The Panchkula Central Co-operative Bank Ltd., Panchkula V. DCIT, Panchkula

ITA 1074/CHANDI/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60943 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 13-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI H.L. KARWA, VP AND SHRI T.R. SOOD, AM ITA NO. 1074/CHD/2010 ASSESSMENT YEAR: 2007-08 THE PANCHKULA CENTRAL CO-OPERATIVE V D.C.I.T. PAN CHKULA BANK LTD. SCO 49-52 SECTOR 2, PANCHKULA AAAAT 5277 H (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI AJAY JAIN RESPONDENT BY: SHRI N.K. SAINI DATE OF HEARING: 10.07.201 2 DATE OF PRONOUNCEMENT: 13 .07.2012 ORDER PER T.R. SOOD, A.M IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOW ING TWO EFFECTIVE GROUNDS: 1 THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EDUCATION FUND AMOUNTING TO RS. 2 LAKHS PAID TO HAR CO FED CHANDIGARH WITHOUT APPRECIATING THE NATURE OF FEE A ND METHOD OF ACCOUNTING EMPLOYED BY ASSESSEE REGULARLY AND CONSI STENTLY. 2 THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE A DDITION OF RS. 70 LAKHS ON ACCOUNT OF GRATUITY PROVISION WITHOUT APP RECIATING THE FACT THAT THE ASSESSEE HAS MADE ACTUAL PAYMENT BEFORE THE DUE DATE OF FILING OF RETURN. 2. GROUND NO. 1 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE-BANK HAD MADE A PROVISION FOR A SUM OF RS. 2.00 LAKHS TO WARDS EDUCATION FEE PAID TO HARCO. THE SAME WAS DISALLOWED BECAUSE THE SAME WA S ONLY A PROVISION. 3. BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE HAS ALREADY INCURRED AN EXPENDITURE OF RS. 1,33,884/- TOWARDS E DUCATION FEES. IT WAS SUBMITTED THAT THE ASSESSEE WAS FOLLOWING MERCANTIL E SYSTEM OF ACCOUNTING AND SINCE IT WAS STATUTORY OBLIGATION UNDER RULE 73 OF COOPERATIVE SOCIETIES RULE 1989, THE ASSESSEE HAD TO CREATE THE PROVISION FOR THE SAME. 2 4. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OBSERVED THAT A SUM OF RS. 1,33,884/- WAS PAID ONLY ON 5.11.2007 I.E. THE NEXT YEAR. HE FURTHER OBSERVED THAT THERE WAS NO DISPUTE THAT THE PROVISI ON WAS MADE FOR RS. 2.00 LAKHS AS EDUCATION EXPENSES BUT THE ACTUAL EXPENSE WAS INCURRED IN THE NEXT YEAR. SINCE THE PROVISIONS WAS NOT ALLOWABLE EXPEN DITURE, THEREFORE, HE CONFIRMED THE DISALLOWANCE. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT THE ASSESSEE IS A COOPERATIVE BANK AND THE ASSESSEE-BANK AS PER RUL E 73 OF HARYANA COOPERATIVE SOCIETIES RULE 1989 IS REQUIRED TO CONT RIBUTE 2% PROFIT SUBJECT TO MAXIMUM LIMIT OF RS.2.00 LAKHS TOWARDS EDUCATION FE ES. SINCE THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING A ND EDUCATION FEE BEING STATUTORY LIABILITY HAS BEEN PROVIDED DURING THE YE AR, THEREFORE, SUCH EXPENSES SHOULD HAVE BEEN ALLOWED. HE ALSO REFERRED TO LETT ER DATED 22.10.2002 ISSUED BY THE REGISTRAR COOPERATIVE SOCIETIES HARYANA, WHI CH HAS BEEN FILED AT PAGE 6 OF THE PAPER BOOK IN WHICH A DIRECTION HAS BEEN ISS UED TO VARIOUS SOCIETIES TO CONTRIBUTE TOWARDS EDUCATION FEE AND IN CASE OF CEN TRAL COOPERATIVE BANK RATE WAS 2% SUBJECT TO MAXIMUM LIMIT OF RS. 2.00 LAKHS. HE ALSO SUBMITTED THAT NO SUCH DISALLOWANCE HAS BEEN MADE IN THE EARLIER YEAR S. 6. