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Issues Involved:
1. Disallowance of interest paid to the Reserve Bank of India (RBI) for non-maintenance of Cash Reserve Ratio (CRR) and/or Statutory Liquidity Ratio (SLR). 2. Addition of Rs. 90,000 as income from other sources u/s 68 of the IT Act. Summary: Issue 1: Disallowance of Interest Paid to RBI The Revenue appealed against the order of the first appellate authority, which deleted the disallowance made by the IAC (Asst.) regarding the interest paid to the RBI for non-maintenance of CRR and SLR. The AO had disallowed these payments, considering them penal interest and thus not allowable in computing income. The assessee contended that the payments were not for any infraction of law and relied on decisions from the Bangalore Bench of the Tribunal and the Hon'ble Supreme Court in the case of Mahalakshmi Sugar Mills Co. vs. CIT. The first appellate authority allowed the claim, leading to the Revenue's appeal. The learned Departmental Representative argued that the payments were penal in nature, citing s. 42(5)(a) of the RBI Act, 1934, and s. 24 of the Banking Regulation Act, 1949. The Departmental Representative emphasized that the term "penalty" used in sub-s. (6)(a) of s. 24 indicated a penal nature rather than compensatory. The assessee's counsel countered that the payments were interest for non-compliance with RBI regulations and not for any legal infraction. The Tribunal, after considering the arguments, concluded that the payments were indeed interest and not penalties for infraction of law. The Tribunal relied on the decision of the Bangalore Bench in the case of M/s Syndicate Bank, Manipal vs. ITO, which held that such payments were not for legal infractions. The Tribunal upheld the first appellate authority's order, confirming that the payments were allowable as interest. Issue 2: Addition of Rs. 90,000 as Income from Other Sources u/s 68 The Revenue also appealed against the deletion of an addition of Rs. 90,000 assessed as income from other sources. The AO had made this addition because the branch manager could not identify the depositors, and the introducers denied introducing the depositors. The first appellate authority deleted the addition, holding that s. 68 of the IT Act does not apply to deposits in a financial institution and that irregularities in accepting deposits do not justify treating them as the assessee's income. The Tribunal reviewed the facts and found that the AO's addition was based on procedural irregularities and the inability to identify depositors. The Tribunal noted that the bank manager had explained the usual practices for accepting deposits and the lack of necessity for depositor identification in fixed deposit cases. The Tribunal agreed with the first appellate authority that the failure to identify depositors alone was insufficient to treat the deposits as the assessee's income. The Tribunal upheld the deletion of the addition, concluding that the order of the first appellate authority did not warrant interference. Conclusion: The appeals by the Revenue for the asst. yr. 1984-85 on both grounds and the appeals for the asst. yrs. 1985-86 to 1989-90 on the common ground were dismissed.
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