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6. Aggrieved by the action of the AO, assessee carried the matter in appeal before the CIT(A), but without any success. Before the CIT(A), it was contended that, in the remanded proceedings in which, the AO had passed the impugned order, to go beyond the Jankiraman Committee report. It was pointed out that the CIT(A) had specifically directed the AO to go through the final report of the Jankiraman Committee on Security Transactions appointed by the RBI and ascertain whether the contention of the appellant that it was not involved in the security scam are correct. The assessee also contended that since the assessee-bank has not been found to have been involved in the security scam, there was no reason for the AO to decline the exemption under Section 80P. It was also pointed that in the original assessment the assessee's claim for deduction under Section 80P was rejected on the grounds that (a) assessee was not having any SGL account with RBI, and, therefore, it could not have entered into securities transactions; (b) Bank of India, Andhra Bank and Bank of Karad, the parties to such transactions, have not confirmed transactions; (c) the sale prices at which transactions have taken place are more than the prices quoted at the Bombay Stock Exchange; (d) Jankiraman Committee's interim report has considered broker 'Bhupendra Devidas' as a tainted broker; (e) no brokerage is paid to broker; and (f) for all these reasons, the securities transactions in question are not part of banking business. The same things, according to the assessee, were reiterated by the AO in the remanded proceedings. It was also pointed out by the assessee that the two employees, against whom criminal proceedings were initiated, were discharged from charges under Section 120A of the Indian Penal Code. Copies of relevant documents and an affidavit setting out some material facts were also placed on record. This plea, however, did not impress the CIT(A). He rejected the same by observing as follows :

7. The CIT(A) then dealt with the findings of the Jankiraman Committee report. He took note of the fact that, as per the contents of the said report, the assessee-bank entered into 13 ready forward transactions in securities for an aggregate contract value of Rs. 93.74 crores through broker Bhupen C. Devidas. The payments were made by orders issued in favour of Bank of India, and, in respect of these purchases, the assessee-bank had not deposited SGL transfer forms nor did it have an SGL account with the Public Debt Office. It was also noted that, as per the said report, BMCL claimed to have returned the SGL forms received from Bank of India, through the said broker. The report also mentioned that there was no record, in the assessee-bank or in the Bank of India, of the receipt and subsequent delivery of the SGL forms. The CIT(A) particularly took note of the Jankiraman Committee Report's observation, with reference of the above transactions, that "it appears that through these transactions, BMCL, (i.e., the assessee-bank) has made available the funds to the brokers though ostensibly the transactions were shown as being with Bank of India'. The GIT(A), having elaborately referred to the contents of the Jankiraman Committee Report, observed that the banks, to circumvent the RBI guidelines for funding the brokers, lent the funds to the brokers in the guise of ready forward transactions. It was also observed that ready forward transactions could only be entered into with bank and in respect of Government Securities. To circumvent the first stipulation, transactions were recorded as made with counter-party as bank, but the actual beneficiaries of these transactions were certain brokers while the banks merely acted as 'routing banks' for the brokers. When the securities were not available, these routing banks issued their own BRs. The CIT(A) also noted that the Bank of Karad, and its brokers Excel & Co. as well as Bhupen Champaklal Devidas, were specifically mentioned in the Jankiraman Committee Report. It was also noted that where a ready forward transaction is made, the sale rate reflected in agreed return on the use of funds and necessarily, therefore, either the sale or purchase was at a rate different from the real value of security. It was also noted that these transactions were de facto temporary finance transactions. It was in this backdrop that the CIT(A) came to the conclusion that unauthorized deployment of funds in breach of the guidelines could not be held to be income from banking, eligible for deduction under Section 80P, The CIT(A) was, after careful perusal of the Jankiraman Committee Report, of the view that "the activities engaged by the banks at p. 88 did not form part of the activities attributable to banking". The CIT(A) observed that funds being placed at the disposal of brokers, without issuing SGL's or not depositing them with the PDO in contravention of RBI rules, was a misapplication of funds contributing to scam. It was also observed that such irregularity had a further disadvantage that a broker was given bank funds without complying with margin requirements as would be the case when direct loans were given, only to fuel speculation. The CIT(A) then concluded.

3. On resale, BMCBL received payment through pay orders issued by Bank of Karad (BoK). BMCBL claims that it has returned to Bank of India, through the broker M/s Bhupen C. Devidas, the SGL forms received from the Bank of India. There is no record in BMCBL of the receipt or subsequent delivery of the SGL forms.

4. In the books of Bank of India, there is no record of sale or purchase, or the issue of SGL transfer forms. The pay orders issued by BMCBL were credited in the current account of broker Haresh K. Dalai maintained with the Bombay Stock Exchange branch of the Bank of India, on the basis of instructions received from the BMCBL. These instructions are recorded in a letter which is not on BMCBL letterhead but on a cyclostyled sheet. There is also no request in that letter to send SGL form along with the contract note though such a request is included in other letters forwarding cheques.

