INDIAN BANK Vs. DEPUTY COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The following substantial questions of law are raised in the Tax Case (Appeal) filed by the assessee relating to the assessment year 1990-91:-

(2.) The assessee herein is a Nationalised Bank engaged in the business of banking as defined under the Banking Regulations Act. The assessee filed its return originally on 31.12.1990, the assessement under Section 143(3) of the Income Tax Act was completed on 26.03.1993, applying the provisions of Section 115-J of the Income Tax Act. In the course of assessment proceedings for the subsequent year, it was noticed that the assessee had made payments through M/s.Chandrakala & Co., under various demand drafts payable to the Public Sector Undertakings (PSUs); the payments being by way of additional interest on deposits during the previous years relevant to the assessment years 1990-91, 1991-92, 1992-93 & 1993-94; these claims were as per adjustments of interest at higher rate payable to the PSUs from what was prescribed under the guidelines of Reserve Bank of India. Originally, the payment made through M/s.Chandrakala & Co., under various demand drafts to the PSUs, were accepted for deduction. However, in the assessments made for the assessment years 1992 to 1994, these payments were held as illegal and contrary to the RBI guidelines. Consequently, they were added as income from undisclosed sources and brought to tax a sum of Rs.10,60,63,910/- represent the payments made to PSUs through Chandrakala & Co., during the previous year ending 31.03.1990, relevant to the assessment year 1990-91.

(3.) Apart from that yet another issue involved in this Tax Case (Appeal) is as regards the expenses allowed by way of broken period interest paid at the time of purchase of securities. Thus, based on the orders of assessment for the assessment years 1991-92, 1992-93 & 1993-94 and the decision of the Hon'ble Supreme Court in the case of CIT vs.,M/s.Vijaya Bank, 1991 187 ITR 541, that the expenses by way of broken period interest at the time of purchase should not be allowed as an expenditure but should be brought to tax, were sought to be relied on for the purposes of reopening of the assessment for the assessment year 1990-91. Thus, notice under Section 148 of the Income Tax Act was issued to the assessee proposing to assess the income on the interest payment made through M/s.Chandrakala & Co., to the various PSUs as well as for disallowing the expenses on the broken period interest relating to the purchase of securities.