INTEGRAL URBAN CO-OPERATIVE BANK LTD., Jaipur V. INCOME TAX OFFICER, WARD-2-1, Jaipur

ITA 1075/JPR/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5694 (ITAT-JAIPUR)
• Duration Of Justice: 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 14-09-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C MEENA ACIT
• Assessee Lawyers: DILIP SHIVPURI
• Keywords: Depreciation; Diversion of income; Reasonable cause; Bad and doubtful debts; Condonation of delay; Set aside
• Section: 234B; 37(1); 195; 250; 145

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, B JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 809/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2011-12 INTEGRAL URBAN CO-OPERATIVE BANK LTD. NAND BHAWAN, OPP. ESI HOSPITAL, AJMER ROAD, SODALA, JAIPUR. CUKE VS. THE ACIT, CIRCLE-1, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAAAI 3405 Q VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA. NO. 1075/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2012-13 INTEGRAL URBAN CO-OPERATIVE BANK LTD. NAND BHAWAN, OPP. ESI HOSPITAL, AJMER ROAD, SODALA, JAIPUR. CUKE VS. THE ITO, WARD-2(1), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAAAI 3405 Q VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI DILIP SHIVPURI (ADV.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI K.C. MEENA (ACIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 25/03/2019 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 14/05/2019 VKNS'K@ ORDER ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 2 PER: VIKRAM SINGH YADAV, A.M. THESE ARE TWO APPEALS FILED BY THE ASSESSEE AGAINS T THE RESPECTIVE ORDERS OF LD. CIT(A), JAIPUR DATED 23.09 .2015 FOR THE ASSESSMENT YEAR 2011-12 AND DATED 08.12.2016 FOR TH E ASSESSMENT YEAR 2012-13 RESPECTIVELY. 2. FIRSTLY, WE TAKE UP THE ASSESSEES APPEAL FOR A. Y. 2011-12. AT THE OUTSET, IT IS NOTED THAT THE APPEAL WAS DISMISSED I N LIMINE BY THE COORDINATE BENCH VIDE ITS ORDER DATED 08.08.2016. S UBSEQUENTLY, THE COORDINATE BENCH VIDE ITS ORDER DATED 01.10.2018 HA S RECALLED THE EARLIER ORDER AND ACCORDINGLY, THE APPEAL HAS NOW C OME UP FOR ADJUDICATION BEFORE US. IN THIS APPEAL, THE ASSESSE E BANK HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- 1. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS GRO SSLY ERRED IN LAW AS WELL AS IN FACTS BY UPHOLDING THE DISALLO WANCE OF THE FOLLOWING PROVISIONS DISALLOWED BY THE ASSESSING OF FICER: 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:- ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 3 1. THAT THE CIT(A) ERRED IN LAW AND ON FACTS IN NO T 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 ASSE SSMENT ORDER. 4. THAT THE HONBLE ITAT MAY DIRECT RECALCULATION O F INTEREST U/S 234A ON THE NET PROFIT DETERMINED AFTER GIVING EFFECT TO THE ORDER OF THE HONBLE ITAT. 4. THE LD. AR SUBMITTED THAT THE ADDITIONAL GROUNDS ARE PURELY LEGAL GROUNDS AND ALL THE FACTS ARE AVAILABLE ON RECORD A ND THE SAME SHOULD BE ADMITTED IN THE INTEREST OF JUSTICE. IN SUPPORT, RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF NA TIONAL THERMAL POWER CORPORATION LTD. VS. CIT 229 ITR 383. AFTER H EARING BOTH THE PARTIES, THE ADDITIONAL GROUNDS BEING PURELY LEGAL GROUNDS ARE BEING ADMITTED FOR ADJUDICATION. 5. IN GROUND NO. 1, THE ASSESSEE HAS CHALLENGED TH E SUSTENANCE OF DISALLOWANCE OF PROVISION FOR GSEC, PROVISION FOR S TANDARD ASSETS, PROVISIONS FOR STATUTORY RESERVE, PROVISIONS OF BAD & DOUBTFUL DEBTS AND EDUCATION RESERVE. AS PER THE ASSESSING OFFICER, TH ERE IS NO PROVISIONS IN THE ACT WHICH ALLOWED SUCH PROVISIONS FOR TAX PURPO SES AS MADE BY THE ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 4 ASSESSEE. FURTHER REFERRING TO THE PROVISIONS OF SE CTION 145 OF THE ACT AND MERCANTILE SYSTEM OF ACCOUNTING, THE ASSESSING OFFICER HAS HELD THAT THESE PROVISIONS ARE NOT DEFINITIVE AND THESE ARE ONLY CONTINGENT LIABILITIES IN THE FORM OF PROVISION AND THE SAME C ANNOT BE ALLOWED AND THE ASSESSEE HAS APPROPRIATED ITS PROFITS WHICH WA S NOT OFFERED FOR TAXATION BY SHOWING AS PROVISIONS, ACCORDINGLY, THE SE PROVISIONS WERE DISALLOWED U/S 37(1) OF THE ACT. 6. