Mercantile Bank Ltd., Bombay vs The Commissioner Of Income Tax Bombay ...

The Supreme Court addressed two key issues under the Income Tax Act, 1961: (1) whether interest on doubtful advances credited to the interest suspense account is taxable, and (2) the applicability of separate limits for computing disallowance under Section 40A(5) for employees who retire during the previous year. The Court upheld the High Court's ruling that interest on sticky loans should not be taxed if the taxpayer can prove the loans are irrecoverable, aligning with the minority opinion in State Bank of Travancore vs. Commissioner of Income Tax. The Court also confirmed that the method of accounting followed by the assessee was consistent with established practices, thus ruling in favor of the appellant on both counts.