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TMI Blog2013 (4) TMI 578X X X X Extracts X X X X X X X X Extracts X X X X ..... making various additions and disallowances, vide order of assessment dated 28.12.2007 passed under S.143(3) of the Act. 3. The Commissioner of Income-tax, while perusing the assessment record noticed that the order of assessment dated 28.12.2007 passed by the Assessing Officer was erroneous and prejudicial to the interests of the Revenue for the following reasons- "An amount of Rs. 140,72,57,682/- credited P&L Account on account of settlement of inter branch accounts and the same was reduced while computing the income claiming it to be exempt from tax. While computing the income non-existent set off of losses of Rs. 124.45 crores pertaining to assessment year 2005-06 were allowed." The Commissioner of Income-tax accordingly got issued a show cause notice under S.263 of the Act to the assessee, and not convinced with the explanation of the assessee in response thereto, passed the impugned order dated 2.3.2010 under S.263 of the Act, holding that the exemption given to the assessee of Rs. 140,72,57,682 being settlement of inter branch accounts is not in order; and also that the assessee's claim of brought forward losses pertaining to A.Y. 2005-06 amounting to Rs. 124,45,19, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer to disallow set off of brought forward loss of AY 2005-06 Rs. 124.45 crores The appellant contends that in the facts and circumstances, the learned CIT is not correct in directing the Assessing Officer to disallow the loss. 12. For these and other reasons that may be urged, the appellant prays order U/s. 263 of the Act be vacated or cancelled and grant such relief as may be available under law." 6. Reiterating the above contentions, the learned counsel for the assessee, submitted that the Commissioner of Income-tax was not justified in passing the impugned order under S.263, as the assessment made was neither erroneous nor prejudicial to the interests of the Revenue. With regard to the taxability of inter-branch deposits, he placed reliance on the following decisions of the Tribunal in similar matters- (a) Order of the Delhi 'F' Bench of the Tribunal dated 25.10.2011 in Cross Appeals in the case of M/s. Punjab National Bank, New Delhi V/s. Addl. Commissioner of Income-tax vice versa (ITA Nos.3057 & 2873/Del/2007) for assessment year 2005-06; (b) Order of Bangalore Bench 'A' of the Tribunal dated 8.6.2012 in M/s. Canara Bank V/s. CIT, Bang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he part of the bank or its branches to properly reconcile the transactions. In fact, it is always understood that all these accounts must have cancelled each other. It did not take place that way due to human errors or lack of advice forthcoming as regards the closure of the accounts. In any case, any imbalance in the inter branch accounts, in our considered view, cannot give rise to a taxable income under the Income-tax Act. The Assessing Officer as well as CIT-DR has heavily relied upon the decision of the Hon'ble Supreme Court in the case of T.V.Sundaram Iyengar & Sons Ltd. - 222 ITR 344. In that case, the assessee received the deposits from customers in the course of its business and transferred the amounts which were not claimed by the customers to its profit & loss account. The Assessing Officer was of the view that the sums in question have become the income of the assessee because of the expiry of limitation period or other statutory or contractual rights. The amounts had the character of income and therefore, assessable to tax. The Hon'ble Supreme Court held that although the amounts received originally were not in the nature of an income, the amounts remained with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicable to the facts of the case. In fact, the Hon'ble Delhi High Court in the case of Rajasthan Golden Transport Co.(P) Ltd. (supra) was concerned with the amounts received in the course of trade transactions. In the decision of the Hon'ble Delhi High Court, the amounts in question were held to be taxable under Section 41(1) of the Act. As regards the applicability of Section 41(1), we may again state that such provisions of Section 41(1) cannot be invoked to bring these amounts in question to be taxed as a part of the receipt in the aforesaid provision. The Revenue has to first establish that the sum in question which is now being brought to tax has once been allowed in the past as a deduction while computing the income of the bank. It is not the case of the Revenue or at least the Revenue has not brought any material to show that the sum in question forming part of the so-called inter branch transactions were once allowed by the Revenue as a deduction in the computation of profits and gains of business. When that primary requirement is absent, the question of bringing the sums in question to tax under Section 41(1) may not be legally permissible to the Revenue. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount, as per the direction of the RBI have traces of income, either at the time of receipt or at the time of write off to the P&L account. In fact, the RBI has permitted the assessee bank to close these differences to the P&L account with the rider that the sums in question are not permitted to be used in the from of distribution of dividends and it was specifically made clear by the RBI that the obligation to discharge the liabilities arising thereunder is upon the assessee bank. Meaning thereby, there is no question of the amounts being treated as income in the hands of the bank. 6.2 The CIT while passing the revisionary order under section 263 of the Act has relied upon the judgment of the Hon'ble Supreme Court in the case of CIT v TV. Sundaram Iyengar and Sons Ltd. reported in 222 ITR 344. In that case, the assessee received deposits from customers in the course of its business and transferred the amounts, which were not claimed by the customers, to its P&L account. The Assessing Officer was of the view that the sum in question has become the income of the assessee because of the expiry of limitation period or other statutory or contractual obligation. The amounts had t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt in the sense that the face value of the demand Drafts, pay orders, etc., were the customers' money to be paid/transferred as per the direction of the customers. The said sum would not take the character of a trading receipt as contended by the learned counsel for the assessee." The Tribunal thereafter referred to the decision of the Karnataka High Court in the case of CIT V/s. Industrial Credit and Development Syndicate Ltd.(2006) 155 Taxman 90(Kar) and ultimately concluded that in the light of the direction of the RBI to the assessee therein, the amount in question cannot be treated as assessee's income. Further, the Tribunal held that in any event, the issue is debatable and therefore, jurisdiction under S.263 of the Act could not be invoked by the Commissioner of Income-tax. 11. Respectfully following the consistent view taken by various benches of the Tribunal on the issue of income attributable to inter- branch transactions in respect as of a banking company, in the above case, we hold that the said income is not liable to tax and in any event, the Commissioner of Income-tax is not justified in invoking the revisionary powers under S.263 of the Act in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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