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HELD THAT THOUGH THE ASSESSEE HA S MADE THESE PROVISIONS UNDER THE PROVISIONS OF RAJASTHAN CO-OPE RATIVE SOCIETY ACT, 2001, HOWEVER, NO SUCH PROVISIONS IS ALLOWABLE UNDE R IT ACT. THESE PROVISIONS ARE ONLY CONTINGENT LIABILITY AND NOT TH E CRYSTALLIZED ONE I.E. NOT THE ASCERTAINED LIABILITIES. FURTHER, THE LD. C IT(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 (RA J) 208 ITR 1010. T.N. SMALL INDUSTRIES DEV. CORPN VS.CIT (MAD) 242 I TR 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. ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 5 7. DURING THE COURSE OF HEARING, FIRSTLY REGARDING THE PROVISIONS FOR GSEC, THE LD. AR HAS SUBMITTED THAT THERE ARE GOVER NMENT SECURITIES WHICH THE BANK HAS TO PURCHASE FROM TIME TO TIME, U NDER RBI GUIDELINES. THESE SECURITIES ARE OF TWO TYPES I.E. HTM OR HELD TO MATURITY WHICH MEANS THAT THESE GSEC ARE TO BE HE LD BY THE BANK TILL THE MATURITY PERIOD IS OVER AND SECOND IS AFS OR A VAILABLE FOR SALE WHICH ARE GSECS WHICH CAN BE SOLD EVEN BEFORE THEIR MATURITY PERIOD IS OVER. FURTHER, REFERENCE WAS DRAWN TO THE RBI MASTE R CIRCULAR DATED 01.07.2014 AND SUBMITTED THAT AS PER THE SAID RBI C IRCULAR, THE VALUATION OF SECURITIES HAS TO BE DONE BY THE ASSES SEE AND THE TOTAL LOSS OR DEPRECIATION IN VALUE WOULD BE PUT IN AN IDR ACC OUNT AND FOR AS EACH YEAR, THE AMORTISED AMOUNT IS TAKEN TO THE P & L AC COUNT, 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 FURTH ER SUBMITTED THAT ONLY ACCOUNTING PROCEDURE FOLLOWED AS PER RBI GUIDE LINES IS THAT INSTEAD OF CLAIMING THE DEPRECIATION IN ONE YEAR, IT IS CLA IMED OVER THE REMAINING MATURITY PERIOD OF THE SECURITY HELD BY T HE ASSESSEE. FURTHER, REFERENCE WAS DRAWN TO THE CBDT INSTRUCTION NO. 17/ 2008 DATED 26.11.2008 WHEREIN IT HAS BEEN STATED AS UNDER:- (VII) AS PER RBI GUIDELINES DATED 16 TH OCTOBER, 200, THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ HELD TO MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). INVESTMENTS CLASSIFIED UNDER HTM CATEGO RY NEED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COS T UNLESS THESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 6 AMORTISED OVER THE PERIOD REMAINING TO MATURITY. IN THE CASE OF HFT AND AFS SECURITIES FORMING STOCK-IN-TRADE OF THE BA NK, THE DEPRECIATION/APPRECIATION IS TO BE AGGREGATED SCRIP -WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO BE PROVIDED FO R IN THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWING ANY SUCH CLAIMS. 8. FURTHER, RELIANCE WAS PLACED ON THE COORDINATE B ENCH DECISION IN CASE OF M/S NAGAUR URBAN CO-OPERATIVE BANK LTD. VS. ACIT (IN ITA NO. 240/JODH/2013 DATED 04.02.2013) WHEREIN ON THE SAME ISSUE, THE APPEAL OF THE APPELLANT WAS ALLOWED. IT WAS ACCORDI NGLY SUBMITTED THAT CLAIM OF DEDUCTION ON ACCOUNT OF GSEC AMOUNTING TO RS. 4,85,969/- DESERVES TO BE ALLOWED. 9. FURTHER, REGARDING PROVISION FOR STANDARD ASSETS / SECURITIES WHICH ARE NOT NPA, IT WAS SUBMITTED THAT THE APPELLANT BE ING THE TIER II BANK, AS PER RBI GUIDELINES, IT HAS TO MANDATORILY KEEP A SIDE 0.40% OF ITS PROFIT IN A RESERVE FOR STANDARD ASSETS. IT WAS FURTHER SUBMITTED THAT THIS ACTS AS A CUSHION FOR THE STANDARD ASSETS AND ACCORDINGLY, THE ASSESSEE HAS MADE A PROVISION OF RS. 8,87,170/- BEI NG 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 SU BMITTED THAT THIS PROVISION HAS BEEN MADE ON ACCOUNT OF THE MANDATE O F THE RAJASTHAN COOPERATIVE SOCIETY ACT WHEREIN SECTION 48 OF THE S AID ACT MANDATES AS FOLLOWS:- ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 7 48. DISPOSAL OF NET PROFITS- (1) A CO-OPERATIVE SO CIETY SHALL, OUT OF ITS NET PROFITS IN ANY YEAR- (A) TRANSFER TO THE RESERVE FUND, TWENTY-FIVE PER C ENT OF ITS PROFITS WITHIN SUCH PERIOD AS MAY BE PRESCRIBES; (B) CREDIT ONE PERCENT OF ITS PROFITS, AS MAY BE PR ESCRIBED, TO THE CO- OPERATIVE EDUCATION AND TRAINING FUND CONSTITUTED U NDER THE RULES; (C).. (D). (2) THE NET PROFIT LEFT SHALL BE UTILISED FOR THE F OLLOWING PURPOSES: (A) (B). (C) DONATIONS OF AMOUNTS NOT EXCEEDING TEN PERCENT. 11. IT WAS SUBMITTED THAT THIS RESERVES HAVE BEEN C REATED 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 EV ERY 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 S UBMITTED THAT THE CREDIT IN THIS FUND IS NOT IN THE CONTROL OF THE AP PELLANT BANK NOR DOES IT COME BACK TO THE BANK AND IT HAS GONE PERMANENTLY I NTO THE COFFERS OF THE CO-OPERATIVE DEPARTMENT OF THE GOVERNMENT OF RA JASTHAN. 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 ALLO WABLE AS A DEDUCTION FROM THE PROFITS OF THE BANK. ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 8 12. THE LD DR IS HEARD WHO HAS VEHEMENTLY ARGUED T HE MATTER AND SUBMITTED THAT ALL THESE PROVISIONS ARE IN NATURE O F CONTINGENT LIABILITIES WHICH CANNOT BE ALLOWED FOR TAX PURPOSES. HE FURTH ER TOOK US THROUGH THE FINDINGS OF THE LOWER AUTHORITIES WHICH WE HAVE ALREADY NOTED ABOVE AND NOT BEING REPEATED FOR THE SAKE OF BREVITY. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. REGARDING PROVISION FOR GSEC S ECURITIES, WE FIND THAT THESE ARE, IN EFFECT, VALUATION DIFFERENTIAL I N THE CARRYING VALUE OF THE GESEC SECURITIES HELD BY THE ASSESSEE BANK AND WHICH HAS BEEN DETERMINED AS PER RBI GUIDELINES AND EVEN THE CBDT IN ITS INSTRUCTION NO. 17/2008 DATED 26.11.2008 HAS ACCEPTED THE SAID VALUATION METHODOLOGY SO GUIDED BY THE RBI. ACCORDINGLY, THE SAME IS DIRECTED TO BE ALLOWED SUBJECT TO VERIFICATION BY THE ASSESSING OFFICER. A SIMILAR VIEW HAS BEEN TAKEN BY THE COORDINATE BENCH (SPEAKI NG THROUGH ONE OF US) IN CASE OF DCIT VS HDFC BANK LTD (ITA NO. 4529/MUM/2005 & OTHERS DATED 29.06.11) WHEREIN IT WAS HELD AS UNDER: 11 NEXT ISSUE IN THE APPEAL OF THE REVENUE FOR AY 2001-02 IS WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) IS JUSTIFIED IN DELETING THE DISALLOWANCE OF LOSS DUE TO DIMINUTION IN THE VALUE OF THE CURRENT INVESTMENT AND AMORTIZATIO N OF PREMIUM ON INVESTMENTS HELD TO MATURITY. WE HAVE HEARD THE LD DR AS WELL AS THE LD AR OF THE ASSESSEE AND CONSIDERED THE REL EVANT MATERIAL ON RECORD. THE LD AR HAS POINTED OUT THAT THIS ISSU 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 199 9-00 VIDE ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 9 ORDER DATED 27.4.2011. THE CIT(A) HAS DECIDED THE I SSUE 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 A LLOWABLE AS DEDUCTION AND THE HON'BLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK VS VIT 240 ITR 355 WHERE THE HON'BL E COURT REVERSING THE DECISION OF THE HIGH COURT HELD THAT NATIONALISED BANK GOVERNED BY BANKING REGULATION ACT. BANK IS FO LLOWING MERCANTILE SYSTEM OF ACCOUNTING BOTH FOR BOOK KEEPI NG AS WELL AS TAX PURPOSES. BANK IS VALUING STOCK IN TRADE (INVES TMENTS) 'AT COST' IN BALANCE SHEET IN ACCORDANCE WITH BANKING R EGULATION 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 REVA LUATION OF SECURITIES. HOWEVER, FOR THE COMPUTATION OF DEPRECI ATION ALLOWABLE, THE ASSESSING OFFICER IS ALSO DIRECTED T O REVALUE THE SECURITIES IN THE SAME MANNER IN THE BEGINNING OF T HE YEAR ALSO.' 11.1 WE FIND THE TRIBUNAL IN THE CASE OF LORD KRISH NA 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, 199 8 ISSUED ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 10 BY THE RESERVE BANK OF INDIA PRESCRIBING THE METHOD TO BE FOLLOWED FOR VALUATION OF GOVERNMENT AND OTHER SECU RITIES. THE LEARNED A.R. INVITED OUR ATTENTION TOWARDS PAGE 4 O F THE PAPER BOOK, WHICH IS THE METHOD SUGGESTED BY THE RBI TO B E ADOPTED BY THE BANKS IN RESPECT OF PERMANENT INVESTMENTS. C LAUSE (II) OF POINT NO.1 OF THIS, BEING VALUATION OF PERMANENT IN VESTMENTS, WHICH HAS BEEN PRESSED INTO SERVICE BY THE LD. AR, READS AS UNDER:- '`PERMANENT' INVESTMENTS SHOULD BE VALUED AT COST A ND IN CASE COST PRICE IS HIGHER THAN THE FACE VALUE, THE PREMI UM SHOULD BE AMORTISED OVER THE REMAINING PERIOD OF MATURITY OF THE SECURITY. ON THE OTHER HAND, WHERE THE COST PRICE IS LESS THA N THE FACE VALUE, THE DIFFERENCE SHOULD BE IGNORED AND SHOULD NOT BE AMORTISED OR TAKEN TO INCOME ACCOUNT SINCE THE AMOU NT REPRESENTS UNREALIZED GAIN.' 4. WHEN WE VIEW THE ABOVE METHOD OF VALUATION, IT C OMES TO NOTICE THAT THE PERMANENT INVESTMENT SHOULD BE VALU ED AT COST AND WHERE SUCH COST PRICE IS HIGHER THAN THE FACE V ALUE, 'THE PREMIUM SHOULD BE AMORTIZED FOR THE REMAINING PERIO D OF MATURITY OF THE SECURITY'. FROM THE ABOVE IT IS CLE AR THAT THE PREMIUM HAS TO BE AMORTIZED FOR THE REMAINING PERIO D OF MATURITY OF THE SECURITY. THE LEARNED A.R. FAIRLY CONCEDED T HAT DETAILS OF SUCH PREMIUM SPLITTING OVER THE REMAINING PERIOD OF THE MATURITY WAS NOT READILY AVAILABLE AND HENCE THE MATTER BE R EMITTED TO THE FILE OF A.O. FOR DECIDING IT AS PER THE ABOVE PART OF THE CIRCULAR. NO SERIOUS OBJECTION WAS TAKEN BY THE LEARNED DEPAR TMENTAL REPRESENTATIVE. IN VIEW OF THESE FACTS WE SET ASIDE THE IMPUGNED ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 11 ORDER AND RESTORE THE MATTER TO THE FILE OF A.O. FO R DECIDING THIS POINT IN ACCORDANCE WITH THE ABOVE NOTED METHOD.' 