TMI Blog2013 (4) TMI 578X X X X Extracts X X X X X X X X Extracts X X X X ..... ff by the assessee from the income of the year under appeal, was a non-existent one, in view of income determined on assessment, or re-determined based on subsequent appellate orders of that years. As whatever loss of the earlier year has been brought forward by the assessee, as per its books of account, has to be set off against the income determined for the year under appeal. Thus AO was correct in accepting the claim of the assessee for set off of brought forward loss of assessment year 2005-06. In favour of assessee. - ITA No.509/Hyd/2010 - - - Dated:- 17-4-2013 - Shri Chandra Poojari And Smt. Asha Vijayaraghavan, JJ. For the Appellant : Ms. Vandana Jha For the Respondent : Shri M. Ravindra Sai DR ORDER Per Smt. Asha Vijayaraghavan, Judicial Member:- This appeal by the assessee is directed against the order of the Commissioner of Income-tax-III, Hyderabad dated 21.5.2012 passed under S.263 of the Income-tax Act, 1961, for assessment year 2006-07. 2. Brief facts of the case leading to the filing of the present appeal before us are that the assessee, a banking company and subsidiary of the State Bank of India, Mumbai, for the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of account holders ₹ 140,72,57,682/-. 3. The learned CIT misconceived the instructions of the RBI while impugned addition was directed by him. 4. The learned CIT further misconceived the decision of Supreme Court reported in 236 ITR 518 while directing assessment of impugned credit balances to tax. 5. The learned CIT failed to note that unreconciled credit balances represented accountholders/customers' money in their accounts and pending payment to beneficiaries and the same did not constitute income of appellant for tax purposes. 6. The learned Commissioner of Income-tax further called to note that the appellant is holding the credits in inter branch accounts as custodian and as a trustee in fiduciary capacity. 7. The learned CIT erred in holding that the impugned credit balances are the result of cessation of liability and constituted income to the appellant. 8. The learned CIT failed to note that the above credit balances did not accrue to the appellant on incurrence of any expenditure which had been claimed and allowed to the appellant earlier as deduction from taxable profits. 9. The learned CIT further failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax. 8. We heard both sides and perused the orders of the Revenue authorities and other material on record. As for the assessability in respect of income, if any, embedded in the inter-branch transactions, this issue has come up for consideration before the Delhi Bench of the Tribunal in the case of Punjab National Bank (supra), wherein the Tribunal, after detailed consideration of the contentions of the parties in the light of the various statutory provisions, examined the matter in the light of the decision of the Hon'ble Supreme Court in the case of T.V.Sundaram Iyengar Sons Ltd. (222 ITR 344), heavily relied upon in that case by the Assessing Officer in the assessment order and the CIT- DR before the Tribunal, and proceeded to conclude this issue, vide paras 33 and 34 of the said order, in the following manner- 33. The facts of the case of the assessee are exactly similar to the facts before the Hon'ble Calcutta High Court in the case of Betts Hartley Huett and Co. Ltd. (supra). In that case, it was held that the transaction between the head office of the assessee and its branch in India was a transaction between the principal and principal. In law, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of proper advise from different branches, the amounts in question have remained either in debit or credit in different inter branch Accounts and the bank has admittedly not reconciled these accounts for over a long period of time. It is very difficult to say that these have traces of income either at the time of receipt or at the time of write off to the profit loss account. In fact, the Reserve Bank of India has permitted them to close these differences to the profit loss account with a rider that the sums in question are not permitted by the Reserve Bank of India to be used in the form of distribution of dividends and it was specifically made clear by the Reserve Bank of India that the obligation to discharge the liabilities arising thereunder is upon the bank. Meaning thereby, there is no question of the amounts being treated as income in the hands of the bank. We must appreciate that these transactions in the inter branch accounts are mere accounting entries. When the transactions were made to these accounts initially, these were not in the nature of income either of the branches involved or of the bank as a whole. It is a part of transactions on the real accounts and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein, to reconcile the outstanding entries in inter-branch accounts, concluded that the obligation to discharge the liabilities arising thereunder is upon the assessee bank therein, and as such there is no question of the amounts being treated as income in the hands of the assessee-bank therein. The Tribunal thereafter distinguished the decision of the Apex Court in the case of CIT V/s. T.V.Sundaram Iyengar and Sons Ltd. supra, and ultimately quashed the order of Commissioner of Income-tax passed under S.263 of the Act, insofar s it related to inter-branch transactions. It is apt to extract below the relevant observations of the Tribunal contained in paras 6.1 to 6.3 of the said order of the Tribunal, which read as under- 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 199, 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). The RBI had very clearly stated that the amounts transferred to the general reserve should be utilized to meet the future claims. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essable in the 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 Regulations Act, 1949 and the same are binding on the assessee bank. Therefore, though it is routed through the Profit 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. 10 Further, the Bangal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stments, including for the set off of brought forward loss amounting to ₹ 124.45 crores pertaining to assessment year 2005-06. He noted that as per records, the total income for assessment year 2005-06 was determined at ₹ 99,18,16,799 vide order under S.143(3) dated 22.3.2007 which was further reduced to 'Rs.811.3 crores' (sic) as per order dated 22.2.2008 giving effect to the order of the CIT(A). That being so, the Commissioner of Income-tax, observing that the brought forward loss of assessment year 2005-06 of ₹ 124.45 crores sought to be set off by the assessee was non-existent one, and the action of the Assessing Officer in allowing the claim of the assessee in that behalf was erroneous and prejudicial to the interests of Revenue. We are not convinced with the observation of the Commissioner of Income-tax that the brought forward loss of assessment year 2005-06, sought to be set off by the assessee from the income of the year under appeal, was a non-existent one, in view of income determined on assessment, or re-determined based on subsequent appellate orders of that years. In our considered opinion, whatever loss of the earlier year has been brought f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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