TMI Blog2014 (12) TMI 1217X X X X Extracts X X X X X X X X Extracts X X X X ..... of the services provided to its retiring employees make certain ex-gratia payments in recognition of their services, which are not based on any scheme or instruction formulated by the employer assessee, then the same partakes the nature of profit in lieu of salary. The relationship between the assessee and retiring employees was admittedly as of employer and employee and the remuneration paid to such employees is part of the salary due to the said employee. Even the ex-gratia payment made by the assessee over and above the remuneration due to the employees partakes the character of profits in lieu of salary to such employee and is duly allowable as an expenditure in the hands of the assessee under section 37(1) of the Act. We find no merit in the stand of the CIT(A) that such expenditure is capital in nature. Reversing the order of the CIT(A), we direct the Assessing Officer to allow the expenditure - Decided in favour of assessee Disallowance invoking the provisions of section 40(a)(ia) - Non TDS on expenditure on study tour programme of directors - Held that:- First step to be taken into consideration is whether the expenditure incurred by the assessee is relatable to the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73,359/- so claimed as amortization expenditure on purchase of ' Govt. Securities and paid as premium disregarding the CBDT Instructions No. 17/2008 wherein the Departmental officers have been instructed to allow such amortization expenditure claimed following RBI Guidelines in the matter. The authorities below were not justified in disregarding the CBDT Instructions and RBI Guidelines. The disallowance be deleted. 2) On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in confirming the disallowance made by the A.O. of ₹ 5,00,000/- being donations and subscriptions. The assessee bank had rightly claimed the deduction and it be allowed to the assessee. 3) On the facts and circumstances of the case and in law the Ld. CIT(A)-Pune was not justified in confirming the disallowance made by A.O. of ₹ 32,46,181/- so claimed on account of staff voluntary payments, the reliance of Ld. CIT(A) on circular No. 200 dt. 23-01-2001 is is placed. The Board Circular no.14 of 2001 clarifies that the payments made in accordance with any Scheme or schemes of VRS are only covered within the purview of the said section. The ex-gratia payments made o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals) erred in deleting the addition of ₹ 32,23,706/- made in the assessment on account of unpaid amount of Bonus/Ex-gratia provisions, instead of confirming such addition. 3. The Commissioner of Income-tax (Appeals) erred on facts and in law in failing to appreciate the provisions of the section 43B and proviso thereto and allowed the whole of the outstanding amount of Bonus/Ex-gratia including the unpaid Bonus/Ex-gratia of the earlier years even though the liability to pay such amount was not incurred in the previous year under consideration. 4. The Commissioner of Income-tax (Appeals) erred on facts and in law in deleting the addition of ₹ 38,63,446/- made in the assessment on account of unpaid amount out of provisions, instead of confirming such addition and not appreciating the fact that mere provision is not an allowable deduction. 5. For this and such other reasons as may be urged at the time of the hearing, the order of the Commissioner of Income-tax (Appeals) may be vacated and that of the Assessing Officer be restored. 6. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of the appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not allowable under the Income Tax Act . In view thereof, the amortization of premium on Government of India securities amounting to ₹ 31,73,359/- was disallowed and added to the income of the assessee. 7. The CIT(A) upheld the order of the Assessing Officer holding that the RBI guidelines could not overrule the permissible deduction or their exclusion under the Act. Hence, the expenditure on account of amortization of premium paid on acquisition of HTM securities was held to be not allowable expenditure. 8. The assessee is in appeal against the order of the learned CIT(A). The A.R. pointed out that the issue in the present appeal is squarely covered by the ratio laid down by the Tribunal, Pune Bench, in the case of Pune District Central Co. Operative Bank Ltd., ITA No.1796/PN/2013, vide order dated 28th November 2014, relating to assessment year 2009-10 and Hon ble Bombay High Court in CIT v/s HDFC Bank Ltd., 366 ITR 505 (Bom.). 9. The A.R. for the Revenue placed reliance on the order of the CIT(A). 10. We have heard the rival contention and perused the record. The issue arising in the present appeal is with regard to amortization of premium on HTM securities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find an identical issue had come up before the Tribunal in the case of Nahsik Merchant Cooperative Bank Ltd. (Supra). We find the Tribunal has discussed the issue and dismissed the grounds raised by the Revenue by holding as under : 4. After going through rival submissions and material on record we find that with the advent of section 80P(4) w.e.f. A.Y, 2007-08 has closed the doors for cooperative banks for claiming the benefit of deduction u/s.80P(2)(a)(i) from this total income. However, the cooperative society should now be entitled to be assessed as normal banking company. The clause (4) inserted in section 80P has taken away the benefit of the erstwhile deduction available to cooperative society in carrying on business of banking or providing credit facility to its members. The new clause (4) inserted by the Finance Act, 2006 w.e.f. 01-04-2007 reads as under: The provision of the section was not in relation to any cooperative bank other than agricultural credit society or primary cooperative agricultural and rural de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stments classified under HTM category which has been amortised over the period till maturity is allowable as revenue expenditure since the claim is as per RBI Guidelines and CBDT also has directed to allow such premium. It has also been held in the case of Catholic Syrian Bank Ltd. Vs. ACIT that amortization on purchase of Government securities was made as per prudential norms of the RBI and same was allowable deduction. In view of above, assessee was justified in contending for amortization of premium paid in excess of face value of securities held to maturity (HTM) category or period remaining till maturity was found reasonable by the CIT(A). Accordingly addition of ₹ 17,91,659/- made by the Assessing Officer by disallowing amount towards amortization of Government Securities (HMT) was deleted. This reasoned factual and legal finding of the CIT(A) needs no interference from our side. We uphold the same. 9. As a result, the appeal filed by the Revenue is dismissed . 