11.2 THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND A GAINST 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 CONTENTI ON OF THE ASSESSEE BANK THAT THE SAME IS A CHARGE ON THE PROFITS OF TH E 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 HAN DS OF THE ASSESSEES BANK TO THE CO-OPERATIVE EDUCATION AND T RAINING FUNDS AND IS THUS AN ALLOWABLE EXPENSE IN ITS HANDS AS THE SA ME HAS BEEN INCURRED BY WAY OF CONTRIBUTION TO THE EDUCATION AND TRAININ G FUND MANDATED BY THE CO-OPERATIVE ACT. IT IS THEREFORE THE CONTEN TION 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 CO- OPERATIVE 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 INCOM E BY OVERRIDING TITLE. ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 12 32. THE DIVERSION OF INCOME HAS MULTI-FACETS. DIVER SION ARISES WHERE INCOME IS APPLIED IN A PARTICULAR MANNER UNDE R STATUTORY OR CONTRACTUAL OBLIGATION OR UNDER THE PROVISIONS OF A DOCUMENT UNDER WHICH THE COMPANY IS CONSTITUTED VIZ., MEMORA NDUM OF ARTICLE OF ASSOCIATION OR A FIRM HAS COME INTO EXIS TENCE. IN THESE CIRCUMSTANCES, THE PRINCIPLE THAT HAS EMERGED IS TH AT 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 ASSESSEE TO AN ULTIMATE PURPOSE, THE CASE OF APPLICATION OF INCOME IN A PARTICULAR MANNER. EVEN THOUGH HE MAY ENTER INTO A LEGAL OBLIG ATION TO APPLY IT IN A PARTICULAR WAY, STILL IT REMAINS THE INCOME OF THE ASSESSEE. SEC. 61 TO S. 62 PROVIDES AN EXCEPTION TO LEGISLATIVE RULE WHERE NOTWITHSTANDING ASSIGNMENT OF SOURCE OF INCOM E, THE INCOME IS DEEMED TO BE THE INCOME OF THE PERSON WHO HAS ASSIGNED SUCH SOURCE BY CREATING A LEGAL FICTION. 33. ANOTHER SHADE OF SUCH CONTROVERSY IS WHERE THE INCOME IS NOT APPLIED BUT DIVERTED BY AN OVERRIDING TITLE FROM TH E ASSESSEE, WHICH HE WOULD OTHERWISE HAVE RECEIVED. SUCH DIVERT ED INCOME CANNOT BE CONSIDERED THE INCOME OF THE ASSESSEE AT ALL. REFERENCE MAY BE MADE TO RAJA BEJOY SINGH DUDHURIA V. CIT [1933] 1 ITR 135 (PC) WHERE THE ASS ESSEE HAS SUCCEEDED TO THE FAMILY ANCESTRAL ESTATE ON THE DEM ISE OF HIS FATHER. SUBSEQUENT TO SUCH SUCCESSION, HIS STEP-MOT HER WHO HAD LEGAL RIGHT TO MAINTENANCE OUT OF THE ESTATE OF HER HUSBAND ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 13 BROUGHT A SUIT OF MAINTENANCE AGAINST HIM AND THE A SSESSEE SUFFERED A DECREE OF THE COURT TO PAY A FIXED MONTH LY SUM TO THE STEP-MOTHER AND IT WAS DECLARED THAT THE MAINTENANC E WAS A CHARGE ON THE ANCESTRAL ESTATE IN THE HANDS OF THE ASSESSEE. THE QUESTION THAT AROSE BEFORE THE PRIVY COUNCIL WAS TH AT THE ASSESSEE WAS LIABLE TO BE ASSESSED AS AN INDIVIDUAL IN RESPECT OF THE AMOUNT OF MAINTENANCE WHICH WAS PAYABLE TO 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 DELIVERI NG THE OPINION OF THE BOARD STATED: 'IN THE PRESENT CASE, THE DECREE OF THE COURT BY CH ARGING THE APPELLANT'S WHOLE RESOURCES WITH A SPECIFIC PAYMENT TO HIS STEP- MOTHER 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 APPL ICATION 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 BE COMES 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 ASSESSE E HAS RECEIVED IT FOR SOMEONE ELSE THAN HIMSELF AND THE I NCOME AT NO STAGE BECOME PART OF THE ASSESSE'S CAPITAL BLOCK WH ICH 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 F AILED TO PAY, COULD BE DIRECTLY RECOVERED BEFORE IT REACHED THE A SSESSEE. THIS ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 14 CASE IS MORE AKIN TO POONA ELECTRIC SUPPLY CASE (SU PRA) 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 ORDINAR Y 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 PAY ABLE IN RESPECT OF THOSE SHARES FOR THE TERM OF HER NATURAL LIFE AND COVENANTED TO DELIVER AND ENDORSE OVER TO HER ANY D IVIDEND WARRANT OR OTHER DOCUMENT OF TITLE TO SUCH DIVIDEND S OR SUMS OF MONEY AND TO INSTRUCT THE COMPANY TO PAY SUCH DIVID ENDS 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 DI VERSION OF INCOME BY OVERRIDING TITLE. THE SUPREME COURT REPEL LED THE CONTENTION BY HOLDING THAT THE DEED OF ASSIGNMENT W AS, IT ITS TRUE NATURE, ONLY A CONTRACT BY THE ASSESSEE TO TRANSFER , OR MAKE OVER, TO HIS WIFE IN FUTURE ALL DIVIDENDS THAT MAY BE DEC LARED IN RESPECT OF THE SHARES; AS A COMPANY CAN PAY DIVIDEND ONLY T O THE REGISTERED HOLDER OF THE SHARES, NEITHER S. 16(1)(C ) NOR ITS THIRD