 226 and 227 of the Constitution, the petitioner-State Bank of Patiala, a body corporate, constituted under the State Bank of Patiala (Subsidiary Bank and Controls) Act, 1959, seeks a writ of certiorari quashing the order dated June 13, 1989, annexure P-1 passed by the Central Board of Direct Taxes declining to interfere in the matter of proceedings initiated under Section 148 (1) of the Income-tax Act by issuing a notice, annexure P-2, dated March 25, 1988, and also for quashing of the aforesaid notice and further directing the respondents including the Commissioner of Income-tax and the Inspecting Assistant Commissioner (Assessment), Patiala, not to reassess the petitioner for the assessment year 1972-73. The petitioner is an assessee since the assessment year 1961-62 under the Income-tax Act, 1961. The assessment proceedings for the assessment years 1971-72 to 1986-87 were completed under Section 143 (3) of the Act. On March 25, 1988, notice, annexure P-2, was issued by respondent No. 3 under Section 148 (1) of the Act on the ground that respondent No. 3 had reasons to believe that income of the petitioner-bank chargeable to tax for the assessment year 1972-73 (year ending December 31, 1971), had escaped assessment within the meaning of Section 147 (a) of the Act. The notice required the petitioner to submit a return in the prescribed form within 30 days thereof. Since the notice did not mention the reasons on the basis of which it could be said that there was escapement of income from assessment within the meaning of Section 147 of the Act, on enquiry such reasons were disclosed contained in annexure P-3, dated June 17, 1989.
(3.) THE reasons disclosed are summarised as under : The bank transferred debts which could not be recovered (doubtful of recovery) to a separate account styled as Protested Bills Account and stopped adding interest on accrual basis, a system to be followed under the mercantile business system on the ground that interest could be charged under orders of the civil court under Section 34 of the Code of Civil Procedure. Such interest on such accounts for the assessment year 1972-73 was about Rs. 3,05,000 which the bank had failed to disclose and include in the taxable income. In this manner, the bank did not disclose fully and truly all material facts necessary for the assessment. The bank alleged that the matter was discussed with the assessing authority and it was conveyed that the notices were issued in view of the decision rendered by the Supreme Court in State Bank of Travancore v. CIT [1986] 158 ITR 102. The bank, hence, filed a reply to the notice, copy annexure P-4. Another detailed reply was filed to the notice under Section 148 (1) of the Act on January 19, 1988, copy annexure P-5. It was asserted in these replies that on the basis of the decision of the Supreme Court referred to above, the proposed reopening of the assessment was without jurisdiction. It was made clear that no interest in the Protested Bills Account was being credited on accrual basis and the interest in such accounts was credited to interest account only after its actual receipt from the borrower. The action of the authorities was wholly without jurisdiction in view of Section 147 (a) of the Act in respect of the assessment year 1972-73. The grounds given were briefly as follows ; (i) The method of accounting adopted by the bank from the day it took over from the then Bank of Patiala, i. e. , with effect from April 1, 1960, was on cash receipt basis as far as the Protested Bills Account was concerned. Up to the assessment year 1960-61, the Bank of Patiala was exempt from the payment of income-tax. (ii) The interest on the amounts transferred to the Protested Bills Account was being debited at the time of interest actually realised in execution of the decree that may be passed in such cases and such income was offered for tax. Such accounts as transferred to the Protested Bills Account were not normal accounts. It was beyond the control of the bank to recover interest on the principal as the accounts became highly irregular and disputed. ;