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TMI Blog2013 (8) TMI 925X X X X Extracts X X X X X X X X Extracts X X X X ..... who are share holders and not included all the customers and hence the allegedly distributed gift are nothing but dividend granted to share holders and also the facts of the case law quoted by the Ld. CIT(A) is distinguishable from the facts of the instant case as in the said case the assessee has distributed gift to all its customers. [3] On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 38,37,116/- made on account of Staff Ex-Gratia without appreciating the fact that a contingent liability cannot constitute deductible expenditure for the purpose of Income-tax Act and 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. [4] On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 17,50,000/- made on account of disallowance of Special Long Term Finance Fund expenses claimed u/s 36(1)(vii) of the Act without appreciating the fact that the assessee failed to prove that whatever amount set aside by it constitutes 20% of the profits derived from the eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount and in maturity period of Government Securities written off the proportionate amount in P&L account. It was also pointed out that whenever the Government Securities are sold, the profit earned on such sale is credited to the P&L account and offered for taxation. It, therefore, follows that the extra amount (premium) paid by the assessee automatically becomes business expenditure allowable as deduction. In support of its submissions, assesses relied on the decision of Mumbai Bench Tribunal in the case of The Bank of Rajasthan Ltd. ITA No.3238/Mum/2010 wherein reference to Instruction No.17 of 26.11.2008 issued by CBDT for assessment of bank and para (vii) is reproduced as under: "As per RBI guidelines dated 16th October, 2000, 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 Safe (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face valve, in which case the premium should be amortized over the period remaining. In the case of HFT and AFS securities forming stock in trade of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d No. 2 relates to deletion of addition of Rs. 17,10,728/- made on account of Gift expenses. 8. Brief facts of the case are that during the assessment proceedings, it was noticed by AO that assesses has claimed gift expenses of Rs. 17,10,728/- . As per assessee's explanations, these gifts were distributed to the members of the bank to keep alive good image about members and for generating goodwill and ensuring continuity of business with members of societies and such expenses are allowable in the light of decision of Hon'ble Gujarat High Court in the case of Daskroi Taluka Co-operative & Sales Union Ltd. reported in 126 ITR 413. The explanation of assessee was not accepted by AO on the ground that such expenses appeared to be an altruistic and philanthropic urge which should have been satisfied by assessee at its own cost not at the cost of public exchequer or other tax payers and such expenses also prove that assessee wants to increase the expenditure on some pretext or other thereby reducing his tax liability. With this conclusion; AO disallowed the gift expenses of Rs. 17,10,728/- and added to the income of assessee. 9. Before Ld. CIT(A), assessee's submission was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26 ITR 413, we feel no need to interfere with the order passed by him and the same is hereby upheld. 11. Ground No. 3 relates to deletion of addition of Rs. 38,37,116/- made on account of Staff Ex-Gratia. 12. Brief facts of the case are that in the assessment order, it has been observed by AO that the assessee has claimed Rs. 38,37,116/- as staff ex- gratia under the head "Other Liabilities". It was further observed that provision of expenses cannot be allowed as business expenditure and the assessee's explanation that in order to increase and maintain the efficiency of staff members and also to establish cordial relation among the staff members and management these expenses have been incurred, cannot be accepted as justification for allowing the expenditure. The AO concluded as under: "I have carefully gone through the submission of the A.R. of the assesses-bank. The contention of the assessee cannot be accepted because as per the provisions of Income-Tax Act no such provisions allowing deduction of ex-gratia paid to at once to its serving employees based on salary they drew at present and length of service they completed. In view of that assessee claim of ex-gratia expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of IT Act. In my opinion, the conclusion drawn by AO is misplaced. The amount of ex-gratia has been determined on the basis of Memorandum of Understanding entered into by bank with union of employees. The copy of Memorandum, signed by all the staff members, is submitted by appellant which contains the method of working the ex-gratia payments. Moreover, these expenses are not claimed by appellant first time. In the earlier years also i.e. in A.Y. 2007-08 and 2008-09, appellant has claimed ex-gratia expenses of Rs. 29,15,540/- and Rs. 32,84,023/- respectively which were allowed also by AO without raising any objection. Since, these expenses are being regularly incurred and claimed by appellant and worked out on the basis of Memorandum of Understanding, it is ascertained liability which is allowable as per the provisions of the Act. In view of this, I hold that ex-gratia expenses of Rs. 38,00,386/-are allowable expenses therefore there is no justification in the addition made by AO. This ground of appeal is allowed." 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (This would fall under development of housing) (4) interest on staff housing loan (this would also again fall under development of housing). (4) Interest from all the four activities earned was Rs. 4,56,88,389/-. The bank has earned 25.02% on total income applying the same rate of 25.02%. The bank has worked out profit amounting to Rs. 1,14,31,234/-. 20% of profit thereof is Rs. 22,86,247/-. Amount credited to specie reserve is Rs. 17,50,000/- which is less than 20%. These figures come clearly from the profit and loss account copy whereof is attached. This would show that the bank has properly created the reserve as working has been done on the basis of section 36(1)(viii) of the Act. The claim of the assessee is justified and is required to be allowed. (5) Initially, the AO questioned as to whether the co-operative bank is entitled to above. As per para (4) of letter dated 16.11.2011 to the AO (page 6), it was explained that the bank was eligible. Based on the above in para 7.2 (page 9 of the assessment order), the AO accepted it but has stated that the assessee did not prove the above. I am instructed to point out that this calculation was given in the course of assessment. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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