PROVISO WAS APPLICABLE TO THE CASE; THE INCOME CONT INUED TO ACCRUE TO THE ASSESSEE AND WAS ASSESSABLE IN THE HA NDS OF THE ASSESSEE AS HIS INCOME, EVEN THOUGH IT WAS ULTIMATE LY PAYABLE TO HIS WIFE UNDER THE TERMS OF THE DEED. IT WAS A CASE OF APPLICATION OF INCOME AFTER IT HAD ACCRUED AND NOT A CASE OF DI VERSION OF ANY SUM OF MONEY BEFORE IT HAD BECOME THE INCOME OF THE ASSESSEE ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 15 NOR WAS A CASE WHERE THE ASSESSEE HAS RECEIVED THE INCOME FOR SOMEONE ELSE. 37. TWO FEATURES NEED BE TAKEN INTO CONSIDERATION. FIRSTLY, IT WAS A CASE WHERE DIVERSION OF INCOME UNDER OVERRIDING T ITLE WAS CLAIMED TO BE GIVEN TO A PERSON OTHER THAN THE ASSE SSEE AFTER RECEIPT OF IT BY THE ASSESSEE. SECONDLY, IT WAS HEL D TO BE AN OBLIGATION ON INCOME OF THE ASSESSEE ONLY AFTER IT HAD ACCRUED AND WAS NOT A CASE OF DIVERSION OF ANY SUM OF MONEY BEFORE IT BECAME THE INCOME OF THE ASSESSEE. THIS BRINGS OUT ANOTHER ESSENTIAL FEATURE OF APPLICATION OF PRINCIPLE OF DI VERSION OF INCOME BY OVERRIDING TITLE, VIZ., THAT INCOME NOT ONLY PAY ABLE SHOULD REACH OTHER THAN THE ASSESSEE BUT INCOME SHOULD BE REACHA BLE TO THE THIRD PARTY BEFORE IT BECOMES THE INCOME OF THE ASS ESSEE. 38. IN THE PRESENT CASE, IT MAY BE NOTICED THAT NEI THER THE RESERVE FUND GOES TO ANY PARTY OTHER THAN THE ASSES SEE ITSELF, NOR THERE IS ANY OBLIGATION TO PROVIDE FOR SUCH RESERVE BEFORE IT BECOMES THE PART OF NET INCOME EARNED BY THE SOCIET Y. 39. IN THE LIKE WAY IS THE CASE OF K.A. RAMACHAR & ANR. V. CIT [1961] 42 ITR 25 (SC), WHERE THOUGH UND ER THE DEED OF SETTLEMENT WHICH WAS IRREVOCABLE, EACH OF THE BE NEFICIARIES OF THE SETTLEMENT WAS ENTITLED TO RECEIVE 1/4 OF THE S HARE OF THE SETTLEMENT IN THE PROFITS OF THE FIRM DURING A PERI OD OF 8 YEARS FROM THE DATE OF SETTLEMENT, THE BENEFICIARIES WERE ENTITLED TO DIRECTLY RECEIVE AND COLLECT FROM THE FIRM THEIR SH ARES UNDER THE SETTLEMENTS. THE ASSESSEE'S CLAIM THAT THOSE AMOUNT S WERE PAYABLE TO THE WIFE AND CHILDREN OF SETTLOR UNDER T HE OBLIGATION ARISING UNDER THE IRREVOCABLE DEED OF SETTLEMENT WA S NEGATIVED ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 16 ON THE GROUND THAT ON THE FACTS, THE EFFECT OF DEED S OF SETTLEMENT WAS THAT PROFITS WERE FIRST TO BE ACCRUED TO THE AS SESSEE 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 PROFI TS. 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 ACCR UAL. 40. ON THESE PRINCIPLES, THE DECISION IN RAJA BEJOY SINGH DUDHURIA'S CASE (SUPRA) WAS DISTINGUISHED BY THE CO URT. 41. IN P.C. MULLICK & ANR. (EXECUTORS) V. CIT [1938 ] 6 ITR 206 (PC) FOR THE AFORESAID REASONS, THE PRIVY COUNCIL T OO DISTINGUISHED ITS EARLIER DECISION IN RAJA BEJOY SINGH DUDHURIA'S CASE (SUPRA). IT WAS A CASE IN WHICH A TESTATOR HAD BY HIS WILL APPO INTED THE APPELLANTS HIS EXECUTORS AND HAD DIRECTED THEM TO P AY RS. 10,000 OUT OF THE INCOME OF HIS PROPERTY ON THE OCCASION O F HIS 'ADDYA SRADH' FOR EXPENSES IN CONNECTION THEREWITH TO THE PERSON WHO WAS ENTITLED TO PERFORM THE SRADH. HE HAD ALSO DIRE CTED THEM TO PAY OUT OF THE INCOME OF HIS PROPERTY, THE COSTS OF TAKING OUT PROBATE OF HIS WILL. THE BOARD OPINED THAT THESE AR E THE INCOME OF THE ESTATE COMING TO THE HANDS OF THE APPELLANTS AS EXECUTORS AND IN PURSUANCE OF OBLIGATION IMPOSED BY THE TESTA TOR. IT WAS NOT A CASE IN WHICH A PORTION OF THE INCOME WAS BY AN OVERRIDING TITLE DIVERTED FROM THE PERSON WHO WOULD OTHERWISE HAVE RECEIVED IT AS IN BEJOY SINGH DUDHURIA'S CASE (SUPRA), BUT A CASE IN WHICH ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 17 THE EXECUTORS HAVING RECEIVED THE WHOLE INCOME APPL Y A PORTION OF IT IN A PARTICULAR WAY. 42. IN OTHER WORDS, RIGHTS TO RECEIVE INCOME SHOULD EXIST INDEPENDENT OF THE ACCRUAL AND RECEIPT OF INCOME BY THE ASSESSEE IN SOME THIRD PARTY WHO COULD LAY CLAIM BEFORE IT R EACHES THE ASSESSEE. 43. THE DIFFERENCE BETWEEN 'OBLIGATION OF INCOME AF TER IT REACHES THE ASSESSEE' AND 'DIVERSION OF INCOME BY OVERRIDIN G TITLE BEFORE IT REACHES THE ASSESSEE' WAS EXPLAINED BY THE SUPRE ME COURT IN CIT V. SITALDAS TIRATHDAS [1961] 41 ITR 367 (SC) . 