19. The Jankiraman Committee does mention that the assessee-bank entered into certain ready forward transactions through one broker by the name of Bhupen C. Devldas. The payments in respect of these transactions were made by way of pay orders in the name of Bank of India. It was also noted that the assessee-bank did not have an SGL account with the Public Debt Office and that it did not deposit any SGL transfer forms. The committee also took note of assessee-bank's contention that SGL forms received from Bank of India were returned to Bank of India through the broker Bhupen C. Devidas. It is also noted that the payments were received by the assessee-bank through the pay orders issued by the Bank of Karad. Jankiraman Committee also placed on record the fact that the pay orders issued by the assessee-bank were found credited to the account of Bhupen C. Devidas, the broker involved, arid that the pay orders issued by the Bank of Karad were mostly issued by way of debit to a broker by the name of Excel & Co. It was based on these facts that the Jankiraman Committee expressed the apprehension that "it appears that through these transactions, BMCBL has made available the funds to the brokers though ostensibly the transactions were shown as being with Bank of India". These observations were made in the interim report dt. 23rd Aug., 1992. In the final report submitted by the Jankiraman Committee on 29th April, 1993, some interesting observations were made which will throw some light on the nature of these transactions. The committee observed that, "Brokers also arranged contracts with banks where the name of a bank was given as counter-party selling bank without the knowledge of the bank concerned. The proceeds received from a purchasing bank in the form of banker's cheques in the name of alleged counter-party bank was credited by that bank to the broker's account by virtue of an existing arrangement. Thus the purchasing bank was unaware that it was in fact dealing with a broker and not with a counter-party bank." The Jankiraman Committee observed that it was only "when delivery was not effected for the securities for which payment has been made, liability was denied by the bank whose name was shown as the counter-party bank". Jankiraman Committee at pp. 271-2 of its final report, also noted that Bank of Karad Ltd. was one of the routing banks (which purchased and sold securities in their own name without indicating that they were acting for the brokers) for, amongst others, M/s Excel & Co. and M/s Bhupen C, Devidas. The unfortunate prevalent practice at that point of time was, as noted by the Jankiraman Committee, that even as the banks were under the impression that they are entering into genuine ready forward transactions with other banks, through the established brokers, some of these unscrupulous brokers, were actually manoeuvring so as to have these transactions on their own account without informing the banks in whose names these transactions were entered into. The brokers were also able to get payments for these accounts credited to their own account maintained in the bank in whose name the pay order or bank draft is made out. These were realities of life. Now, when we are to consider the observations made by the Jankiraman Committee in the interim report with regard to the transactions entered into by the assessee-bank, in the light of what the Jankiraman Committee had to conclude in its final report, it would be clear that there is indeed a possibility that the assessee-bank was under a bona fide impression that it was buying securities from the Bank of India and selling the same to Bank of Karad, through Bhupen C. Devidas, the broker. The pay orders for payments of these purchases were issued in favour of the counterparty bank but because of the loopholes in the system, the broker was able to get the same credited to his account in the alleged counter-party bank. As for the sale transactions, the assessee again got the pay orders from Bank of Karad which, as a routing bank, was acting for the same broker. Since there was no occasion for delivery of security to be effected, as was the common practice at the material point of time, there was no way for the assessee-bank to discover that the Bank of India is not actually involved. In such circumstances, there cannot be any occasion for the entries in the books of account of Bank of India or of confirmation of transaction by the Bank of India. Similarly, as far as Bank of Karad. was concerned, as the Jankiraman Committee has noted it was a 'routing bank' which was in fact purchasing and selling the securities in its own name without indicating that it was acting for the brokers, and, therefore, it was deeply involved in the scam. No entries for these entries could be found in the books of the Bank of Karad because though it was buying and selling securities in its own name, the transactions actually belonged to the brokers for whom the Bank of Karad was acting as a routing bank. Under these circumstances, non-confirrnation by the respective counter-party banks does not make it a transaction not entered into the normal course of banking business. As for non-deposit of the SGL forms, it was also a common practice, duly taken cognizance of by the Jankiraman Committee, that "in particular, BRs were not issued on the security paper or in the prescribed form, and more significantly were not exchanged with the actual scrip but were returned for cancellation on reversal of original transaction" and that "in the final analysis only BRs are exchanged and no security is delivered". The other objections raised by the Revenue are that the sale price is higher than the price quoted by the BSE, that the transactions were hot reported to the BSE, and that the brokerage was not paid. None of these objections are, however, sustainable in law. If the sale price realized by the assessee-bank is higher than the BSE day end price, that by itself does not indicate anything. In any event, it is a known fact that prices vary within a date as well and there is noting on record to substantiate this assertion of the Revenue. As for non-reporting to the BSE, there has to be a reporting requirement in the first place. It could not be established before us that the assessee was under some kind of an obligation to report these transactions to the BSE. As regards non-charging of separate brokerage, we are of the view that when prices quoted by the broker are net prices, brokerage element is inbuilt therein and no separate charges are necessary for the brokerage. It is a common practice that the brokerage is inbuilt in the prices itself. A common example of such a practice is even day-to-day retail foreign exchange transaction where brokerage is in-built in the rates offered by the foreign exchange dealer. None of these objections have any legally sustainable merits. It is also important to bear in mind the fact that except for the reference of the ready forward transactions entered into by the assessee-bank, that we have extracted earlier in this order, there is no adverse mention of the assessee-bank in the Jankiraman Committee report. There are no observations of the committee about any irregularity having been done by the assessee-bank. At p. 271 of the report, the committee has named several banks for irregularities but the assessee-bank's name certainly does not figure there. At p. 272, names of routing banks have been specified and the assessee-bank does not appear there as well. It has to be noted that the impugned assessment order has been passed by the AO in the remanded proceedings and the remand directions were that the AO should "go through the final report of Jankiraman Committee on security transactions scam, 1992 and find out whether the contention of the appellant is correct that the assessee-bank has not been found involved in the securities scam. If it is so, there is no reason to deny the appellant the relief that it was getting in earlier years under Section 80P on security transactions". There is nothing in the Jankiraman Committee's final report which calls assessee's conduct into question and yet it is held that the transactions entered into by the assessee were riot in the nature of banking business transactions and, therefore, the assessee is not entitled to deduction under Section 80P in respect of profits from such transactions. The Revenue never filed an appeal against these directions of the CIT(A) and yet these directions have not been implemented.