THE COMMR.OF INCOME TAX AP.I HYD V. STATE BANK OF HYD

RC/62/1998

AI Insights

The case revolves around a dispute between a Scheduled Bank and the Income Tax Department concerning prima facie adjustments made by the assessing officer during the assessment year 1995-96. The adjustments pertained to claims of depreciation on a permanent category of securities and deductions for unrealized interest income from earlier years. The assessee contested these adjustments, arguing they were debatable under RBI guidelines. Initially, the CIT (Appeals) upheld the adjustments, but the ITAT reversed this decision, citing a CBDT circular and a precedent from a similar case, Hifco Marwel Ltd. The matter was then referred to the High Court for a definitive opinion on the legal correctness of the ITAT's decision.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 728064 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 28-11-2013
• Assessment Year: misc
• Other Referred Cases: Hifco Marwel Ltd. Vs. ACIT Hyd, Kvaverner John Brown Engg. (I) P.Ltd. Vs. Assistant Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: CIT(A); Income Tax; ITAT; Prima facie adjustments; RBI regulations; Scheduled Bank
• Section: 43D; 143(1)(a); 256(1)

Judgement Text

"HON'BLE SRI JUSTICE G.CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM REFERRED CASE No.62 OF 1998 ORDER: (per Hon’ble Sri Justice Challa Kodanda Ram) This reference is made under Section 256(1) of the Income Tax Act, 1961 (in short ‘the Act’), and the question referred is as follows: Whether on the facts and in the circumstances of the case, the ITAT is correct in law in setting aside the order of the CIT (A) and deleting the prima facie adjustments made by the assessing officer contrary to RBI regulations and the provisions of Section 43D of the Income Tax Act, 1961? 02. Heard both sides. 03. The Assessee, which is a Scheduled Bank had filed its return of income for the assessment year 1995-96 admitting the total income of Rs.72,71,56,136/-, the said return was processed under Section 143(1)(a) of the Act, on 18.03.1996 and some prima facie adjustments were made. By making prima facie adjustments of claiming of depreciation on permanent category of securities and claim for deduction of unrealized interest income of earlieryears from interest income of current year, the assessee contested these prima facie adjustments and contended that the claims made by the assessee are debatable on account of the RBI guidelines. Questioning the said prima facie adjustments, the assessee preferred the appeal before the CIT (Appeals) and the same was unsuccessful. The assessee filed appeal before the Tribunal. The Tribunal after considering the rival submissions, by relying on the Board’s Circular No.689, dated 24.08.1994 and also the decision in the case of Hifco Marwel Ltd., Vs. ACIT Hyd[1], deleted the additions made by the assessing officer. In the light of the circulars of the CBDT, as well as the nature of the deductions claimed by the assessee, the Tribunal opined that the assessing officer was not justified in disallowing the claims of the assessee by way of prima facie adjustments. The said conclusion is also supported by the earlier decision of the Tribunal in the case of Hifco Marwel Ltd., (1st supra). Under those circumstances, the Tribunal set aside the order of the CIT (Appeals) and deleted the disallowances made by the assessing officer by way of prima facie adjustments. 04. Having regard to the facts and circumstances of the case of Hifco Marwel Ltd., (1st supra), the Tribunal referred the above question for the opinion of this Court. 05. The learned counsel appearing for the assessee submits that the question referred for opinion of this Court is covered by the Judgment in Kvaverner John Brown Engg. (I) P.Ltd., Vs. Assistant Commissioner of Income Tax[2], wherein, the Apex Court held as follows: (para6) “we find merit in this Civil Appeal. As stated above, we are concerned with the assessment years 1996-97 and 1997-98. One of the main conditions stipulated by way of the first proviso to Section 143(1)(a), as it stood during the relevant time, referred to prima facie adjustments. The first proviso permitted the Department to make adjustments in the income or loss declared in the return in cases of arithmetical errors or in cases where any loss carried forward or deduction or allowance which on the basis of information available in such return was prima facie admissible but which was not claimed in the return or in cases where any loss carried forward, or deduction or allowance claimed in the return which on the basis of information, available in such return was prima facie inadmissible.” 06. In the light of the above judgment, the referred case is answered in favour of the assessee and against the revenue. There shall be no order as to costs. 07. Consequently, Miscellaneous Petitions pending, if any, shall stand disposed of. ___________________________ JUSTICE G.CHANDRAIAH _________________________________ JUSTICE CHALLA KODANDA RAM 28.11.2013 bv [1] 55 ITD 437 [2] (2008) 305 ITR 103 (SC) "