2012 (6) TMI 772 - AT - Income Tax

Tribunal quashes CIT order adding Rs. 52,77,81,540 to income, rejects challenge on jurisdiction

M/s Canara Bank Versus The Commissioner of Income-tax, LTU, Bangalore

The tribunal partly allowed the appeal, quashing the CIT's order to add Rs. 52,77,81,540/- to total income for the write back of stale demand drafts, as ... Revision u/s 263 - additions on account of write back of stale demand drafts to the Profit & Loss account which was done as per the direction of Reserve Bank of India - Held that:- 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. - Decided in favour of assessee. Issues Involved:1. Validity of invoking jurisdiction under section 263 of the Income Tax Act.2. Addition of write back of stale demand drafts to the Profit & Loss account.3. Computation of capital gains.Detailed Analysis:1. Validity of Invoking Jurisdiction under Section 263 of the Income Tax Act:The appellant challenged the order of the Commissioner of Income Tax (CIT), Bangalore, LTU, dated 7/3/2011, which invoked jurisdiction under section 263 of the Income Tax Act to set aside the assessment order dated 26/11/2009. The appellant argued that the CIT's order was opposed to law and facts and erred in invoking jurisdiction under section 263. However, the tribunal rejected the grounds related to the valid initiation of provisions under section 263, as the appellant did not challenge the revisionary jurisdiction invoked for the computation of capital gains.2. Addition of Write Back of Stale Demand Drafts to the Profit & Loss Account:The CIT directed the Assessing Officer to add the write back of stale demand drafts amounting to Rs. 52,77,81,540/- to the total income. The CIT argued that the money received by the assessee in the course of business became the assessee's own money over time and should be treated as income. The CIT relied on the Supreme Court's judgment in the case of CIT v T V Sundaram Iyengar and Sons Ltd., which held that unclaimed amounts that became trade surplus should be taxed as income.The appellant contended that the write back of stale demand drafts was done as per the direction of the Reserve Bank of India (RBI) and did not result in any income. The RBI had instructed the appellant to transfer the amounts to the Profit & Loss account and then to the General Reserve to meet future claims. The tribunal noted that the RBI's instructions were binding on the appellant as per section 35A of the Banking Regulation Act, 1949. The tribunal concluded that the amounts transferred to the General Reserve could not be treated as income since they were not available for distribution as dividends and were to be used to meet future claims. Therefore, the CIT's order directing the addition of Rs. 52,77,81,540/- to the total income was quashed.3. Computation of Capital Gains:The CIT's order also invoked revisionary jurisdiction for the computation of capital gains, which was not challenged by the appellant. As a result, the tribunal did not address this issue in detail and rejected the grounds related to the valid initiation of provisions under section 263 concerning capital gains.Conclusion:The appeal was partly allowed. The tribunal quashed the CIT's order directing the addition of Rs. 52,77,81,540/- to the total income on account of the write back of stale demand drafts, as it did not constitute income. However, the grounds related to the valid initiation of provisions under section 263 concerning the computation of capital gains were rejected. The order was pronounced in the open court on 8th June 2012.