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TMI Blog2020 (10) TMI 1391X X X X Extracts X X X X X X X X Extracts X X X X ..... be used by the assessee in the form of distribution of dividends and therefore, the income does not par take the character of the income in the hands of the assessee and cannot be subjected to tax. Thus, it is evident that in the instant case, there is no cessation of liability of the assessee to pay the amount in question. Therefore, the same cannot be treated to the income of the assessee. Substantial questions of law framed by this court are answered against the revenue and in favour of the assessee. - Hon'ble Judges Alok Aradhe and H.T. Narendra Prasad, JJ. For Appellant : K.V. Araving, Adv. For Respondents : T. Suryanarayana and Mahima Goud, Advs. ORDER Alok Aradhe, J. 1. This appeal under Section 260A of the Income Tax Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and loss account, the assessee had credited a sum of Rs. 52,77,81,540/- towards write back of stale demand drafts as an income for assessment year 2007-08 and the aforesaid amount was allowed as deduction in computation statement. The Commissioner of Income Tax invoked the powers under Section 263 of the Act and inter alia noticed that there is no provision to exclude the receipts from taxable income when the same have been credited by the assessee to the profit and loss account to his income. It was further held that the order passed by the Assessing Officer is erroneous and is prejudicial to the interest of the revenue. 3. The Commissioner of Income Tax by an order dated 07.03.2011 inter alia held that under the Act there is no provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss account. It was further held that a direction has been issued by Reserve Bank of India that assessee is under an obligation to meet the future claims out of general reserve so created. It was further held that the instruction issued by Reserve Bank of India under Section 35A of the Banking Regulation Act, 1949 are binding on the assessee and even though, the same is routed through profit and loss account, it does not par take the character of income in the hands of the assessee and cannot be subjected to tax. Accordingly, the order passed by the Commissioner of Income Tax directing the Assessing Officer to assess an amount of Rs. 52,77,81,539/- is quashed and the appeal preferred by the assessee was partly allowed. In the aforesaid fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar issued by the Reserve Bank of India, which prescribes that the assessee has the liability to refund the amount on demand. Therefore, the decision of the Supreme Court in T.V. Sundaram Iyengar and Sons Ltd., supra is of no assistance to the revenue. It is pointed out that in Karamachand Thaper supra, the Supreme Court was dealing with a case of trading liability and therefore, on the same analogy the aforesaid decision is of no assistance to the revenue. It is argued that in fact the decision of the Supreme Court in Southern Technologies supra supports the case of the assessee as the credit in the profit and loss account was made by the assessee on the instructions issued by the Reserve Bank of India. It is also argued that the issue inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts in its total income. The Assessing Officer held that since, the surplus income has arisen as a result of fake trade transactions, the amount had a character of income and accordingly the same were treated as income. The Commissioner of Income Tax (Appeals) allowed the appeal preferred by the assessee and held that such amount cannot be treated as income under Section 41(1) and Section 28, since, there were excess trading advances given by the clients to the assessee. The tribunal upheld the order passed by the Commissioner of Income Tax (Appeals). In para 18 of the aforesaid decision, it was held as under: We are unable to uphold the decision of the tribunal. The amounts were not in the nature of security deposits held by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing liability is incurred by the assessee. A bench of this Court by placing reliance on paragraph 18 of T.V. Sundaram Iyengar and Sons Ltd.'s case upheld the order of the tribunal directing deletion of the sum towards unclaimed stale profits and pay orders. The aforesaid decision was followed by another division bench of this court in Raddi Sahakara Bank Niyamitha supra. 11. Now we may advert to the facts of the case. The Reserve Bank of India has issued instructions under Section 35A of the Banking Regulation Act, which are statutory in nature and are binding on the assessee. The relevant extract of instructions, read as under: ( i) The amount should first be credited to the profit and loss account and shown under item VII (Miscellaneo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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