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The Kalupur Commercial Co-op. Bank Ltd. Versus The ACIT, Range-7, Ahmedabad

2016 (9) TMI 1182 - ITAT AHMEDABAD

Disallowance of business expenditure - scholarship to the children of members, payment to legal heirs of members and gifts to members - Held that:- The volume of earning of the assessee bank are mainly made through its members. These expenses are incurred by the assessee bank to attract the members confidence and loyalty towards the bank in the prevailing competition so that the members place their deposits with the assessee bank and also continue to borrow funds from the assessee bank in order .....

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clusively for the purpose of business since the amount was spent for keeping alive its good image amongst its members and ensuring that goodwill and continuity of business with the members. In view of above mentioned facts and circumstances, we find that the assessee had incurred above stated expenditure for promoting the business, even though there is no legal obligation to incur these expenditure but the assessee had incurred it for preserving business connection and goodwill of the business. .....

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mation” which indicates that details were incomplete and also incorrect. The ld.CIT(A) has not given consideration to the submission of the assessee that the Assessing officer was failed to point out the complete detail of the said transaction because of which the transactions remain unexplained. In view of the above stated facts and circumstances, we consider that the addition was made in absence of complete particulars of the transactions which could not identify any such income earned by the .....

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: Ms. Richa Rastogi, Sr DR ORDER PER AMARJIT SINGH, ACCOUNTANT MEMBER :- This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-XIV, Ahmedabad dated 16.09.2011 for Assessment Year 2008-09. 2. The grounds raised by the assessee in its appeal read as under: 1. The learned Commissioner of Income-tax (Appeals)-XIV, Ahmedabad has erred both in law and on facts of the case in framing appellate order u/s 250 of the I.T. Act for 2008-09 on 16th September 20 .....

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o initiation of penalty proceeding. 3. The brief facts of the case are that the assessee is a co-operative bank which filed its original return of income for the year under consideration on 29.09.2008 declaring total income at ₹ 35,17,13,880/-. Thereafter, a revised return was filed on 08.05.2009 declaring total income at ₹ 34,57,36,040/-, which was consequent to change of depreciation. Subsequently, the case of the assessee was selected for scrutiny through CASS and the assessment w .....

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itions made by the Assessing Officer under above various sub-heads as mentioned above. 3.1 Aggrieved by the order of the ld. CIT(A), the assessee in now in appeal before us. 4 First ground of assessee s appeal is general in nature. 5. Second ground relates to the disallowance of business expenditure of ₹ 1,07,11,630/-. During the course of assessment proceedings, the assessee explained to the Assessing Officer that these gifts were provided to the members on the basis of number of coupons .....

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d accordingly made the addition in question. v) Scholarship of students - ₹ 5,05,741/- vi) Payment to legal heirs of members - Rs.19,95,000/- vii) Gifts to Members - Rs.82,10,889/- Total Rs.1,07,11,630/- Aggrieved, the assessee went in appeal before the ld. CIT(A) who, after considering the submissions of the assessee, confirmed these additions made by the ld. AO, by observing as under:- I have carefully considered the assessment order and the submission filed by the appellant. The A. O. h .....

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incipal source of recurring income is that from members and, therefore, keeping all members in good humour is wholly, exclusively and necessarily for the purpose of business. During the course of appellate proceedings, the appellant was also asked to explain the scheme of gift coupons and also the accounting treatment of the funds utilised for gift. The appellant has submitted that gift coupons are issued on the basis of membership i.e. one coupon is given to each member irrespective of shares h .....

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n is made from the profit of the company by setting aside 5% of the profit to the member / customer incentive fund. This adjustment is in the nature of appropriation of the profit and is done below the profit and loss account. Whenever, some gift or any expenditure is made from this fund, the same is claimed as deduction out of the taxable income for the year in the statement of income filed with the return. In the present year also, the expenditure of ₹ 1,07,11,630/- has been reduced from .....

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t. The expenditures of giving scholarship to the students belonging to the family of the members, payment to legal heirs of the members on the demise of the members and gift to members after regular interval is nothing but distribution of profit to the members who are in fact the shareholders in the bank. The claim of the appellant that this has been done to keep the members in good humour and, therefore, it should be allowed as an expenditure is not acceptable as the accounting treatment clearl .....

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ingly, the disallowance made by the A. O. is upheld and the ground of appeal is dismissed. Aggrieved by the order of the ld. CIT(A), the assessee is further appeal before us. 5.1 Ld. Counsel for the assessee contended that scholarships were provided to the children of the members with the object of ensuring good education on clearing of exams of various Boards/Universities and professional exams. He also pointed out that payment of ₹ 19,95,000/- to legal heirs of members were provided on t .....

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to inspire students to secure more marks and the amount of scholarship per student vary from ₹ 1001/- to ₹ 3501/-. More than 95% business of advances/deposits etc is through members only and nature of gifts which hardly cost to ₹ 250 to ₹ 300/- per coupon are provided for keeping good relation with members. He also stated that expenditures as explained above were incurred to increase the confidence and faith of the members in the bank which certainly help to promote and .....

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175 ITR 411; c) Hon ble Gujarat High Court judgment in the case of Karjan Cooperative Cotton Sales Ginning & Pressing Soc., 199 ITR 17; d) Hon ble Gujarat High Court judgment in the case of Dascroi Taluka Coop Purchase & Sales Union Ltd, 126 ITR 413; e) Order of ITAT, Mumbai in the case of Yahoo India Pvt Ltd in ITA No. 3800/Mum/2014. 5.3 On the other hand, ld. DR relied on the order of the ld. CIT(A). She pointed out that these expenditures are not incurred for the purpose of the busin .....

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es. The principal source of recurring income of the assessee is from the members and therefore the expenditure for keeping members support and attraction towards the bank is wholly and exclusively necessary for the purpose of business. The Hon ble High Court of Gujarat (Full Bench) in the case of Karjan Co-operative Cotton Sales Ginning Pressing Society (supra) has held that it was absolutely necessary for the assessee to maintain goodwill amongst its members and to lure them to continue to do t .....

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of members was considered to be business expenditure within the meaning of Section 37 of the Act. 5.6 Considering to the above stated facts and circumstances, the volume of earning of the assessee bank are mainly made through its members. These expenses are incurred by the assessee bank to attract the members confidence and loyalty towards the bank in the prevailing competition so that the members place their deposits with the assessee bank and also continue to borrow funds from the assessee ba .....

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holly and exclusively for the purpose of business since the amount was spent for keeping alive its good image amongst its members and ensuring that goodwill and continuity of business with the members. In view of above mentioned facts and circumstances, we find that the assessee had incurred above stated expenditure for promoting the business, even though there is no legal obligation to incur these expenditure but the assessee had incurred it for preserving business connection and goodwill of th .....

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es out of sixteen entries and an amount of ₹ 2,25,617/- relating to interest was not explained. The Assessing Officer accordingly added this amount to the total income of the assessee while framing assessment u/s 143(3) of the Act. Aggrieved by the order of the ld. AO, the assessee preferred appeal before the ld. CIT(A) who, after considering the submissions of the assessee, dismissed this ground of the assessee, by observing as under:- I have carefully considered the assessment order and .....

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nt is not acceptable are merely by saying that the details were incorrect, the appellant cannot wash its hands off from the responsibility of explaining the entry. The addition made by the AO is, therefore, upheld. The ground of appeal is, therefore, dismissed. 6.2 Ld. Counsel for the assessee contended that before the AO it was explained that entry pointed out by him as per AIR information of ₹ 2,25,617/- relating to interest other than securities was not traceable in its books of account .....

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