The Himatnagar Nagrik Sahaakri Bank Ltd., Himatnagar V. The ACIT, Sabarkantha Circle, Himatnagar

ITA 201/AHD/2022

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The case involves Himatnagar Nagrik Sahakari Bank Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals), Ahmedabad, concerning the disallowance of certain expenditures claimed under section 43B of the Income Tax Act, 1961 for the Assessment Year 2017-2018. The expenditures in question included staff payments and benefits which were claimed on a payment basis but were not debited to the profit and loss account in the year they were paid. The AO and CIT(A) had disallowed these claims, leading to the bank's appeal. The Tribunal found merit in the bank's argument that the payments were directly related to its business activities and should be allowed as deductions, but noted discrepancies in the amounts claimed and thus restored the matter to the AO for correct quantification.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135803 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-08-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 22-05-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHRIS.NDIVATIA

Judgement Text

आयकरअपीलीयअधिकरण , अहमदाबादनयायपीी INTHEINCOMETAXAPPELLATETRIBUNAL, ‘’A’’BENCH,AHMEDABAD BEFORESHRIWASEEMAHMED,ACCOUNTANTMEMBER And SHRITRSENTHILKUMAR,JUDICIALMEMBER आयकरअपीलसं./ITANo.201/AHD/2022 धििाधरणवरध / Asstt.Year:2017-2018 HimatnagarNagrikSahakariBank Ltd., CinemaRoadTowerRoad, Himatnagar-383001. PAN:AAAAH0519E Vs. A.C.I.T, SKCircle, Himatnagar. (Applicant)(Respondent) Assesseeby:ShriS.NDivatia,with ShriSamirVoraA.Rs Revenueby:ShriSanjayKumar,Sr.D.R सुिवाईकीतारीख/DateofHearing:09/08/2023 घोरणाकीतारीख /DateofPronouncement:01/11/2023 आदेश/ORDER PERWASEEMAHMED,ACCOUNTANTMEMBER: ThecaptionedappealhasbeenfiledattheinstanceoftheAssesseeagainst theorderoftheLearnedCommissionerofIncometax(Appeals),Ahmedabad, arisinginthematterofassessmentorderpassedunders.143(3)oftheIncome TaxAct,1961(here-in-afterreferredtoas"theAct")relevanttotheAssessment Year2017-2018. ITAno.201/AHD/2022 A.Y.2017-18 2 2.Theassesseehasraisedfollowinggroundsofappeal: 1.TheHon’bleCIT(A)NFAC,Delhihasgrievouslyerredinconfirmingthe disallowanceoftheexpenditurewhichispaidduringtheyearfollowingtheprovisionof section43BoftheITAct.Thedetailsareasunder: StaffRs.47,00,000/- LeaveEncashmentRs.31,00,000/- StaffEx-GratiaRs.33,61,716/- StaffBenefitRs.1,26,273/- TotalRs.1,12,87,989 TheLd.CIT(A)hasdivertedthepracticefollowedbytheappellantsincelongaseveryco- operativebankisprovidingtheliabilityonadhocsystemandclaimedthesameintheyear ithasbeenpaid.Thereforetheadditionshouldbedeleted. TheappellantsubmitsthattheHon.CIT(A)NFACDelhididnotunderstandthesystem followedbytheappellantbankandunnecessarilymadeadoubleadditionofthe expenditure. ItisfurtherstatedthatintheyearofprovisiontheexpensesarenotclaimingintheIT Returnandthereforetheyshouldbeallowedintheyearinwhichithasbeenactuallypaid. FurthertheappellantstrictlyfollowedtheprovisionofSec.43BoftheAct. Theappellantthereforerequestsyourgoodselftokindlydeletetheabovementioned additionsmadebytheLd.A.O.lookingtothemeritsofthecase. Theappellantcravesleavetoadd,amend,alter,edit,delete,modifyorchangeallorany ofthegroundsofappealatthetimeoforbeforethehearingoftheappeal. 3.Theonlyeffectiveissueraisedbytheassesseeisthatthelearned NFAC/CIT(A)erredinconfirmingthedisallowanceofexpensesclaimedon paymentbasisundertheprovisionsofsection43BoftheAct. 