TaxTMI 
TaxTMI 
2019 (6) TMI 462
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....ossly erred in law as well as in facts by upholding the disallowance of the following provisions disallowed by the Assessing officer: Provisions of standard assets Rs. 887170/- Provision for GSEC Rs. 485969/- Provision for statutory Reserve Rs. 2154800/- Provision for bad & doubtful debts Rs. 861920/- Education reserve Rs. 86192/-" 3. Further, the ld. AR requested for permission to raise following additional grounds of appeal as under:- "1. That the CIT(A) erred in law and on facts in not directing the AO to recalculate the net profit after relief granted in other grounds of appeal and then allow deduction u/s 36(1)(viia) of the Act on the final taxable income. 2. That the CIT(A) erred in law and on facts in not directing the AO to recalculate the net profit after relief granted in other grounds of appeal and then allow deduction u/s 36(1)(viii) confirming the disallowance of depreciation of Rs. 11,11,243/- 3. That the CIT(A) erred in law and on facts in not directing the AO to recalculate the depreciation allowance by allowing depreciation on computers at 60% instead of 33% allowed in the assessment order. 4. Tha....
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....efore us. 7. During the course of hearing, firstly regarding the provisions for GSEC, the ld. AR has submitted that there are government securities which the bank has to purchase from time to time, under RBI guidelines. These securities are of two types i.e. "HTM or held to maturity" which means that these GSEC are to be held by the bank till the maturity period is over and second is AFS or "available for sale" which are GSECs which can be sold even before their maturity period is over. Further, reference was drawn to the RBI master circular dated 01.07.2014 and submitted that as per the said RBI circular, the valuation of securities has to be done by the assessee and the total loss or depreciation in value would be put in an IDR account and for as each year, the amortised amount is taken to the P & L account, the reserve will be reduced by that amount. It was accordingly submitted that the amount of Rs. 4,85,969/- which has been debited in the P & L account is not a provision but it is a crystallized loss on depreciation of value of GSEC securities purchased by the bank. It was further submitted that only accounting procedure followed as per RBI guidelines is that instead of cl....
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....scribed, to the Cooperative Education and Training Fund constituted under the Rules; (c).............. (d)................... (2) The net profit left shall be utilised for the following purposes: (a).................. (b)................ (c) donations of amounts not exceeding ten percent." 11. It was submitted that this reserves have been created as per the mandate of Section 48 of the Rajasthan Co-operative Society Act, 2001 and these are charge on the net profit of the bank hence, the same should be allowed. It was further submitted that every year, 1% of the profit is transferred to the Co-operative Education & Training Fund which fund is to be utilized for the Education and Training of Officers and Staff of the Co-operative Department. It was submitted that the credit in this fund is not in the control of the appellant bank nor does it come back to the bank and it has gone permanently into the coffers of the Co-operative Department of the Government of Rajasthan. It was accordingly submitted that this is a charge on the profits of the bank and is a form of an expense or outgo and it is allowable as a deduction from the pr....
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....st' in balance sheet in accordance with Banking Regulation Act and valuing very same investments 'at cost' or 'market value' whichever was lower for income tax purposes. Method followed consistently was valid and could not be rejected. In the present case the facts being similar to the facts reported in UCO Bank, the Assessing Officer is directed to allow the revaluation of securities. However, for the computation of depreciation allowable, the Assessing Officer is also directed to revalue the securities in the same manner in the beginning of the year also." 11.1 We find the Tribunal in the case of Lord Krishna Bank Ltd (supra) has considered and adjudicated the issue in para 3 & 4 as under: "3. We have heard the rival submissions and perused the relevant material on record. The learned A.R. has relied on Circular DBOD.No.BP.BC.29/21.04.048/98 dated 11th April, 1998 issued by the Reserve Bank of India prescribing the method to be followed for valuation of Government and other securities. The learned A.R. invited our attention towards page 4 of the paper book, which is the method suggested by the RBI to be adopted by the banks in respect of Perm....
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....t it is a charge on the profit and so, diversion of income at source. The Hon'ble Rajasthan High Court in the case of Jodhpur Cooperative Marketing Society 275 ITR 372 has considered the principles governing diversion or appropriation of income and has held as under: "31. The first issue which arises for consideration is whether in the circumstances stated above, carrying forward a part of net profit of the society amounts to diversion or income by overriding title. 32. The diversion of income has multi-facets. Diversion arises where income is applied in a particular manner under statutory or contractual obligation or under the provisions of a document under which the company is constituted viz., memorandum of article of association or a firm has come into existence. In these circumstances, the principle that has emerged is that if a person has alienated or assigned the source of his income so that it is no longer remains his income, he cannot be taxed upon the income arising after the assignment of the source. In such event, it is not income of the assessee at all. On the contrary, if the source is not assigned to, or transferred but passes through the ass....
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....uture for his own purpose. In fact, it was made a charge on assessee's income which if the assessee failed to pay, could be directly recovered before it reached the assessee. This case is more akin to Poona Electric Supply case (supra) to which we shall shortly advert to. 35. In Provat Kumar Mitter v. CIT [1961] 41 ITR 624 (SC), the assessee who was a registered dealer of 500 ordinary shares in a limited company, assigned to his wife, by a deed of settlement, the right, title and interest to all dividends and sums of money which might be declared or which may be due and payable in respect of those shares for the term of her natural life and covenanted to deliver and endorse over to her any dividend warrant or other document of title to such dividends or sums of money and to instruct the company to pay such dividends and sums of money to her. 36. The assessee claimed exclusion of dividends on the aforesaid 500 ordinary shares on the ground of transfer of diversion of income by overriding title. The Supreme Court repelled the contention by holding that the deed of assignment was, it its true nature, only a contract by the assessee to transfer, or make over, to h....
