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TMI Blog2012 (6) TMI 772X X X X Extracts X X X X X X X X Extracts X X X X ..... revisionary jurisdiction under section 263 of the Act directing the Assessing Officer to assess an amount of ₹ 52.77 crores is not justified and therefore, is quashed to that extent. It is ordered accordingly. - Decided in favour of assessee. - ITA No. 390/Bang/2011 - - - Dated:- 8-6-2012 - Shri George George K, J. M And Shri Jason P Boaz, JJ. For the Appellant : Shri Sarangan., Sr. Counsel For the Respondent : Shri S K Ambastha, CIT-I ORDER Per George George K : This appeal instituted by the assessee is directed against the CIT, LTU s order dated 7/3/2011 passed under section 263 of the Act. The relevant assessment year is 2007-08. 2. The grounds raised read as follows:- i) The order of the learned CIT,Bangalore, LTU under section 263 dated 7/3/2011 is opposed to law and facts. ii) On the facts and in the circumstances of the case, the learned CIT erred in invoking jurisdiction under section 263 for setting aside the assessment order dated 26/11/2009 for the relevant assessment year. iii) On the facts and in the circumstances of the case, the learned CIT erred in law in directing the Assessing Officer to make additions on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee why the surplus money was taken to its profit and loss account even if it was somebody else s money. In fact, as Atkinson J pointed out that what the assessee did was a commonsense way of dealing with the amounts. The view of the Hon ble Supreme Court have been reiterated in the case of Solid Containers Ltd. v DCIT (2009) 308 ITR 417 (Bombay) wherein it was held that although the amounts received originally were not of income in nature, the amounts remained with assessee for a long period unclaimed by trade parties. The principle appears to be that if an amount is received in course of a trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee s own money because of limitation or by any other statutory or contractual right. 5. In the case of the assessee stale demand drafts totaling ₹ 52,77,81,539/- was credited to the P L account on a specific request made by the assessee to the Reserve Bank of India. The Reserve Bank imposed certain conditions mentioned in the assessee s submissions above. The reasons for requesting the transfer is quite c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The learned DR, apart from relying on the findings of the CIT, submitted that the order of the Tribunal relied on by the learned senior counsel, stands on different footing and is not applicable to the facts of the instant case. It was submitted by the learned DR that the Tribunal in the case of Punjab National Bank was essentially and primarily considering the issue of unreconciled credit balance in the inter branch transactions of the assessee bank and whether the amounts are to be treated as income in the hands of the assessee. In that context, the Tribunal held that the credit balance lying in one branch cannot become the assessee s income for the simple reason, the assessee cannot make profit from one branch at the expense of another branch since it is one and the same entity. 6. We have heard the rival submissions and perused the materials on record. Reserve Bank of India vide its instruction dated 30/3/2007 had directed the assessee bank to reconcile the outstanding entries in inter branch accounts. The instruction of the RBI dated 30/3/2007 reads as follows:- RESERVE BANK OF INDIA DBS.CO.SMC.No.13162/22.09.001/2006-07 March 30, 2007 The Chairman Financial M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) These entries will be dropped from the reporting system and need not be reported as outstanding entries in the quarterly reports to RBI. However, you should continue your efforts towards reconciliation of such entries. 3. Please advise the number of entries and amount transferred as above in due course. 4. In this connection we reiterate the instructions contained in our circular DBOD.No.BC.114/16.01.001/93 dated April 28, 1993 in terms of which banks are requested to ensure that no entries are kept unadjusted for more than six months. Sd/- (N P Topne) General Manager 6.1 In pursuance to the RBI approval, a sum of ₹ 52.77 crores was transferred to the P L account, being the unreconciled entries up to 1999, from the inter branch account and the balance net off taxes was transferred to Statutory Reserve and General Reserve (Courtesy : Schedule 17 - Notes on accounts for 2006-07). From the RBI instruction, it is clear that the transfer was permitted by the RBI to the General Reserve although the routing was through P L account. The RBI had very clearly stated that the amounts transferred to the general reserve should be utilized to meet the future claims. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he hands of the assessee. 6.3 In the instant case, as mentioned earlier, the Reserve Bank of India had categorically directed that the amounts are to be kept in general reserve account though routed through the profit and loss account. It is the direction of the RBI that the assessee bank is under an obligation to meet the future claims out of General Reserve so created. The RBI had also stipulated that the amounts so transferred shall not be used in the form of distribution of dividend. In this context of the matter, it cannot be said that it is the money of the assessee bank. The RBI instructions are issued as per section 35A of the Banking Regulation Act, 1949 and the same are binding on the assessee bank. Therefore, though it is routed through the profit and loss account, it does not have income character in the hands of the assessee bank and hence, it cannot be brought to tax. Accordingly, the CIT s order invoking revisionary jurisdiction under section 263 of the Act directing the Assessing Officer to assess an amount of ₹ 52.77 crores is not justified and therefore, is quashed to that extent. It is ordered accordingly. 7. Since revisionary jurisdiction has been in ..... 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