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S TRONGLY SUPPORTED THE ORDER OF ASSESSING OFFICER AND CONTENDED THAT SINCE ACTUAL EXPENSES HAS BEEN INCURRED IN THE NEXT YEAR THE SAME HAS BEEN DISALLO WED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. WE FIND THAT REGISTRAR COOPERATIVE SOCIETIES HAD ENHANCED THE RATES OF CON TRIBUTION TO VARIOUS CATEGORIES BY THE VARIOUS TYPES OF SOCIETIES VIDE T HEIR COMMUNICATION DATED 22.10.2002 VIDE WHICH VARIOUS SOCIEITIES HAVE BEEN DIRECTED AS UNDER: FROM THE REGISTRAR COOPERATIVE SOCIETIES, HARYANA CHANDIGARH TO ALL THE ASSISTANT REGISTRARS COOPERATIVE SOCIETIES IN THE STATE OF HARYANA 3 MEMO NO. 8/3/2002-E&T(II)13761-792 DATED CHANDIGARH THE 22.10.2002 SUBJECT: CONTRIBUTION OF EDUCATION FUND BY COOPERAT IVE SOCIETIES UNDER RULE 73 OF HARYANA CO-OPERATIVE SOCIETIES RULES, 1989 YOUR ATTENTION IS INVITED TO THIS OFFICE MEMO NO. 8 /3/94-E&T(II) DATED 23.6.94 ON THE SUBJECT CITED ABOVE VIDE WHICH INST RUCTIONS WERE ISSUED TO YOU BY THIS OFFICE FIXING THE NORMS OF CONTRIBUTION OF EDUCATION FUND TO BE PAID BY DIFFERENT CATEGORIES OF CO-OPERATIVE SOCIETIES TO THE HARYANA STATE CO- OPERATIVE DEVELOPMENT FEDERATION LTD. CHANDIGARH (H ARCOFED). IT WAS BEING FELT THAT THE MAXIMUM LIMIT OF CONTRIBUTION FOR CER TAIN CATEGORIES OF CO-OPERATIVE SOCIETIES WAS REQUIRED TO BE ENHANCED. IN THIS RES PECT THE MATTER HAS BEEN DISCUSSED IN DETAIL AND IT HAS BEEN DECIDED THAT TH E CO-OPERATIVE SOCIETIES SHALL CONTRIBUTE TOWARDS EDUCATION FUND TO THE HARC OFED AS PER REVISED RATES GIVEN BELOW: S NO. TYPE OF SOCIETY RATE OF CONTRIBUTION WITH MAXIMUM L IMIT 2 CO-OPERATIVE SUGAR MILLS 2% OF THE NET PROFIT OF THE YEAR SUBJECT TO A MAXIMUM OF RS. 1.50 LACS. 3 CENTRAL CO- OPERATIVE BANKS 2% OF THE NET PROFIT OF THE YEAR SUBJECT TO A MAXIMUM OF RS. 2.00 LACS 4 OTHER CENTRAL CO- OPERATIVE SOCIETIES 2% OF THE NET PROFIT OF TH YEAR SUBJECT TO A MAXIMU M OF RS. 25,000/- 5 CO-OPERATIVE MKTG SOCIETIES/PRIMARY COOP/AGRICULTURAL AND RURAL DEVELOPMENT BANKS 2% OF THE NET PROFIT OF THE YEAR SUBJECT TO A MAXIMUM OF RS. 10,000 IN CASE OF COOP MKTG SOCIETIES AND RS. 15,000 IN CASE OF PCARDBS. 2. THE ABOVE SAID RATES OF CONTRIBUTION SHALL BE E FFECTIVE ON THE BASIS OF PROFIT FROM THE YEAR 2002-03 W.E.F 1.4.2002 AND ONW ARDS. THOSE COOP ORGANIZATIONS WHO HAVE REMITTED THE EDUCATION FUND FOR THE YEAR 2002-03 HAVE TO RELEASE THE BALANCE ON THE BASIS OF THE ABOVE EN HANCED RATES. WHILE CALCULATING THE RATE OF CONTRIBUTION OF EDUCATION F UND PAYABLE TO HARCOFED NO CO-OPERATIVE SOCIETY SHALL ADJUST THE PROFIT OF THE YEAR IN ITS ACCUMULATED LOSSES. 