'IN OUR OPINION, THE TRUE TEST IS WHETHER THE AMOUN T SOUGHT TO BE DEDUCTED, IN TRUTH, NEVER REACHED THE ASSESSEE AS H IS INCOME. OBLIGATIONS, NO DOUBT, THERE ARE IN EVERY CASE, BUT IT IS THE NATURE OF THE OBLIGATION WHICH IS THE DECISIVE FACT. THERE IS A DIFFERENCE BETWEEN AN AMOUNT WHICH A PERSON IS OBLIGED TO APPL Y OUT OF HIS INCOME AND AN AMOUNT WHICH BY THE NATURE OF THE OBL IGATION CANNOT BE SAID TO BE A PART OF THE INCOME OF THE AS SESSEE. WHERE, BY THE OBLIGATION, INCOME IS DIVERTED BEFORE IT, RE ACHES THE ASSESSEE, IT IS DEDUCTIBLE; BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE AN OBLIGATION AFTER SUCH INCOM E REACHES THE ASSESSEE, THE SAME CONSEQUENCE, IN LAW, DOES NOT FO LLOW. IT IS THE FIRST KIND OF PAYMENT WHICH CAN TRULY BE EXCUSED AN D NOT THE SECOND. THE SECOND PAYMENT IS MERELY AN OBLIGATION TO PAY ANOTHER A PORTION OF ONE'S OWN INCOME WHICH HAS BEE N 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, ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 18 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 OU TGOING AGENTS WAS NOT BY AN OVERRIDING TITLE CREATED EITHE R 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'S CASE (SUPRA) AND SIT ALDAS TIRATHDAS'S CASE (SUPRA), THE COURT OPINED THAT AN OBLIGATION TO APPLY THE INCOME IN A PARTICULAR WAY BEFORE IT IS R ECEIVED BY THE ASSESSEE OR BEFORE IT HAS ACCRUED OR ARISEN TO THE ASSESSEE RESULTS IN THE DIVERSION OF INCOME. AN OBLIGATION T O APPLY INCOME WHICH HAS ACCRUED OR ARISEN OR HAS BEEN RECEIVED AM OUNTS MERELY TO THE APPORTIONMENT OF INCOME AND THE INCOM E SO APPLIED IS NOT DEDUCTIBLE. THE TRUE TEST FOR THE AP PLICATION OF RULE OF DIVERSION OF INCOME BY AN OVERRIDING TITLE IS WH ETHER THE AMOUNT SOUGHT TO BE DEDUCTED IN TRUTH NEVER REACHED THE ASSESSEE AS HIS INCOME.' 45. IN A RECENT DECISION, THE SUPREME COURT IN MOTI LAL 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 C OURT SAID : 'THE EXPRESSIONS 'REACHES THE ASSESSEE' AND 'HAS BE EN RECEIVED' HAVE BEEN USED NOT IN THE SENSE OF THE INCOME BEING RECEIVED IN ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 19 CASH BY ONE PERSON OR ANOTHER. WHAT THE COURT EMPHA SISED IS THE NATURE OF THE OBLIGATION BY REASON OF WHICH THE INC OME BECOMES PAYABLE TO A PERSON OTHER THAN THE ONE ENTITLED TO IT. WHERE THE OBLIGATION FLOWS OUT OF AN ANTECEDENT AND INDEPENDE NT TITLE IN THE FORMER (SUCH AS, FOR EXAMPLE, THE RIGHTS OF THE DEP ENDANTS TO MAINTENANCE OR OF COPARCENERS ON PARTITION, OR RIGH TS UNDER A STATUTORY PROVISION OR AN OBLIGATION BY A THIRD PAR TY AND THE LIKE), IT EFFECTIVELY SLICES AWAY A PART OF THE CORPUS OF THE RIGHT OF THE LATTER TO RECEIVE THE ENTIRE INCOME AND SO IT WOULD BE A CASE OF DIVERSION.' 46. SIGNIFICANTLY, THE NATURE OF DIVERSION OF INCOM E BY OVERRIDING TITLE IS THAT INCOME REACHES TO A PARTY OTHER THAN THE ASSESSEE BY REASON OF A PRE-EXISTING TITLE TO IT. 15. ON THE BASIS OF AFORESAID PRINCIPLES SO LAID D OWN BY HON'BLE HIGH COURT, WHAT IS TO BE CONSIDERED IS WHETHER, IN THE FACTS OF THE PRESENT CASE, THE AMOUNT PAID TOWARDS THE EDUCATION FUND IS DIVERSION OF INCOME BY OVERRIDING TITLE OR APPROPRIATION OF INCO ME. WE FIND THAT THE LIABILITY TO PAY THE AMOUNT PAID TOWARDS THE EDUCAT ION FUND IS AFTER QUANTIFICATION OF PROFITS BY THE ASSESSEE BANK UNDE R THE RAJASTHAN CO- OPERATIVE SOCIETY ACT. IT IS ONLY AFTER THE NET PRO FIT REACHES THE BANK THAT THE QUESTION OF ITS DISPOSAL IN TERMS OF THE P ROVISIONS 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 RUL ES TO THE RESERVE FUND OR TO THE EDUCATION FUND CONSTITUTED UNDER THE RULE S. APPARENTLY, THERE IS NO CHARGE IN THE YEAR IN WHICH ASSESSEE INCURS L OSSES. IT IS ONLY WHEN THERE ARE PROFITS, THE AMOUNT HAS TO BE PAID TOWARD S THE EDUCATION ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 20 FUND. IF IT IS TO BE CONSIDERED AS DIVERSION AT SOU RCE BY OVERRIDING TITLE, WHETHER ASSESSEE INCURS PROFITS OR LOSS, THE SAID A MOUNT HAS TO BE PAID. HOWEVER, IN THE PRESENT CASE, THE AMOUNT TOWARDS ED UCATION 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 DI VERSION AT SOURCE BUT AN APPROPRIATION OF PROFITS WHICH IS NOT ALLOWABLE FOR TAX PURPOSES. THEREFORE, RESPECTFULLY FOLLOWING THE PRINCIPLES LA ID DOWN BY THE HON'BLE RAJASTHAN HIGH COURT IN CASE OF JODHPUR CO-OPERATIV E MARKETING SOCIETY (SUPRA), THE MATTER IS DECIDED IN FAVOUR OF THE REV ENUE AND AGAINST THE ASSESSEE. 