TMI Blog2018 (5) TMI 1867X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the amount was spent for keeping alive its good image amongst its members and ensuring that goodwill and continuity of business with the members. We allow the aforesaid expenditure as business expenditure under Section 37 . - Decided in favour of assessee. Disallowance on amortized premium - HELD THAT:- As per RBI guidelines dated 16th Oct, 2000, the investment portfolio of the bank is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (ATS). Investment classified under HTM category needs to be marked to market and are carried at acquisition cost unless these are more than the face value in which case the premium should be amortized over the remaining period. Allowable of amortized expenses on premium on government securities has been provided u/s. 36(1)(ii) of the act and explained by CBDT vide instruction No. 17 of 2008 dated 26-11-2008. In the case of CIT, Rajkot-II vs. Rajkot Dist. Co-op. Bank Ltd. [2014 (3) TMI 110 - GUJARAT HIGH COURT ] held that instructions clearly provide for amortization of premium paid on securities when the same are acquired at the rate higher than the face value. Such am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) The learned CIT(A) has erred in confirming the addition made of ₹ 9,50,000/- u/s.14Aof the I.T. Act. read with rule 8D(iii) of the IT. Rules, 1962 (4) The learned CIT (A) has erred in rejecting ground relating to initiation of penalty proceeding u/s. 271(1)(c ) of the IT. Act. (5) The learned CIT(A) has erred in rejecting ground relating to charging interest u/s.234B and 234C of the IT. Act. 3. The brief fact of the case is that assessee has filed return of income declaring income of ₹ 69,51,17,191/- on 20th Sep, 2012. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 142(1) of the act on 24th Dec, 2014. During the course of appellate proceedings, the assessing officer has observed that assessee has claimed the following expenses which are not pertained to the business of the assessee. I Gift paid to members ₹ 20,870/- II Payment towards scholarship to children of members ₹ 5,59,258/- III Members incentive ₹ 18,70,000/- Total ₹ 24,50,128/- The assessee explained that these expenses were incurred for business expediency f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 their business with the society if it give presents to its members and to commemorate silver jubilee celebrations, it could not be said that the society was not doing something as a prudent business. 5.5 Reliance is also placed in the case of CIT vs. Dascroi Taluka Coop Purchase Sales Union Ltd, 126 ITR 413 of Hon'ble Gujarat High Court judgment, where it was held that the amount spent by the assessee-society on purchase of stainless steel utensils and other for the purpose of tour expenses 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 lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. First ground of appeal regarding disallowance on amortized premium 8. During the year under consideration, the assessee has written off govt. security premium to the extent of ₹ 2,10,11,715/-. The assessing officer has disallowed the premium amount amortized by the asssessee bank in respect of purchase of securities under the category held to be maturity stating that definitely the same is of capital outlay which cannot be allowed as expenditure. 9. Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has deleted the addition stating that his predecessor has deleted the same in the case of the assessee in the earlier years. 10. We have heard the rival contentions and perused the material on record carefully. The assessee has made investment in the HTM category as per the guidelines laid down by the RBI and claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the similar issue in favour of the assessee. The Ld. CIT(A) has deleted the additions of ₹ 33,15,343 made by the assessin officer stating that the assessee has more interest free fund available than investment made in securities from which exempt income accrued. However, in respect of addition of ₹ 9.5 lacs made under rule 8D(iii) he stated that assessee has not filed any submission, therefore, he has sustained the addition to the extent of ₹ 9,50,000/-in respect of administrative expenses. 13. We have heard the rival contentions and perused the material on record carefully. The second issue is pertained to the disallowance of expenses u/s. 14A r.w. Rule 8D of the act incurred towards the exempt income. The ld. CIT(A) has deleted the addition following the decision of his predecessors in the case of the asssessse as the asssessee has more interest free fund available than investment made in securities. We have also noticed that the assessee has its own funds as under:- Capital : ₹ 60.25 croes Reserves: ₹ 662.97 crores The assessee has also explained before the assessing officer that investment in central and s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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