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2019 (6) TMI 462 - AT - Income TaxDisallowance of provision for GSEC Securities, provision for standard assets, provisions for statutory reserve, provisions of bad doubtful debts and education reserve - HELD THAT - Regarding provision for GSEC Securities, we find that these are, in effect, valuation differential in 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. See M/S HDFC BANK LTD AND VICE -VERSA 2011 (6) TMI 774 - ITAT MUMBAI - Decided in favour of the assessee and against the revenue. Education reserve - charge on the profits - as per section 48 of the Rajasthan Co-operative Society Act, the assessee is mandatorily required to contribute 1% of its profits every year - HELD THAT - We find that the liability to pay the amount paid towards the education fund is after 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 Revenue and against the assessee. Provision for standard assets, statutory reserve and bad and doubtful debts have been rightly disallowed by the AO as deduction u/s 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. Calculation of deduction u/s 36(1)(viia) and u/s 36(1)(viii) - as submitted that the AO has given no reasons while reducing the provision for standard assets and provision for GSEC while computing such deductions - HELD THAT - In the instant case, the AO has reduced the provision for standard assets and provision for GSEC while computing the net profits instead of adding the same on the belief that these provisions are not allowable. As we have held above, provision for standard asset is not allowable, however the provision for GSEC is allowable subject to verification. Therefore, for the purposes of quantifying the deduction u/s 36(1)(viia) and U/s 36(1)(viii), only 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 36(1)(viii) accordingly. In the result, the ground is allowed for statistical purposes. Depreciation on computers - @ 33.33% OR 60% specified in the Income-tax rules - HELD THAT - 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.
Issues Involved:
1. Disallowance of various provisions by the Assessing Officer (AO). 2. Additional grounds of appeal regarding recalculating net profit and deductions under sections 36(1)(viia) and 36(1)(viii). 3. Depreciation on computers. 4. Delay in filing the appeal for the assessment year 2012-13. 5. Disallowance of reserves for the assessment year 2012-13. Detailed Analysis: 1. Disallowance of Various Provisions by the Assessing Officer: The assessee challenged the disallowance of provisions for GSEC, standard assets, statutory reserve, bad & doubtful debts, and education reserve. The AO disallowed these provisions under Section 37(1) of the Income Tax Act, considering them contingent liabilities. The CIT(A) upheld this disallowance, citing that these provisions are not allowable under the IT Act and are only contingent liabilities, not crystallized ones. - Provision for GSEC: The assessee argued that the provision for GSEC is a crystallized loss on depreciation of GSEC securities, as per RBI guidelines and CBDT Instruction No. 17/2008. The Tribunal directed that this provision be allowed subject to verification by the AO, referencing previous similar decisions. - Provision for Standard Assets: The assessee claimed this provision based on RBI guidelines, mandating a reserve of 0.40% of advances. However, the Tribunal upheld the AO's disallowance, stating that such provisions are not allowable under the IT Act. - Education Reserve: The assessee argued that this reserve is a statutory obligation under the Rajasthan Cooperative Society Act and should be considered a charge on profits. However, the Tribunal, referencing the Rajasthan High Court's decision in Jodhpur Cooperative Marketing Society, held that this is an appropriation of profits and not allowable for tax purposes. 2. Additional Grounds of Appeal: The assessee raised additional grounds requesting the recalculation of net profit and deductions under sections 36(1)(viia) and 36(1)(viii). The Tribunal admitted these grounds, considering them purely legal and supported by the Supreme Court decision in National Thermal Power Corporation Ltd. vs. CIT. - Recalculation of Deductions: The Tribunal directed the AO to recompute the deductions under sections 36(1)(viia) and 36(1)(viii), considering only the amounts finally determined as disallowable towards such provisions. 3. Depreciation on Computers: The assessee contested the AO's allowance of depreciation on computers at 33.33% instead of 60% as specified in the Income Tax Rules. The Tribunal directed the AO to compute depreciation on computers at 60%, allowing this ground of appeal. 4. Delay in Filing the Appeal for the Assessment Year 2012-13: The assessee filed an appeal with a delay of 515 days, attributing the delay to the negligence of their previous Authorized Representative. The Tribunal condoned the delay, emphasizing that technicalities should not obstruct substantial justice, especially when the issues involved are similar to those adjudicated in the previous year. 5. Disallowance of Reserves for the Assessment Year 2012-13: The Tribunal noted that the facts and circumstances of the appeal for the assessment year 2012-13 were identical to those of the previous year. Therefore, the findings and directions from the previous year's appeal were applied mutatis mutandis to this appeal. Conclusion: The Tribunal partly allowed the appeals, directing the AO to allow the provision for GSEC subject to verification, recompute deductions under sections 36(1)(viia) and 36(1)(viii), and compute depreciation on computers at 60%. The Tribunal upheld the disallowance of provisions for standard assets, statutory reserve, bad & doubtful debts, and education reserve. The delay in filing the appeal for the assessment year 2012-13 was condoned, and the appeal was admitted.
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