16. FURTHER, PROVISION FOR STANDARD ASSETS, STATUTO RY RESERVE AND BAD AND DOUBTFUL DEBTS HAVE BEEN RIGHTLY DISALLOWED BY THE AO AS DEDUCTION UNDER SECTION 36(1)(VIIA) AND 36(1)(VIII) HAVE SEPA RATELY 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 DE DUCTION 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 STANDAR D ASSETS AND PROVISION FOR GSEC WHILE COMPUTING SUCH DEDUCTIONS. IT WAS SUBMITTED THAT INSTEAD OF REDUCING THESE AMOUNTS, THE AO SHOU LD HAVE ENHANCED THE NET PROFIT BY AN AMOUNT OF RS 13,73,139. IT WA S 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 WORKIN G PROVIDED BY THE ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 21 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 RET URN ARE NOT ALLOWED ULTIMATELY IN APPEAL, THEN THE BENCH MAY DIRECT THE AO TO ENHANCE THE RETURNED INCOME BY THOSE FIGURES AND ALLOW THE TWO DEDUCTIONS ACCORDINGLY. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. UNDISPUTEDLY, THE ASSESSEE BA NK IS ELIGIBLE FOR DEDUCTION U/S 36(1)(VIIA) AND U/S 36(1)(VIII) OF TH E ACT. SECTION 36(1)(VIIA) PROVIDES FOR DEDUCTION NOT EXCEEDING 7. 5% OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA). FURTHER, SECTION 36(1)(VIII) PROVIDE S FOR DEDUCTION OF AN AMOUNT NOT EXCEEDING 20% OF THE PROFITS DERIVED FRO M THE ELIGIBLE BUSINESS COMPUTED UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION. IN THE INSTANT CASE, THE AO HAS REDUC ED THE PROVISION FOR STANDARD ASSETS AND PROVISION FOR GSEC WHILE COMPUT ING THE NET PROFITS INSTEAD OF ADDING THE SAME ON THE BELIEF THAT THESE PROVISIONS ARE NOT ALLOWABLE. AS WE HAVE HELD ABOVE, PROVISION FOR ST ANDARD ASSET IS NOT ALLOWABLE, HOWEVER THE PROVISION FOR GSEC IS ALLOWA BLE SUBJECT TO VERIFICATION. THEREFORE, FOR THE PURPOSES OF QUANT IFYING THE DEDUCTION U/S 36(1)(VIIA) AND U/S 36(1)(VIII) OF THE ACT, ONL Y THE AMOUNT WHICH HAS BEEN FINALLY 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 3 6(1)(VIII) OF THE ACT ACCORDINGLY. IN THE RESULT, THE GROUND IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 22 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 R ESULT, DEPRECIATION HAS BEEN WRONGLY ALLOWED BY THE ASSESSING OFFICER. IT WAS SUBMITTED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS. 7 6,44,335/- IN THE RETURN OF INCOME AGAINST WHICH THE DEPRECIATION WHI CH SHOULD HAVE BEEN ACTUALLY ALLOWED IS RS. 71,08,938/- HENCE, THE DISALLOWANCE SHOULD HAVE BEEN RESTRICTED TO 5,35,397/-. WE FIND THAT DE PRECIATION ON COMPUTERS HAS BEEN PROVIDED @ 60% IN THE INCOME-TAX RULES. ACCORDINGLY, THE AO IS DIRECTED TO COMPUTE THE DEPR ECIATION ON COMPUTERS @ 60% AND THE GROUND OF APPEAL IS THUS AL LOWED. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ITA NO. 1075/JP/2018 21. AT THE OUTSET, IT IS NOTED THAT THERE IS DELAY IN FILING OF THE PRESENT APPEAL BY 515 DAYS. IN THIS REGARD, THE ASSESSEE H AS SUBMITTED A CONDONATION APPLICATION ALONG WITH AN AFFIDAVIT WHI CH READS AS UNDER:- 1. THAT THE IMPUGNED ORDER OF THE CIT(A)-01, JAIPU R FOR A.Y. 2012-13 WAS PASSED ON 08.12.2016. HOWEVER, THE APPELLANT DI D NOT RECEIVE A COPY THEREOF TILL HE RECALLED THE FILE FROM HIS THE N 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 08.12.2 016 AND HE WAS ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 23 KEPT COMPLETELY IN THE DARK ABOUT THE STATUS OF THE APPEAL BY THE THEN AUTHORISED REPRESENTATIVE. IN FACT, A PERUSAL OF TH E ORDER WOULD SHOW THAT NONE APPEARED FOR THE APPELLANT THEREBY CONFIR MING THE NEGLIGENT ATTITUDE OF THE A/R OF THE APPELLANT. 3. THAT IT WAS ONLY ABOUT A MONTH BACK THAT THE APP ELLANT CAME TO KNOW OF THE SITUATION. IT WAS ONLY WHEN HE RETRIEVE D 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 BEIN G FILED. AN AFFIDAVIT OF THE APPELLANT TO THIS EFFECT IS ENCLOS ED AS ANNEXURE A TO THIS APPLICATION. 4. THAT THE APPELLANT WAS KEPT TOTALLY IN THE DARK BY HIS CA IS ALSO APPARENT FROM THE FACT THAT EVEN THE APPEAL BEFORE THE ITAT FOR A.Y. 2011-12, THE IMMEDIATELY PRECEDING YEAR WAS ALSO DI SMISSED DUE TO NON-APPEARANCE OF THE A/R OF THE APPELLANT, ALSO IN 2016, BUT THE APPELLANT CAME TO KNOW OF THIS SITUATION ONLY SOME TIME BACK. 5. THAT THE COURTS HAVE TAKEN A CONSISTENT STAND TH AT UNLESS MALA FIDES ARE ALLEGED, A LENIENT VIEW NEEDS TO BE TAKEN ON THE ISSUE OF LIMITATION. IN THE CASE OF COLLECTOR, LAND ACQUISIT ION V. M. KATIJI [1987] 167 ITR 471 (SC) THE HON'BLE SUPREME COURT STATED T HAT WHEN AN APPELLANT HAS A GOOD CASE ON MERITS, DEFEAT OF HIS CLAIM ON TECHNICAL PLEA OF LIMITATION WOULD ULTIMATELY LEAD TO INJUSTI CE. IN THE CASE OF DINABANDHU SAHU V. JADUMONI MANGARAJ [1955)1 SCR 11 4 THE HON'BLE SUPREME COURT OPINED THAT THE WORDS 'SUFFIC IENT CAUSE' IN THE CONTEXT OF CONDONATION OF DELAY (WHERE THE POWE R IS VESTED UNDER A STATUTE) SHOULD RECEIVE A LIBERAL CONSTRUCTION SO AS TO ADVANCE SUBSTANTIAL JUSTICE, WHEN NO NEGLIGENCE, NOR INACTI ON NOR WANT OF BONA FIDES IS IMPUTABLE TO THE PARTY CONCERNED. ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 24 6. THAT IT WAS ALWAYS THE INTENTION OF THE APPELLAN T 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 FILIN G THE APPEAL IS BONA FIDE, HENCE THE DELAY NEEDS TO BE CONDONED. 22. THE LD DR IS HEARD WHO HAS OBJECTED TO THE COND ONATION APPLICATION AND SUBMITTED THAT THERE IS NO REASONAB LE CAUSE WHICH IS DISCERNABLE FROM THE ASSESSEES APPLICATION AND THE DELAY SHOULD NOT BE CONDONED. 23. HEARD BOTH THE PARTIES AND PURSUED THE CONDONA TION APPLICATION AND OTHER MATERIAL AVAILABLE ON RECORD INCLUDING TH E AFFIDAVIT FILED BY THE ASSESSEE. WE FIND THAT THE ASSESSEE BANK HAS A REA SONABLE CAUSE FOR THE DELAY IN FILING THE PRESENT APPEAL AS THE AUTHO RIZED REPRESENTATIVE WHO HAS BEEN AUTHORIZED BY THE ASSESSEE BANK HAS KE PT 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 P ROFESSIONAL OBLIGATION CAST UPON HIM IN TAKING APPROPRIATE STEP S IN TERMS OF INFORMING THE ASSESSEE AND FILING APPEAL BEFORE THE TRIBUNAL. THE FAILURE ON PART OF THE AR TO INFORM THE ASSESSEE AN D FILE THE APPEAL IN TIME IS A REASONABLE CAUSE FOR CONDONING THE DELAY IN FILING THE PRESENT APPEAL ESPECIALLY GIVEN THAT THE ISSUES INVOLVED AR E SIMILAR IN NATURE AS WE HAVE ADJUDICATED IN AY 2011-12 AND AS HELD BY TH E COURTS FROM TIME TO TIME, TECHNICALITY SHOULD NOT COME IN THE WAY OF DISPENSATION OF SUBSTANTIAL JUSTICE, THE DELAY IN FILING THE PRESEN T APPEAL IS CONDONED AND THE APPEAL IS ADMITTED AS FILED IN TIME. ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 25 24. IN THIS APPEAL, THE ASSESSEE HAS TAKEN THE FOLL OWING GROUNDS OF APPEAL:- 1. THE CIT(A) ERRED IN FACTS AND IN LAW IN CONFIRM ING THE ORDER OF THE ASSESSING OFFICER WITH REGARD TO DISALLOWANCE O F 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 SE CTION 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 RECALCULA TE THE DEDUCTION U/S 36(1)(VIIA)/ 36(1)(VIII) IN VIEW OF THE ENHANCE MENT IN TOTAL INCOME DUE TO ADDING BACK OF THE PROVISIONAL RESERV ES. 25. FURTHER, THE ASSESSEE HAS TAKEN THE FOLLOWING A DDITIONAL GROUNDS OF APPEAL:- 1. THAT THE CIT(A) ERRED IN LAW AND ON FACTS IN CO NFIRMING THE DISALLOWANCE THE FOLLOWING PROVISIONS AND RESERVES: I) PROVISIONS FOR STANDARD ASSETS RS. 5,00,000/- II) PROVISION FOR GSEC RS. 4,90,985/- III) PROVISION FOR STATUTORY RESERVE RS. 33,34,520 /- IV) PROVISION FOR BAD & DOUBTFUL DEBTS RS. 13,33,8 08/- V) INVESTMENT FLUCTUATION RESERVE RS. 5,00,000/- VI) EDUCATION RESERVE RS. 1,33,381/- 2. THAT THE CIT(A) ERRED IN LAW AND ON FACTS IN CON FIRMING THE DISALLOWANCE OF DEPRECIATION OF RS. 11,11,243/- 3. THAT THE CIT(A) ERRED IN LAW AND ON FACTS IN DI RECTING IMPOSING OF INTEREST U/S 234B AND 234C. ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 26 26. THE LD. AR SUBMITTED THAT THE ADDITIONAL GROUND S ARE PURELY LEGAL GROUNDS AND ALL THE FACTS ARE AVAILABLE ON RECORD A ND THE SAME SHOULD BE ADMITTED IN THE INTEREST OF JUSTICE. IN SUPPORT, RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF NA TIONAL THERMAL POWER CORPORATION LTD. VS. CIT 229 ITR 383. AFTER H EARING BOTH THE PARTIES, THE ADDITIONAL GROUNDS BEING PURELY LEGAL GROUNDS ARE HEREBY ADMITTED FOR ADJUDICATION. 27. BOTH THE PARTIES FAIRLY SUBMITTED THAT THE FAC TS AND CIRCUMSTANCES OF THE PRESENT APPEAL ARE IDENTICAL TO THE APPEAL I N ITA NO. 809/JP/2015. THEREFORE, OUR FINDINGS AND DIRECTION S CONTAINED IN ITA NO. 809/JP/2015 SHALL APPLY MUTATIS MUTANDIS TO THIS APPEAL. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSES SEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/05/2019. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 14/05/2019. *SANTOSH VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- INTEGRAL URBAN CO-OPERATIVE BANK LTD ., JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CIRCLE-1, JAIPUR. ITA NO. 809/JP/2015 & 1075/JP/2018 INTEGRAL URBAN COOPERATIVE BANK LTD VS. ACIT/ITO 27 ITO, WARD-2(1), JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 809/JP/2015 & 1075/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR