TaxTMI 
TaxTMI 
2000 (8) TMI 246
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....nt and references have been filed before the High Court. 2. While framing the assessment orders for the assessment years under appeal, the AO noticed that the assessee had paid penal interest to Reserve Bank of India (RBI) of different sums for the assessment years under consideration for non-maintenance of Cash Reserve Ratio (CRR) and/or Statutory Liquidity Ratio (SLR). This was disallowed by the AO on the ground that the payment made represented penal interest and hence the same is not allowable in computing the income. The assessee contended before the first appellate authority that the said amount was paid to the Reserve Bank of India for non-maintenance of CRR and SLR as required by the Banking Regulations Act of the Reserve Bank of India. It was contended before the first appellate authority that the payment was not for any infraction of law and hence it was contended that it was an allowable expenditure. For the above proposition, the assessee also placed reliance on the decision of the Bangalore Bench of the Tribunal in the case of Syndicate Bank, Manipal vs. ITO in ITA No. 750/Bang/1985 dt. 15th March, 1989, relating to the asst. yr. 1985-86. The first appellate authori....
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.... the Reserve Bank or the State Bank of India or with any other bank which may be notified in this behalf by the Central Government, including in the case of a scheduled bank the balance required under s. 42 of the RBI Act, 1934 (2 of 1934), to be so maintained, shall be deemed to be cash maintained in India: (2-A) (a) Notwithstanding anything contained in sub-s. (1) or in sub-s. (2), after expiry of two years from the commencement of the Banking Companies (Amendment) Act, 1962 (36 of 1962),— (i) a scheduled bank, in addition to the average daily balance which it is, or may be, required to maintain under s. 42 of the RBI Act, 1934 (2 of 1934), and (ii) every other banking company, in addition to the cash reserve which it is required to maintain under s. 18, shall maintain in India,— (A) in cash, or (B) in gold valued at a price not exceeding the current market price or in unencumbered approved securities valued at a price determined in accordance with such one or more of, or combination of, the following methods of valuation, namely, valuation with reference to cost price, market price, book value or face value, as may be specified by the Reserve Bank from time to....
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....ich shall not be less than three per cent of the total of the demand and time liabilities in India of such bank as shown in the return referred to in sub-s. (2): Provided that the bank may, by notification in the Gazette of India increase the said rate to such higher rate as may be specified in the notification so however that the rate shall not be more than twenty per cent of the total of demand and time liabilities." Again inviting our attention to sub-s. (5)(a) of s. 42 of the RBI Act, 1934, the learned Departmental Representative submitted that this section speaks of the penalty imposable by sub-ss. (3) and (4). According to the learned Departmental Representative the provisions of the Banking Regulation Act, 1949, and RBI Act, 1934, make abundantly clear that what the defaulting banking company pays for the failure to maintain the cash reserve or security reserve at the minimum prescribed percentage, is penal in nature. The mere expression of the words "penal interest" does not make the payment any less than penalty. The learned Departmental Representative submitted that the reliance placed by the learned first appellate authority on the decision of the Hon'ble Supreme C....
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....al submissions and gone through the orders of the Revenue authorities and the decisions relied on by the contending parties. Though mens rea is not relevant as far as penalty for infraction of law is concerned, still if the assessee has, without any action from its side, crossed the border of permissible limit, such action cannot be treated as a criminal action liable to penalty, or for that matter infraction of law. In banking parlance it is an additional interest, termed as "Penal interest." In the instant case of the assessee, the assessee failed to maintain the ratio of cash reserve and statutory liquidity prescribed by the Banking Regulation Act, 1949. For such default assessee is liable to pay penal interest. It is true that there is no creditor-lender relationship between the RBI and the assessee. Still the RBI is the controlling body. It has to keep a check on the assessee and to guard the interests of the depositors. It is for this purpose that the RBI prescribed certain limit with regard to cash reserve and security reserve ratio. Penal interest is automatic in nature and without any further action on the part of the assessee the consequence follows. We are unable to agre....
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....rsons who are said to have introduced the depositors have denied the fact of introduction of the depositors. One of the persons introduced was Sri. C.P. Simon. Summons issued under s. 131 of the IT Act, 1961, were returned with the endorsement "not known" and the other introducer Sri A.A. Jose appeared and stated that he has not introduced anybody to the assessee-bank for the purpose of depositing money. The AO also found that the signatures varied with regard to the same deposit viz., the signature of the person at the time of depositing the money is entirely different from the signature of the person at the time of receipt of the money after an interval of few days. For all these reasons, the AO came to the conclusion that the assessee has failed to identify the depositors to prove the genuineness of the deposits. He accordingly made the impugned addition. 10. When the matter was carried before the first appellate authority, the addition was deleted. The learned first appellate authority held that there was no dispute that the money did not represent the unaccounted income of the assessee. He further held that the assessee being a public limited company under the control and s....
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.... some other cases we will enquire about the prospective depositors' contacts and in many cases, we accept the deposits without any introduction. This is because there is no regular transactions in the fixed deposit account. When once the deposit is received, it will be repaid on the due date on the production of the fixed deposit receipt issued by the bank. So there is no necessity for identification of the depositor. Unless the fixed deposit receipt is returned after endorsement the deposit is not repaid. In the case of savings bank and current account, the bank insist on proper introduction because the transactions are continuous and frequent. We also note the names and addresses as furnished by the depositors and we had no necessity to enquire about his whereabouts as the depositor will come to our office on the due date for the encashment of deposits. The address given in the fixed deposits are those furnished by the depositors themselves and we had no ground for any suspicion about the addresses. I understand that some of the depositors were called by the ITO, A-Ward, Trichur and their deposits were cleared for payment over phone. I hereby declare that there was no objections ....