3. THE EDUCATION FUND SHALL BE PAID BY THE CO-OPERA TIVE SOCIETIES UNDER THE PROVISIONS OF SECTION 87 OF THE HARYANA COOPERA TIVE SOCIETIES ACT, 1984 READ WITH RULE 73 OF THE HARYANA CO-OPERATIVE SOCIE TIES RULES, 1989 AND SHALL BE CHARGED ON THE FUNDS OF THE CO-OPERATIVE SOCIEIT ES WHICH SHALL BE RECOVERABLE IN A MANNER PROVIDED UNDER SECTION 110 OF THE SAID ACT. 4 THE ABOVE INSTRUCTIONS ARE IN SUPPRESSIONS OF THE PREVIOUS INSTRUCTIONS ISSUED BY THIS OFFICE VIDE MEMO NO. 8/3/94.E&T(II) DATED 23.6.94 WHICH SHOULD BE BROUGHT TO THE NOTICE OF ALL CO-OPERATIVE SOCIET IES IN YOUR JURISDICTION FOR NECESSARY ACTION. SD/- REGISTRAR CO-OPERATIVE SOCIETIES, HARYANA CHANDIGARH ENDST NO. 8/3/2002/E&T(II)13793/807 DATED: 22.10.2002 4 8. THUS FROM ABOVE IT IS CLEAR THAT THE ASSESSEE-BA NK IN THE COOPERATIVE SECTOR WAS REQUIRED TO CONTRIBUTE2% OF ABOVE PROFIT S SUBJECT TO MAXIMUM LIMIT OF RS. 2.00 LAKHS TOWARDS EDUCATION FUND WHICH IS O F STATUTORY NATURE. SINCE THE PAYMENT IS OF STATUTORY NATURE THE EXPENSES HAS TO BE ALLOWED ON THE BASIS OF THE PROVISION. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW RS. 2.00 LAKHS. GRO UND NO. 2 IS ALLOWED. 9. GROUND NO. 2 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAD MADE A PROVISION FOR GRATUITY AMOUNTING TO RS. 70. 00 LAKHS. IN RESPONSE TO A QUERY SOME DETAILS REGARDING PAYMENT OF GRATUITY TO THE EMPLOYEES AND ALSO PAYMENT TO LIC WERE FURNISHED. IT WAS CONTENDED TH AT WHOLE PAYMENT SHOULD BE ALLOWED ON THE BASIS OF PAYMENT MADE. HOWEVER, THE ASSESSING OFFICER OBSERVED THAT IN FORM 3CD TAX AUDITOR HAS CLEARLY S TATED AGAINST THE COLUMN PROVISION FOR PAYMENT OF GRATUITY NOT ALLOWABLE U/ S 40A(7). AGAINST THIS COLUMN THE AUDITOR HAD CATEGORICALLY OBSERVED THAT THE PRO VISIONS MADE FOR A SUM OF RS. 70.00 LAKHS WAS NOT ALLOWABLE AND ACCORDINGLY THE ASSESSING OFFICER DISALLOWED THE SAME. 10. BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT TH E ASSESSING OFFICER HAS HIMSELF NOTED THAT THE ASSESSEE HAS FILED THE DETAI LS OF PAYMENT OF GRATUITY TO EMPLOYEES AS WELL AS LIC. IT WAS CONTENDED THAT AC TUAL PAYMENT WAS MADE TO LIC AGAINST THE PROVISIONS MADE. THE ASSESSEE WAS F IRST CREATING A PROVISION THEN MAKING THE PAYMENT. THE DETAILS OF PAYMENT WE RE FURNISHED AS UNDER: DATE AMOUNT 1.6.2006 RS. 20.00 LACS 7.6.2007 RS. 20.00 LACS 18.9.2007 RS. 40.00 LACS IN ADDITION THE APPELLANT ALSO MADE PAYMENT OF RS. 15,50,591/- DURING THE YEAR UNDER CONSIDERATION. 11. THE LD. CIT(A) AFTER EXAMINING THE SUBMISSIONS, DID NOT FIND FORCE IN THE SAME AND CONFIRMED THE DISALLOWANCE. 5 12. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REIT ERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. HE FURTHER SUBM ITTED THAT SINCE ACTUAL PAYMENT HAD BEEN PAID BEFORE DUE DATE BY FILING RET URN, THEREFORE, THE EXPENSES SHOULD HAVE BEEN ALLOWED IN ANY CASE U/S 4 3B. 13. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). HE FURTHER REFERRFED TO P AGE 13 WHICH IS A COPY OF THE LETTER WRITTEN BY LIC TO THE ASSESSEE. HE SUBMITTE D THAT AS PER THIS LETTER PERHAPS MORE PAYMENT WAS DUE TO LIC AND IT CAN NOT BE TREATED AS APPROVED GRATUITY FUND. 14 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AN D FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. SE CTION 40A(7) READS AS UNDER: (7) ( A ) SUBJECT TO THE PROVISIONS OF CLAUSE ( B ), NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY PROVISION (WHETHER CALLED AS SUCH OR BY ANY OTHER NAME) MADE BY THE ASSESSEE FOR THE PAYMENT OF GRATUITY TO HIS EMP LOYEES ON THEIR RETIREMENT OR ON TERMINATION OF THEIR EMPLOYMENT FOR ANY REASON. ( B ) NOTHING IN CLAUSE ( A ) SHALL APPLY IN RELATION TO ANY PROVISION MADE BY THE ASSESSEE FOR THE PURPOSE OF PAYMENT OF A SUM BY WAY OF ANY CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND, OR FOR THE PURPOSE OF PA YMENT OF ANY GRATUITY, THAT HAS BECOME PAYABLE DURING THE PREVIOUS YEAR EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED TH AT WHERE ANY PROVISION MADE BY THE ASSESSEE FOR THE PAYMENT OF G RATUITY TO HIS EMPLOYEES ON THEIR RETIREMENT OR TERMINATION OF THEIR EMPLOYMENT FOR ANY REASON HAS BEEN ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF T HE ASSESSEE FOR ANY ASSESSMENT YEAR, ANY SUM PAID OUT OF SUCH PROVISION BY WAY OF CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND OR BY WAY OF GRAT UITY TO ANY EMPLOYEE SHALL NOT BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME O F THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE SUM IS SO PAID.]. : PLAIN READING OF THE ABOVE PROVISIONS CLEARLY SHOWS THAT RESTRICTIONS HAD BEEN MADE IN CLAUSE (A) THAT NO DEDUCTION WILL BE ALLOWE D IN RESPECT OF PROVISIONS MADE TOWARDS PAYMENT OF GRATUITY. HOWEVER, THIS RE STRICTION IS SUBJECT TO EXCEPTIONS PROVIDED IN CLAUSE (B). CLAUSE (B) CLEA RLY STEPS THAT WHEREVER THE PROVISIONS IS MADE FOR THE PURPOSE OF PAYMENT OF CO NTRIBUTION TOWARDS APPROVED GRATUITY FUND THEN THIS CLAUSE (A) IS NOT APPLICABL E. IT IS NOT DISPUTED THAT THE PAYMENT TO LIC WAS TOWARDS APPROVED GRATUITY. THER EFORE, THE PROVISION TOWARDS GRATUITY COULD NOT HAVE DISALLOWED UNDER CL AUSE (A) OF SECTION 40A(7) 6 OF THE ACT. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM IN RESPECT OF PROVISION FOR GRATUITY. 16. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 13 .07.2012 SD/- SD/- (H.L. KARWA) (T.R. SOOD) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 13 .07.2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/ THE DR 7