Oriental Bank of Commerce v. Additional Commissioner of Income Tax

S. RAVINDRA BHAT, J

A. K. CHAWLA, J JANUARY 17, 2018 rc

* IN THE HIGH COURT OF DELHI AT NEW DELHI Date of decision: 17.01.2018 + ORIENTAL BANK OF COMMERCE ..... Appellant Through Mr. Rajat Navet, Adv. versus ADDITIONAL COMMISSIONER OF INCOME TAX.... Respondent Through Mr. Rahul Chaudhary and Ms.Vibhooti Malhotra, Advs. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE A. K. CHAWLA HON'BLE MR. JUSTICE S. RAVINDRA BHAT (ORAL) % CM APPL. 1856/2018 (for exemption) Allowed, subject to just exceptions Admit. 1. The following questions of law arise : (i) Whether in the facts and circumstance of the case, the Tribunal was correct in law in remanding the issue relating to interest on overdue deposits back to the file of the Assessing Officer? (ii) Whether in the facts and circumstances of the case, the Tribunal was correct in law in holding that the claim of the Appellant with respect to provision made for interest on overdue deposits was not acceptable until it is ascertained that the actual payment of the provision has been made to the customers or not? 2. Ms. Vibhooti Malhotra accepts notice of appeal. With the consent of counsel for parties, the appeal was heard finally. 3. The question of law sought to be urged by the assessee is that the ITAT was correct in remitting the issues with respect to the claim for accrued for ascertain liability of interest on overdue deposits claimed by it. 4. The assessee - a scheduled bank had in its return claimed an ascertained liability of Rs.17 crores towards the interest on overdue deposits. The AO was of the opinion that the liability was not in present time and had not crystallized or arisen and therefore, had to be disallowed. The CIT(A) allowed the appeal filed in the light of the previous year's observations which are extracted below : "5.5.4 There is no dispute that interest is liable to be paid by the appellant to the depositors on these time deposits. Therefore, it is clear that above liabilities are definite liabilities. The appellant submitted that it has accounted for interest on overdue deposits at the rate of savings bank deposits and the balance overdue interest is accounted for at the time of renewal as per the RBI Circular. Therefore, it is clear that the above liabilities at the rate of savings bank deposits are ascertained liabilities crystallized during the relevant previous year as on the closure of account on 31/03/2009. Actual interest on time deposits are much higher than savings account deposits. Therefore, the liability debited in the accounts at the rate of savings account deposits cannot be lower than the liability at the time of renewal. 5.5.5 The assessee is a nationalized bank and governed by Banking Regulations Act, 1974. The assessee is bound to act as per RBI Circular. The RBI Circular No. DBOD No. Leg. BC.34/ 09.07.005/2008-09 dated 22.08.2008 in Para 2 (xi) says:- "(xi) Interest on savings bank accounts should be credited on regular basis whether the account is operative or not. If a Fixed Deposit Receipt matures and proceeds are unpaid, the amount left unclaimed with the bank will attract savings bank rate of interest." Further, the above RBI circular is neither inconsistent nor contrary to the provisions of the Income Tax Act. There is no dispute that the appellant debited the liability on account of overdue deposits at the rate of savings bank deposits as per RBI Circular in a bonafide manner. It is also fact that there is no change in the method of accounting but only change in accounting policy as guided by the RBI. 5.5.6 Hon'ble Supreme Court of India in Bharat Earth Movers Ltd. Vs CIT [245 ITR 428] held that if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are s