10.1 Respectfully following the decision of the Coordinate Bench of the Tribunal and in absence of any contrary material brought to our notice against the above cited decision we find no infirmity in the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said provision made by the assessee. 14. Before the CIT(A), the plea of the assessee was that the Board of the Bank had passed resolution no.4, dated 11th May 2009, for incurring the said expenditure on donation and subscription and thus provision was made in the books of account. The CIT(A) in the absence of any expenditure having been incurred by the assessee upheld the said disallowance of ₹ 5,00,000/-. 15. We find no merit in the claim of the assessee, where only a provision for donation and subscription to the extent of ₹ 5,00,000/- had been made in the books of account and no actual expenditure has been incurred by the assessee. Merely because the Board of the a- Bank had passed a resolution for incurring the said expenditure, does not entitle the assessee to the said claim in the absence of having incurred any expenditure on donation and subscription. Thus, ground no.2, raised by the assessee is dismissed. 16. The ground no.3, raised by the assessee is against the disallowance of ₹ 32,46,181/-, on account of staff voluntary payment. 17. The brief facts of the issue are that for the year under consideration, the assessee had claimed expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry payments. The assessee claimed to have made certain exgratia payments to its retiring employees in recognition of their service to the assessee bank. The said payments were not under any scheme of voluntary retirement formulated its assessee but were purely ex-gratia payments made in recognition of meritorious service given by the retiring employees. The assessee claimed the said expenditure to be allowable under section 37(1). The Assessing Officer on verification of the details noted that the amount was paid to 9 employees of the bank who retired from the service due to illness and consequently, the same was disallowed by the Assessing Officer. The CIT(A) on the other hand treated the said expenditure to be capital in nature as the services of the said employees resulted in long term benefit to the assessee and hence was not allowable as revenue expenditure under section 37(1). 22. In the facts and circumstances of the case, where the assessee in recognition of the services provided to its retiring employees make certain ex-gratia payments in recognition of their services, which are not based on any scheme or instruction formulated by the employer assessee, then the same pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Valron Dyne Bleching and Printing Works, 2010-TIOL-710-HC-MUM-SC, held that the provision of section 40(a)(ia) were applicable and the disallowance of ₹ 60,78,530/- was upheld by the CIT(A). 28. The ld. A.R. for the assessee pointed out that the nature of expenditure had not been gone into by the CIT(A) and only issue looked into was whether the expenditure was paid / payable. The A.R. also pointed out that since the Hon ble Supreme Court has dismissed the SLP, filed against the decision of the Hon ble Allahabad High Court in CIT v/s Vector Shipping Services Pvt. Ltd. 357 ITR 642 (All.), the ratio laid down by the Hon ble Allahabad High Court stands and the question of paid and payable of expenditure is to be decided in favour of the assessee. 29. The ld. D.R. placed reliance on the order of the CIT(A) and on the ratio laid down by the Pune Bench of the Tribunal in Serum International Ltd. (supra). 30. We have heard the rival contention and perused the record. The issue arising in the present ground of appeal is against the disallowance of expenditure incurred on directors and employees on study tour. The ld. A.R. for the assessee during the course of hearing had fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en identified then the provision made for directors and staff training programme, even in cases where the assessee was following mercantile system of accounting, the same being unascertained liability, is not allowable under section 37(1). Upholding the order of the ld. CIT(A), we dismiss the ground no.6, raised by the assessee. 34. The issue in ground of appeal no.7, is similar to the issue raised vide ground no.5 and following the same parity of reasoning, this issue is remitted before the Assessing Officer and ground of appeal is thus allowed for statistical purposes. 35. In the result, appeal of the assessee is partly allowed. ITA No.2522/PN/2012 Revenue s appeal 36. The ground of appeal no.1 raised by the Revenue being general, is dismissed. 37. The issue in ground of appeal no.2 and 3 is with regard to the unpaid amount of bonus and exgratia payments. 38. The CIT(A) had restored the issue back to the file of the Assessing Officer for verification and the issue raised is linked to the ground no.4, raised by the assessee. 39. In view of the Assessing Officer giving effect to the order of the CIT(A) by passing the order dated 26th March 2014, we find no me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending business, the same was clearly allowable as bad debts under sec.36(l)(vii) r.w.s. the second limb of sub-sec.(2) of Sec.36. The learned A.R. sought to highlight that the Assessing Officer has merely relied on his presumption that RBI guidelines are not binding on the I.T. Department to make the disallowances while nowhere he has observed that the deductions claimed are not according to law, even not allowable so under the Income Tax Act. The learned A.R. pleaded that the disallowance made by the Assessing Officer be deleted. 8.3 The submissions of the appellant are carefully examined with reference to the facts of the case and the nature of the provisions made by the appellant. On perusal of the income expenditure a/c for the relevant year and the details on record, it is found that the appellant has made the following provisions:- i) Opening balance of provision 1,02,44,652.14 ii) Society borrower members' interest rebate (Agrl. Loan provision) 3,05,00,000.00 iii) Society borrower members recovery incentive for MT IT Loans (Provision) 3,71,00,000.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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