Lakshmi Commercial Bank vs Commissioner of Income Tax

Nobody has appeared on behalf of the petitioner. Under these circumstances, we had no option but to hear the learned counsel for the

respondent-Revenue alone. Vide orders dated 28-11-1985 following two questions were framed to fee answered by this Court:

1) ""Whether on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in holding that the sum of Rs. 3,06,131

being interest credited to Interest Suspense account was includible as income of the Assessee for the assessment year under reference viz. 1975-

1976?

2) ""Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that a sum of Rs. 95,280 is not in the nature

of entertainment expenses and was to be allowed as expenditure while computing the income of the Assessee ?

As is clear from the manner in which the first question of law is framed, the Assessee had taken into consideration interest income of Rs.

3,06,131 and even credited it in the Interest Suspense account. However, the reason for not carrying it forward to the profit and loss account was

that there was some doubt about the recovery of the amounts advanced and therefore the interest amount charged on the aforesaid advances was

credited to the Interest Suspense account as per the directions of the Reserve Bank of India.

The assessing authority however included this amount as income in the relevant assessment year on the ground that Assessee was maintaining its

accounts on mercantile basis and therefore same hag to be taxed in view of Kerala High Court decision in State Bank of Travancore Vs.

Commissioner of Income Tax, . We find that aforesaid judgment of the Kerala High Court has been affirmed by the Hon''ble Supreme Court

which is reported as State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, . While affirming the judgment the Hon''ble Supreme

Court inter alia observed that even if the amount is put in Interest Suspense account on the ground that the interest has accrued on sticky advances,

to be treated as income when accruing to the mercantile system of accounting. In view thereof the first question is answered against the Assessee

and in favour of Revenue.

So far as the second question is concerned, it is contended by learned counsel for the revenue that the same stands covered against the revenue

as per judgment of the Hon''ble Supreme Court in the case of CIT v. Patel Bros. & Co. Ltd. [1995] 215 ITR 165 2. In the said judgment, the

Hon''ble Supreme Court interpreted the definition of ""entertainment"" and held that even if the amount is spent on entertainment mat has to be

allowed as expenditure. Second question therefore is to be answered in favour of the Assessee and against the Revenue and it is so answered.

Reference is disposed of in the aforesaid terms.