TMI Blog2019 (6) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... ter quantification of profits by the assessee bank under the Rajasthan Cooperative Society Act. It is only after the net profit reaches the bank that the question of its disposal in terms of the provisions arises under the Act and not earlier thereto. The net profit is to be apportioned by transferring part of it as may be prescribed by Rules to the reserve fund or to the education fund constituted under the Rules. Apparently, there is no charge in the year in which assessee incurs losses. It is only when there are profits, the amount has to be paid towards the education fund. If it is to be considered as diversion at source by overriding title, whether assessee incurs profits or loss, the said amount has to be paid. In the present case, the amount towards education fund at 1 per cent is payable only when assessee has profits in any year which leads us to a considered view that this is not a diversion at source but an appropriation of profits which is not allowable for tax purposes. Therefore, respectfully following the principles laid down in case of Jodhpur Co-operative Marketing Society [ 2004 (4) TMI 21 - RAJASTHAN HIGH COURT] the matter is decided in favour of the Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2018 has recalled the earlier order and accordingly, the appeal has now come up for adjudication before us. In this appeal, the assessee bank has taken the following grounds of appeal:- 1. The Commissioner of Income-tax (Appeals) has grossly 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 ₹ 887170/- Provision for GSEC ₹ 485969/- Provision for statutory Reserve ₹ 2154800/- Provision for bad doubtful debts ₹ 861920/- Education reserve ₹ 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 rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he crystallized one i.e. not the ascertained liabilities. Further, the ld. CIT(A) placed reliance on the following decisions as under:- Shree Sajjan Mills Ltd. vs. CIT (SC) 156 ITR 585. Indian Molasses Co. (P.) Ltd. vs. CIT 37 ITR 66. Rajasthan State mines and Minerals Ltd. Vs. CIT (Raj) 208 ITR 1010. T.N. Small Industries Dev. Corpn vs.CIT (Mad) 242 ITR 122. CIT Vs pallaavan Transport Corporation Limited (Mad) 230 ITR 288. CIT vs. Kattabomman Transport Corporation Ltd. (Mad) 324 ITR 71. Hence, the findings of the Assessing were confirmed. Against the said findings, the assessee is now in appeal before 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets . It was further submitted that this acts as a cushion for the standard assets and accordingly, the assessee has made a provision of ₹ 8,87,170/- being 0.40% of the advances and accordingly the same has been claimed and should be allowed to the assessee. 10. Regarding education reserve, the ld. AR has submitted that this provision has been made on account of the mandate of the Rajasthan Cooperative Society Act wherein Section 48 of the said Act mandates as follows:- 48. Disposal of Net Profits- (1) A Co-operative Society shall, out of its net profits in any year- (a) transfer to the reserve fund, twenty-five per cent of its profits within such period as may be prescribes; (b) credit one percent of its profits, as may be prescribed, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has been considered and decided by the Tribunal in the case of M/s Lord Krishna Bank Ltd in ITA No.118/Coch/2007 for AY 1999-00 vide order dated 27.4.2011. The CIT(A) has decided the issue in para 10 as under: 10. Respectfully following the Hon'ble Bombay High Court decision in the case of CIT vs Bank of Baroda (262 ITR 334) wherein the Hon'ble Court held that loss debited to Profit Loss account due to decrease in value of securities is allowable as deduction and the Hon'ble Supreme Court in the case of United Commercial Bank vs VIT 240 ITR 355 where the Hon'ble Court reversing the decision of the High Court held that Nationalised bank governed by Banking Regulation Act. Bank is following mercantile system of accounting both for book keeping as well as tax purposes. Bank is valuing stock in trade (investments) 'at cost' 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 B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.2 Therefore, respectfully following the order of the Tribunal we decide the issue in favour of the assessee and against the revenue and confirm the order of the CIT(A) on this issue. In light of above discussions, the issue is decided in favour of the assessee and against the revenue. 14. Regarding education reserve, it is the contention of the assessee bank that the same is a charge on the profits of the assessee and is guided by section 48 of the Rajasthan Co-operative Society Act wherein the assessee is mandatorily required to contribute 1% of its profits every year and it goes out permanently from the hands of the assessee s bank to the Co-operative Education and Training Funds and is thus an allowable expense in its hands as the same has been incurred by way of contribution to the education and training fund mandated by the Co-operative Act. It is therefore the contention of assessee bank that 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 appropria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o step-mother; to that extent what he received for her was not his income. It was not a case of the application by the appellant of part of his income in a particular way. Lord Macmillan delivering the opinion of the board stated: In the present case, the decree of the Court by charging the appellant's whole resources with a specific payment to his stepmother has to that extent diverted his income from him and has directed it to his step-mother; to that extent what he receives for her is not his income. It is not a case of the application by the appellant of part of his income in a particular way, it is rather the allocation of a sum out of his revenue before it becomes income in his hands. 34. It may be noticed that the title to receive the income in the aforesaid case vested with assessee but the assessee has received it for someone else than himself and the income at no stage become part of the assesse's capital block which could be used by him in future 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the present case, it may be noticed that neither the reserve fund goes to any party other than the assessee itself, nor there is any obligation to provide for such reserve before it becomes the part of net income earned by the society. 39. In the like way is the case of K.A. Ramachar Anr. v. CIT [1961] 42 ITR 25 (SC), where though under the deed of settlement which was irrevocable, each of the beneficiaries of the settlement was entitled to receive 1/4 of the share of the settlement in the profits of the firm during a period of 8 years from the date of settlement, the beneficiaries were entitled to directly receive and collect from the firm their shares under the settlements. The assessee's claim that those amounts were payable to the wife and children of settlor under the obligation arising under the irrevocable deed of settlement was negatived on the ground that on the facts, the effect of deeds of settlement was that profits were first to be accrued to the assessee and then to be applied for determination 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said to be a part of the income of the assessee. Where, by the obligation, income is diverted before it, reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income which has been received and is since applied. The first is a case in which the income never reaches the assessee who even if he were to collect it, does so, not as part of his income, but for and on behalf of person to whom it is payable. 44. In CIT v. Imperial Chemical Industries (India) (P) Ltd. [1969] 74 ITR 17 (SC) the Court held that : the payment of amounts by the respondent to the outgoing agents was not by an overriding title created either by act of parties or by operation of law, and it could not be said that the amount of compensation paid to the outgoing agents did not form part of the respondent's income. Applying the principles in Raja Bejoy Singh Dudhuria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of its disposal in terms of the provisions arises under the Act and not earlier thereto. The net profit is to be apportioned by transferring part of it as may be prescribed by Rules to the reserve fund or to the education fund constituted under the Rules. Apparently, there is no charge in the year in which assessee incurs losses. It is only when there are profits, the amount has to be paid towards the education fund. If it is to be considered as diversion at source by overriding title, whether assessee incurs profits or loss, the said amount has to be paid. However, in the present case, the amount towards education fund at 1 per cent is payable only when assessee has profits in any year which leads us to a considered view that this is not a diversion at source but an appropriation of profits which is not allowable for tax purposes. Therefore, respectfully following the principles laid down by the Hon'ble Rajasthan High Court in case of Jodhpur Co-operative Marketing Society (supra), the matter is decided in favour of the Revenue and against the assessee. 16. Further, provision for standard assets, statutory reserve and bad a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inally so determined as disallowable towards such provisions should be added back in the net profits. The AO is directed to recomputed the deductions u/s 36(1)(viia) and U/s 36(1)(viii) of the Act accordingly. In the result, the ground is allowed for statistical purposes. 19. Regarding the additional ground no. 3, the ld. AR has submitted that the AO has allowed depreciation on computers @ 33.33% instead of 60% specified in the Income-tax rules and as a result, depreciation has been wrongly allowed by the Assessing officer. It was submitted that the assessee has claimed depreciation of ₹ 76,44,335/- in the return of income against which the depreciation which should have been actually allowed is ₹ 71,08,938/- hence, the disallowance should have been restricted to 5,35,397/-. We find that depreciation on computers has been provided @ 60% in the Income-tax Rules. Accordingly, the AO is directed to compute the depreciation on computers @ 60% and the ground of appeal is thus allowed. 20. In the result, the appeal of the assessee is partly allowed. ITA No. 1075/JP/2018 21. At the outset, it is noted that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when no negligence, nor inaction nor want of bona fides is imputable to the party concerned. 6. That it was always the intention of the Appellant to contest the order of the CIT(A). It never had the intention to not file an appeal against the order of the CIT(A). The delay in filing the appeal is bona fide, hence the delay needs to be condoned. 22. The ld DR is heard who has objected to the condonation application and submitted that there is no reasonable cause which is discernable from the assessee s application and the delay should not be condoned. 23. Heard both the parties and pursued the condonation application and other material available on record including the affidavit filed by the assessee. We find that the assessee bank has a reasonable cause for the delay in filing the present appeal as the authorized representative who has been authorized by the assessee bank has kept silent and has not taken any action after receipt of the order of the ld CIT(A). It is therefore not a case where the order of the ld CIT(A) was not received rather it is a case where the AR has breached the professional obligation cast upon him in taking a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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