Karur Vysya Bank Ltd. Vs DCIT (ITAT Chennai)
The dispute in Karur Vysya Bank Ltd. vs. DCIT, brought to the Income Tax Appellate Tribunal (ITAT) Chennai, centered around the disallowance of stale drafts. The Assessee, a banking entity, faced an addition to its income due to unclaimed demand drafts categorized under “outstanding liabilities.” However, this addition was challenged before the Commissioner of Income Tax (Appeals) [CIT(A)], where it was successfully contested.
During the assessment proceedings, the Assessing Officer (AO) noted an amount of ₹2,46,14,514/- under outstanding liabilities towards stale drafts, which was added to the Assessee’s total income. Upon appeal to the CIT(A), the addition was deleted, citing precedent from an earlier ITAT decision in the Assessee’s favor.
The dispute hinged on whether the amount kept under the stale draft account constituted income for the Assessee. The Departmental Representative (DR) argued that the amount retained in the stale draft account was indeed income, as it was not payable to any person. However, the Assessee’s Authorized Representative (AR) countered, referencing the earlier ITAT decision and a Madras High Court ruling in a similar case involving City Union Bank Ltd.
The ITAT, in line with its previous decision and the Madras High Court ruling, concluded that the amount held in the stale draft account did not qualify as income for the Assessee. The Tribunal emphasized the nature of the banking business, where the Assessee merely held the money on behalf of the drawee until claimed. Furthermore, any unclaimed amounts were eventually remitted to the Depositors Education & Awareness Fund Scheme maintained by the Reserve Bank of India (RBI).
