TMI Blog2013 (8) TMI 925X X X X Extracts X X X X X X X X Extracts X X X X ..... ion made on account of Gift expenses - Held that:- As in the case Taluka Co-op. & Sale Union Ltd. (1980 (9) TMI 85 - GUJARAT High Court) where expenditure incurred for purchase of articles for presentation only to its members for keeping alive good image among members and for generating goodwill and ensuring continuity of business with member societies was geld to be expenditure incurred wholly and exclusively for the purpose of business. Addition made on account of Staff Ex-Gratia - Held that:- Since Ld. CIT(A) has given relief to the assessee in view of the fact that expenses being regularly incurred and claimed by the assessee and worked out on the basis of Memorandum of Understanding it is ascertainable liability which is allowable as per the provision of the Act, we are not inclined to interfere with the order passed by Ld. CIT(A) and the same is hereby upheld Addition made on account of disallowance of Special Long Term Finance Fund claimed u/s. 36(1)(vii) - Held that:- Since the finding of the Ld. CIT(A) that assessee has credited a sum of ₹ 17,50,000/- to the special reserve which is less than 20% of the profit remained uncontroverted at the time of hearing bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible business computed under the head Profits gains of business profession. 3. First ground relates to deletion of addition of ₹ 23,09,727/- made on account of premium amortization expenses. 4. Brief facts of the case are that the assessee is a Co-operative Society engaged in the business of banking and all forms of business enlisted in section 6 of Banking Regulation Act; 1949, out of which lending is the main activity predominantly to the members of Co-operative Bank. During the assessment proceedings; it was observed by AO that the assessee has claimed premium (amortization) expenses of ₹ 23,09,727/-. Assessee bought Government Securities by paying premium over its book value and this premium has been claimed as expenditure under the head amortization till the maturity period as per guidelines of RBI. In view of AO, there is no such provision of amortization of premium expenses incurred on purchase of Government Securities in the Income Tax Act, therefore, he proposed to disallow the expenses. The explanation of assessee that the bank has followed the guidelines of RBI and accordingly has spread the premium amount till maturity period of the governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities forming stock in trade of the bank, the depreciation/appreciation is to be aggregated scrip wise and only net depreciation is required to be provided for in the accounts. The latest guidelines of the RBI may be referred to for allowing any such claims. In addition to the above CBDT Instruction; appellant relied on the decisions of ITAT Bangalore in the case of National Co-operative Bank, Bangalore ITA Nos. 1090(Bang.)/2010 7(Bang.)/2011for assessment years 2007-08 and 2008-09 and also the decision of ITAT Cochin Bench in the case of Cathoilc Syrian Bank Ltd. vs. AC1T reported in 38 SOT 553 (2010), wherein it has been held by Hon'ble Tribunals that in view of the CBDT Instruction dated 26.11.2008, deduction of amortized expenditure on premium on Government Securities is an allowable expenditure. In view of these facts and legal position, appellant pleaded to allow the appeal. 6. After taking into consideration the submission of the assessee, ld. CIT(A) deleted the addition by observing as under:- 2.3 I have considered the facts of the case and legal position on the issue. The allowability of amortized expenses on premium on Government Securities has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. 9. Before Ld. CIT(A), assessee's submission was as follows:- 3.2 During the appellate proceedings, it was submitted by appellant that the assessee bank has given gift to its members on the occasion of completion of 35 years by the bank which was spread into two years. Part of total amount paid was disallowed by AO in the A.Y. 2008-09, which was allowed by CIT(Appeals)-II by his order dated 06.05.2011. It was further submitted that the Co- operative movement was primarily for the benefit of the consumers and its members and this aspect has been discussed in detail in the Gujarat High Court Judgment referred to earlier. In this background, appellant requested to allow the deduction. 10. After taking into consideration the submission of the assessee, ld. CIT(A) deleted the addition by observing as under:- 3.3 I have considered the facts on the issue. This issue has been discussed by my predecessor in detail while deciding the appeal for A.Y. 2008-09. Taking into consideration the decision of Hon'ble Gujarat High Court in the case of Daskro Taluka Co-op. Sale 126 ITR 413, learned CIT(Appeal) has decided the issue as under:- I have duly considered th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and length of service they completed. In view of that assessee claim of ex-gratia expenses of ₹ 38,37,116/- is not acceptable. Further, all these ex-gratia expenses ware not paid during the year and were paid to employees after the financial year and that means the expense claimed by assessee has not been incurred during the year under consideration. Section 37 of the Act envisages that an amount debited in the P L account in respect of an accrued or ascertained liability only is an admissible deduction, while any provision in respect of any unascertained liability or a liability which has not accused, do net qualify for deduction. A contingent liability cannot constitute deductible expenditure for the purposes of Income-Tax Act. Thus, putting aside of money which may become expenditure on the happening of an event would normally not constitute an allowable expenditure under the Income-Tax Act. 13. Before Ld. CIT(A), assessee's submission was as follows:- 4.2 During the appellate proceedings, it has been submitted by appellant that while disallowing the ex-gratia expenses of ₹ 38,37,116/- (correct: figure is ₹ 38,00,386/-), AO has failed to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing it is ascertainable liability which is allowable as per the provision of the Act, we are not inclined to interfere with the order passed by Ld. CIT(A) and the same is hereby upheld. This ground of the revenue is also dismissed. 15. Ground No. 4 relates to deletion of addition of ₹ 17,50,000/- made on account of disallowance of Special Long Term Finance Fund claimed u/s. 36(1)(vii) of the Act. 16. Brief facts of the case are that during the assessment proceedings, it was observed by AO that the assessee has claimed Special Long Term Finance Fund expenses of ₹ 17,50,000/- u/s.36(1)(viii) of the Act. However, it was further observed that the assessee did not prove that whatever amount set aside by it constitutes 20% of the profits derived from the eligible business computed under the head Profit and Gains of business and profession (before making any deduction under this clause) carried to such reserve account. In view of this, AO disallowed the said expenses. 17. Before Ld. CIT(A), assessee's submission was as follows:- 5.2 During the appellate proceedings, it was explained by appellant that during the assessment proceedings, complete details o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of assessment. The AO did not raise any query. Nothing is further required to be proved as these figures are from P L account. 18. After taking into consideration the submission of the assessee, ld. CIT(A) deleted the addition by observing as under:- 5.3 I have considered the facts on the issue, basis of addition made by AO and submissions of appellant. The AO has wrongly concluded that the appellant did not prove that whatever the amount set aside by it constitutes 20% of profits derived from the eligible business. All the relevant details are present in the P L account only and AO himself could have computed the 20% of profit derived from eligible business. The appellant has again furnished all the required details and worked out the profit amounting to ₹ 1,14,31,234/-, 20% of profit thereof is ₹ 22,86,247/-. Amount credited to special reserve is ₹ 17,50,000/- which is less than 20%. This working has not been challenge by AO. It is, therefore; held that the appellant has claimed expenses under this head as per provisions of section 36(1)(viii) which are allowable to him. In the result, appeal on this ground is allowed. Since the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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