Commissioner of Income Tax vs Nainital Bank Ltd.

This is an appeal against the judgment and order dated February 28, 2005, passed by the Income Tax Appellate Tribunal, (Delhi Bench "B", New Delhi), in I.T.A. No. 91/Delhi/2002.

The substantial questions of law raised in the appeal are as follows:

Whether, on the facts and in the circumstances of the case, the hon''ble Income Tax Appellate Tribunal was legally correct in holding that lowering of profit by changing the valuation of investments on the basis of the RBI guidelines was justified without appreciating the fact that the Assessing Officer was duty bound to compute the income in accordance with the provisions of the Income Tax Act?

Whether, on the facts and in the circumstances of the case, the hon''ble Income Tax Appellate Tribunal was justified in law in arriving at the conclusion without pronouncing its decision on each grounds of appeal taken before it?

Brief facts of the case giving rise to the present appeal are that the asses-see is a banking company and the assessment u/s 143(3) was completed on November 12, 1999, at a total income of Rs. 1,60,01,450 against returned income of Rs. 1,04,44,650. On assessment, additions were made on five different points. The first addition of Rs. 27,44,000 consisted of additions of Rs. 9,13,000, Rs. 3,00,000, Rs. 10,31,000 and Rs. 5,00,000 in respect of undervaluation of Government securities written back of excess provisions of previous year Income Tax, law charges incurred during this year and law charges for earlier years, respectively. The Assessing Officer found that as per the balance-sheet, profit and loss account and as also mentioned tax audit report, there have been changes in the accounting policies of the assessee with reference to the directives of the RBI in respect of valuation of securities, etc., during the assessment year. Although, while drawing up its accounts, the assessee was bound to observe the guidelines of the RBI but for the purpose of working out the taxable profit under the Income Tax Act from year to year basis, a uniform method of accounting should have applied by the assessee. Under the provisions of Section 145 of the Income Tax Act, the income should have been computed as per the system of the accounting regularly employed by the assessee. Finally, the Assessing Officer held that the correct income of the assessee for the assessment year in question could only be computed by adopting the method of accounting as regularly employed by it in earlier years and consequently additions of Rs. 27,44,000 were made. Being aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) who partly allowed the appeal in respect of additions made on three points and accordingly a relief of Rs. 22,44,000 was given to the assessee and it was held that the RBI guidelines were binding on the assessee being the change in accounting policies of certain investments declared by the RBI. Being aggrieved by the order passed by the Commissioner of Income Tax (Appeals), the Department preferred an appeal before the Income Tax Appellate Tribunal. The appeal was preferred by the Department on the points of deletion of sub-additions of Rs. 9.13 lakhs on account of undervaluation of Government securities and Rs. 3 lakhs on account of written back of excess provisions of previous year Income Tax. The Tribunal by the impugned order dated February 28, 2005, upheld the order passed by the Commissioner (Appeals) and accordingly the appeal preferred by the Department was dismissed. Feeling aggrieved, the Department has come up in appeal before this Court.

We have heard learned Counsel for the parties and perused the judgments given by the courts below. In the facts and circumstances of the case, after having gone through the order passed by the Commissioner of Income Tax (Appeals) as well as also the impugned order of the Income Tax Appellate Tribunal and in the light of the material available with us, we are of the view that the question of law raised for determination in the present case has already been concluded by the finding of fact and there appears to be no such substantial question of law to be answered by this Court. The Tribunal while relying on its earlier judgment in the case of TEDCO Investment v. Financial Services (P.) Ltd. reported in [2003] 87 ITD 298 (Delhi) rightly confirmed the view that the RBI Act was incorporated for a specific purpose and Section 45 Q categorically brings out the intention of the Legislature inasmuch as it states that Chapter III-B shall override for all intents and purposes. Hence, the Income Tax Appellate Tribunal has elaborately dealt with each and every ground specifically in the impugned judgment and we are in full agreement with the findings recorded by the learned Tribunal in its judgment. The findings recorded by the learned Tribunal are the findings of fact and do not call for any interference by this Court. Therefore, the questions raised in the appeal are accordingly decided in favour of the assessee and against the Department.

In view of the above, we dismiss the appeal. The questions framed are answered against the Department and in favour of the assessee. No order as to costs.