JUDGMENT (Sanjay Karol. J - In exercise of its power under Section 256 (1) of the Income Tax Act (hereinafter referred to Act), the Income Tax Appellate Tribunal Chandigarh bench, Chandigarh, has referred the following questions for our opinion. “(i) Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in law in allowing the assessee’s claim regarding interest due on sticky loans? (ii) Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in law in holding that the discount of Rs.10,050/- pertaining to bonds issued upto 31.3.1976 and thus relating to assessment year 1976-77 was allowable in the assessment year 1977-78, the previous year in respect of which ended on 31.3.1977. (iii) whether, on the facts and the circumstances of the case, the Appellate Tribunal was right in law in cancelling the order of the Commissioner of Income Tax, on the ground that it was without jurisdiction.” 2.The Assessee Financial Corporation, set up under the State Financial Corporation Act, filed returns for the Assessment Year 1978-79 ending on 31.1.1977 (counting year 1977-78). Under Section 143(3), the Income Tax Officer, A-Ward Shimla passed the assessment order (Annexure ‘A’) assessing declaring the income as Rs.12,47,644/-. 3.Exercising the powers under Section 263 of the Act, the Commissioner, Income Tax Patiala vide its order dated 30.10.1980 passed in Judl 1/RO/19/78-79 (Annexure-B), set aside the aforesaid assessment and remanded the matter back to the Assessing Officer to reassess the income. The Commission set aside the assessment after disallowance of Rs.10,050/- being the discount on issue of bonds, which according to him, was a liability that arose in the year other than the previous year relevant to the assessment year 1977-78 and issued direction that the amount towards interest accrued on sticky loans be considered afresh for the purpose of assessment taking into consideration the evidence, which may be put by the assessee before the Assessing Officer 4.Aggrieved by the same, the assessee filed an appeal (ITA No,. 795/Chd/80 before the Tribunal and relying upon its decision rendered with respect to another assessee namely, Punjab Financial Corporation in ITA No. 144/CHD/1979(Assessment year 1972-73), the Tribunal set aside the order dated 30.10.1980 passed by the Commissioner in terms of its order dated 23.2.1982 (Annexure ‘C’). 795/Chd/80 before the Tribunal and relying upon its decision rendered with respect to another assessee namely, Punjab Financial Corporation in ITA No. 144/CHD/1979(Assessment year 1972-73), the Tribunal set aside the order dated 30.10.1980 passed by the Commissioner in terms of its order dated 23.2.1982 (Annexure ‘C’). The order passed by the Commissioner was held to be without jurisdiction hence the reference in question was made to this Court. 5.Learned counsel appearing for the parties, during the course of hearing, have candidly admitted that while passing the assessment order the Income Tax Officer did not take into consideration Circular No. 41(V-6)D of 1952 dated 6.10.1952. The learned counsel for the parties are also in agreement that at the relevant point of time, it was this Circular which had to be considered for carrying out the assessment. Learned counsel for the parties are also in agreement that the decision rendered by this Court in I.T.R. No. 23 of 1995 M/s H.P.Financial Corporation Vs. The Commissioner of Income Tax, Patiala decided on 9.4.2008 to the effect that the Assessing Officer was duty bound to carry out the assessment in accordance with the prevalent Circular, which squarely applies to the facts of the present case also. 6.The assessment order in question is totally silent as to on what basis deduction of Rs.94,875/- towards interest allowed and why the sum of Rs.93,383/- was not liable to be brought to tax by the Income Tax Officer. 7.The Commissioner in exercise of its powers under Section 263 of the Act has set aside the assessment order with a direction that the assessment be redone on the basis of material, which may be placed on record by the assessee to establish that if any of the debts have become bad or interest was not recoverable on any account. 8.While arriving at its conclusion in ITA No. 144 of 1997 pertaining to a different assessment year of another assessee the Tribunal was satisfied that there sufficient material to arrive at a conclusion that the interest on sticky loans was not taxable. For the purpose of ready reference the findings are reproduced as under: “27. 8.While arriving at its conclusion in ITA No. 144 of 1997 pertaining to a different assessment year of another assessee the Tribunal was satisfied that there sufficient material to arrive at a conclusion that the interest on sticky loans was not taxable. For the purpose of ready reference the findings are reproduced as under: “27. Even on merits, the Income Tax Officer had considered in the assessment made denovo on 31.12.1976 that in fact ‘the Corporation’s method is that in case in which 5 or more half yearly consecutive installments of principal amounts fall due, the interest accruing from them for the year should not be credited to the interest received amount by is taken to the suspense account. The method has been consistently adopted even in the subsequent years’”. Thus the assessee Corporation was covered by the letter issued by the Central Board of Direct TAxes which was specifically directed by the Appellate Assistant Commissioner to be considered by the Income tax Officer alongwith the facts on record of the assessee. The Income Tax Officer complied with the direction but took the precaution while allowing the deduction of interest of Rs.1,03,286/- to note that when this interest is received by the Corporation, it will be brought to tax under section 41(1) of the Income Tax Act, 1961. The order of the Income Tax Officer was, therefore, made after the care and caution and after judicial discretion that vested in him. This order on the date of it was correct on facts and in law applicable thereto. Such judicial discretion exercised by the Income Tax Officer cannot be said to be resulting into an order which is erroneous and prejudicial to the interest of revenue. We find that the Income Tax Officer could not have disregarded the letter of the Central Board of Direct Taxes as on the same issue there was no reason for him to give different treatment to the assessee Corporation. 