2014 (7) TMI 206 - AT - Income Tax

Assessee prevails in appeal against Revenue's income assessment on certificate of deposits.

The Revenue's appeal, challenging the assessment of understated income by the assessee in relation to certificate of deposits, was dismissed. The ... Understatement of income or not - less booking of maturity value of Certificate of deposits – Held that:- The assessee explained that it had sold the deposits prematurely in the secondary market, so that there is no basis for assuming the assessee to have realized a total of ₹ 42.09 cr., as assumed by the AO - even though there was a dispute in relation to the deposits, it is related to the return of the securities held with the custodian and it did not impact the accrual of income arising on the deposits, which had been accounted for from year to year - The book value of the deposits, accordingly, as on 31.03.1997 stood at ₹ 40.16 cr - assessee have realized ₹ 41.05 cr. on the sale of the securities during the relevant previous year - the excess stands accounted for as income for the current year, i.e., by way of interest for the period 01.04.1997 to the date of sale (Rs.70.54 lacs) and profit on sale of securities (Rs.18.30 lacs) – there was no case for suppression or understatement of income having been made out by the Revenue – thus, there is no infirmity in the order of the CIT(A) – Decided against Revenue. Issues:Understatement of income by the assessee in respect of certificate of deposits.Analysis:The appeal was against the Order by the Commissioner of Income Tax (Appeals) partly allowing the assessee's appeal contesting its assessment for the assessment year 1998-99. The main issue raised by the Revenue was whether there was an understatement of income by the assessee regarding certificate of deposits held by it. The Assessing Officer had calculated the understatement at Rs. 1,84,43,633. The background facts revealed that the assessee, a subsidiary of Bank of India, had deposited a sum of Rs. 31.02 crores with the Custodian as per the directions of the Special Court Act. The total of the deposits amounted to Rs. 42,09,08,900, out of which Rs. 65,627 was to be paid to another entity, resulting in the net receipt of Rs. 42,08,43,633. The Revenue contended that the balance amount of Rs. 1,84.44 lacs was unaccounted income.The assessee argued that it had explained the transaction to the Assessing Officer and provided a reconciliation between the investment figures and the interest booked. The assessee maintained that there was no suppression or understatement of income. The Assessing Officer completed the assessment ex parte under section 144 of the Income Tax Act. In the appellate proceedings, the assessee's explanations were accepted, and relief was granted by the Commissioner of Income Tax (Appeals). The Revenue appealed against this decision.The controversy arose from a note in the accounts of the assessee, which led the Assessing Officer to infer that there was a shortfall in accounting for the income. However, the assessee clarified that it had sold the deposits prematurely in the secondary market, realizing a higher amount than assumed by the Assessing Officer. The dispute regarding the return of securities did not impact the accrual of income from the deposits. The book value of the deposits as on 31.03.1997 was Rs. 40.16 crores, and the excess amount realized was accounted for as income. The appellate tribunal found no suppression or understatement of income by the assessee. The detailed tabular charts provided by the assessee supported their position, and the impugned order was upheld.In conclusion, the Revenue's appeal was dismissed, and the order was pronounced in open court on June 13, 2014.