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....n of share payable to the beneficiaries and under the law of partnership, it was the partner and the partner alone who was entitled to the profits. A stranger, even if he were an assignee, did not have and could not have any direct claim to the profits. The dispositions were, in law and in fact of portions of the assessee's income after it had accrued to him and tax was payable by him at the point of accrual. 40. On these principles, the decision in Raja Bejoy Singh Dudhuria's case (supra) was distinguished by the Court. 41. In P.C. Mullick & Anr. (Executors) v. CIT [1938] 6 ITR 206 (PC) for the aforesaid reasons, the Privy Council too distinguished its earlier decision in Raja Bejoy Singh Dudhuria's case (supra). It was a case in which a testator had by his will appointed the appellants his executors and had directed them to pay Rs. 10,000 out of the income of his property on the occasion of his 'addya sradh' for expenses in connection therewith to the person who was entitled to perform the sradh. He had also directed them to pay out of the income of his property, the costs of taking out probate of his will. The board opined that these are the....
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....e respondent's income. Applying the principles in Raja Bejoy Singh Dudhuria's case (supra) and Sitaldas Tirathdas's case (supra), the Court opined that an obligation to apply the income in a particular way before it is received by the assessee or before it has accrued or arisen to the assessee results in the diversion of income. An obligation to apply income which has accrued or arisen or has been received amounts merely to the apportionment of income and the income so applied is not deductible. The true test for the application of rule of diversion of income by an overriding title is whether the amount sought to be deducted in truth never reached the assessee as his income." 45. In a recent decision, the Supreme Court in Motilal Chhadami Lal Jain v. CIT [1991] 94 CTR (SC) 195 :(1991) 190 ITR 1 (SC) explained the connotation of the expressions "reaches the assessee" and "has been received" as has been used by the Court earlier in Sitaldas Tirathdas's case (supra). The Court said : "The expressions "reaches the assessee" and "has been received" have been used not in the sense of the income being received in cash by one person or another. What the Co....
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....and bad and doubtful debts have been rightly disallowed by the AO as deduction under section 36(1)(viia) and 36(1)(viii) have separately been allowed and we donot see any infirmity in the action of the ld CIT(A) in confirming the same. In the result, the ground of appeal is partly allowed. 17. Regarding the additional grounds of appeal no. 1 & 2, the ld. AR submitted that the AO has wrongly calculated the deduction u/s 36(1)(viia) and U/s 36(1)(viii). It was submitted that the AO has given no reasons while reducing the provision for standard assets and provision for GSEC while computing such deductions. It was submitted that instead of reducing these amounts, the AO should have enhanced the net profit by an amount of Rs. 13,73,139. It was further submitted that the similar contentions were raised before the ld. CIT(A) and the ld. CIT(A) has directed the AO to verify the working provided by the assessee however the AO has not complied with the direction of the ld. CIT(A). It was submitted that the bench may kindly allow the original claim of the assessee made in its return of income. Alternatively, it was submitted if some of the claims made in the return are not allowed ultimate....
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....ee has submitted a condonation application along with an affidavit which reads as under:- "1. That the impugned order of the CIT(A)-01, Jaipur for A.Y. 2012-13 was passed on 08.12.2016. However, the appellant did not receive a copy thereof till he recalled the file from his then Authorised Representative in 2018. 2. That it is a fact that the appellant was unaware that an order u/s 250 has been passed by the CIT(A)-01, Jaipur on 08.12.2016 and he was kept completely in the dark about the status of the appeal by the then Authorised Representative. In fact, a perusal of the order would show that none appeared for the appellant thereby confirming the negligent attitude of the A/R of the appellant. 3. That it was only about a month back that the appellant came to know of the situation. It was only when he retrieved the file away from the earlier CA that he came to know that the order of the CIT(A) had been received some time in December, 2016 and that no appeal had been filed against the same before the Hon'ble ITAT. It was then that a new A/R was engaged and this present appeal is being filed. An affidavit of the Appellant to this effect is enclosed as A....
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....the appeal in time is a reasonable cause for condoning the delay in filing the present appeal especially given that the issues involved are similar in nature as we have adjudicated in AY 2011-12 and as held by the Courts from time to time, technicality should not come in the way of dispensation of substantial justice, the delay in filing the present appeal is condoned and the appeal is admitted as filed in time. 24. In this appeal, the assessee has taken the following grounds of appeal:- "1. The CIT(A) erred in facts and in law in confirming the order of the Assessing officer with regard to disallowance of the following reserves: a) provision of bad and doubtful debts amounting to Rs. 13,33,808/- which is allowable to the extent of 5% of the amount of such assets shown in the books of account of the bank on the last day of the previous year, as per proviso to section 36(viia) of the Act; 2. The CIT(A) erred in law and on facts in: a) reducing the NPA reserve u/s 36(1)(viia) by Rs. 1,79,323/-; b) reducing the special reserve u/s 36(1)(viii) by Rs. 4,78,193; c) not directing the Assessing Officer to recalculate the deduction u/....