28. Thought the assessee was following mercantile method of assessing yet in respect of the interest on sticky load, an exception was made on proper rules observed uniformity in respect of loans where there was default in payment of 5 consecutive half yearly installments. This was found by the Income Tax Officer himself as a fact in his order which the Commissioner thought to be erroneous. This was found by the Income Tax Officer himself as a fact in his order which the Commissioner thought to be erroneous. Thus method followed by the assessee is permissible and was also not in contradiction with the advice given by the apex body of the Income Tax Department. As such the order of the Income Tax Officer on merits was neither erroneous nor prejudicial to the interest of revenue. It could not be cancelled by the Commissioner of Income Tax under Section 263 of the Act. His order is, therefore, had in law on this account as well. It is, therefore, cancelled on each of the above accounts . (Emphasis supplied) 9.In its order dated 30.10.1980, the Commissioner has observed as under: “The assessment in the case of M/s Himachal Pradesh Financial Corporation Ltd. was framed on a total income of Rs.12,57,274/-. The Income Tax Officer computed this income inspite of the auditors note that interest on sticky accounts for the year amounting to Rs.93,383/- has not been provided for and after allowing a sum of Rs.10050/- being liability discount on issue of bonds incurred in earlier years. The Balance Sheet showed that the opening balance of Rs.1,64,074/- on the interest in Suspense Account had only been reduced by sum of Rs.39,306/-. The balance carried forward thus worked out to Rs.1,14,768/-. The assessee did not claim any amount as a bad debt nor did it claim that in view of there being no scope of recovery, interest had not been charged in certain accents. Actually, the assessee did not furnish any details of these loan nor did the I.T.O. go into the claim of assessee that the amount of Rs.93,383/- being interest accrued on various loans was not to be taxed as income of the assessee on accrual basis. The records show that the accounting method of the assessee was mercantile and thus the sum of Rs.93,383/- should have been returned as taxable income and should have been brought to tax by the Income Tax Officer. 10.Since there was no material on record either before the Assessing Officer or before the Tribunal, the Tribunal was not right in law in allowing the assessee’s claim regarding interest due to sticky loans. The reliance on the decision in relation to another assessee was misconceived, being on separate set of facts. 10.Since there was no material on record either before the Assessing Officer or before the Tribunal, the Tribunal was not right in law in allowing the assessee’s claim regarding interest due to sticky loans. The reliance on the decision in relation to another assessee was misconceived, being on separate set of facts. The Commissioner has power to exercise jurisdiction, if the order of the Income Tax Officer is erroneous and prejudicial to the interest of the Revenue. An incorrect assumption of fact or an incorrect application of law would satisfy the requirement of the order being erroneous. The expression “prejudicial to the interest of Revenue” as understood in its ordinary meaning is of wide import and not confined to the loss of tax alone. If due to an erroneous order of the Assessing Officer, the revenue is loosing tax lawfully payable by a person, it should be certainly prejudicial to the interest of the Revenue (Malaha Industrial Co. Ltd. V. Commissioner of Income Tax 2000(243) I.T.R. 83 (S.C). Rampyari Devi Sarangi V CIT, 1968(67) IIR 84 (SC) and Smt. Tara Devi Aggarwal V. CIT, 1973(88) ITR 323 (SC). 11.While setting aside the assessment order, the Commissioner noted that he Income Tax Officer passed the order without any material on record. Admittedly the Circular dated 6th October 1952, has also not been considered by the Assessing Officer. In our view, the Assessing Officer failed to apply its mind in its correct perspective and order passed by him in erroneous. There is no material on record to support the decision arrived at by the Tribunal. In this background, the Tribunal, therefore, was wrong in arriving at its conclusion that the Commissioner of the Income Tax had exceeded its jurisdiction while setting aside the same. The Commissioner rightly exercised the power under Section 263(1) of the Act. 12.Question of law No. 1 and 3 answering according. 13.Question No. 2 as has been submitted by the learned counsel of the parties is squarely covered by a decision rendered by this Court in H.P.Financial Corporation Ltd. Vs. Commissioner of Income Tax 1998(232) ITR 158 : 1998(1) Current Law Journal (H.P.) D.B. 209. 12.Question of law No. 1 and 3 answering according. 13.Question No. 2 as has been submitted by the learned counsel of the parties is squarely covered by a decision rendered by this Court in H.P.Financial Corporation Ltd. Vs. Commissioner of Income Tax 1998(232) ITR 158 : 1998(1) Current Law Journal (H.P.) D.B. 209. While considering whether the assessee is entitled to claim discount on bonds and debentures as allowance expenditure, this Court has held: “Therefore, our answer to question No. 2 is that though the entire amount of discount amounting to Rs.94,875/- was not an allowable expenditure in the assessment year in question, the said amount of discount has to be spread out proportionately over the number of years for which the bonds are issued and the proportionate amount of discount would be allowance expenditure in the assessment year in question. We find that the reasoning of the Madhya Pradesh High Court is in accordance with law and we prefer to follow that reasoning and hold that it is not necessary for the assessee to make out a case of actual expenditure before claiming allowance deduction under the provision of section 37 of the Act. In such circumstances, we answer the question referred to us in the negative and hold that the Tribunal was not justified in holding that the discount of bonds was not allowance expenditure. 14.Question No. 2 is answered accordingly as admittedly having been covered by the aforesaid decision. 15.Accordingly, we answer the question referred to us. The matter is remanded back to the Assessing Officer to frame fresh assessment order in view of our aforesaid observations. Learned Registrar General of this Court is directed to send a copy of this order to the Income Tax Appellate Tribunal. M.R.B. ——————-