4.Thefactsinbriefarethattheassesseeisaco-operativebankandengaged inthebankingbusiness.Theassesseeinthecomputationofincomeclaimedthe deductionofcertainexpenseswithoutdebitingthesameintheprofitandloss accountfortheyearunderconsiderationwhicharedetailedasunder: ParticularsRs. i.StaffRs.47,00,000/- ii..LeaveEncashmentRs.31,00,000/- iii.StaffEx-GratiaRs.33,61,716/- ITAno.201/AHD/2022 A.Y.2017-18 3 iv.StaffBenefitRs.1,26,273/- 4.1Theassesseeexplainedthattheabove-mentionedexpenditureswere appropriatedfromtheprofitintheearlieryearsbydebitingtheprofitandloss accountandcreditingtherespectivefundaccount.However,thesamewasnot claimedasdeductionsinceactualpaymentwasnotmade.Assuch,thededuction oftheseexpenseswithoutactualpaymentisprohibitedundertheprovisionsof section43BoftheAct.However,intheyearunderconsideration,theactual paymentsweremadeandaccordinglydeductionswereclaimeddirectlyinthe computationofincome.Aspertheassessee,theseamountsweredebitedtothe respectivefundaccountinsteadofdebitingtheprofitlossaccountintheyear underconsideration.Theassesseealsosubmittedthattheidenticalclaimwas madeduringtheassessmentyear2014-15whichwasallowedbythethenAOin theassessmentorderpassedundersection143(3)oftheAct. 4.2However,theAOdisagreedwiththeexplanationoftheassesseebyholding thattheexpenditureclaimedwerenotdebitedintheprofitlosswhichisnecessary. Theassesseehasalsonotmadeprovisionsinthisregardonthedateof finalizationofbooksofaccount.TheAOhasalsodistinguishedthefactofthe assessmentyear2014-15byobservingthatinthatassessmentyear(2014-15), theassesseehasmadeprovisionregardingtheexpenditureclaimedonthedateof finalizationofbooks.Thus,theAOdisallowedtheclaimoftheassesseeforthe above-mentionedexpenditureaggregatingtoRs.1,12,87,989/-claimedon paymentbasiswithoutdebitingtoprofitandlossaccountandaddedtothetotal incomeoftheassessee. 5.TheaggrievedassesseepreferredanappealbeforetheNationalFaceless AppealCenter(NFAC).Theassesseeduringtheappealproceedingsreiteratedits contentionsmadebeforetheAO. ITAno.201/AHD/2022 A.Y.2017-18 4 6.ThelearnedNFACafterconsideringthesubmissionoftheassessee confirmedtheorderpassedbytheAObyobservingasunder: 7.1Foranyexpendituretobeallowableus4BoftheIncomeTaxAct,itshouldbeinthe natureofexpenditureandshouldhavebeendebitedtotheP&LA/cinthisyearorthe precedingyears.Regardingdeductionofstaffex-gratiaofRs.33,61,716/-andstaffbenefit ofRs.1,26,273/-,theappellantitselfhasstatedthatasperthebyelawsofthebank,ex- gratiapayableamountofRs.33,61,716/-andstaffbenefitfundofRs.1,50,000/-hasbeen createdfromtheP&LAppropriationaccount.Thisclearlyshowsthattheabovesumsare anappropriationfromtheP&LA/candnotexpenditure,whichhasbeendebitedtothe P&LA/c.Hence,deductionofstaffex-gratiaamountofRs.33,61,716/-andstaffbenefitof Rs.1,26,273/-cannotbeallowedsinceitisanappropriationoutofprofit.Thedisallowance madebytheAOofstaffex-gratiaandstaffbenefitisupheldandtheappealofthe 7.2RegardingstaffgratuityRs.47,00,000/-andleaveencashmentofRs.31,00,000/-;the appellanthasnotgivenextractsoftheP&LA/Cofthe-precedingyearstoshowthatthese sumshavebeendebitedasexpendituretotheP&LA/cintheprecedingyears.Moreover, intheledgeraccountofstaffgratuityfund,theopeningbalanceason01.04.2016is shownasonlyRs.25,00,000/-(insteadofRs.47,00,000/-).Similarly,intheaccountof leaveencashmentreserve,thereisaopeningcreditbalanceason01.04.2016ofonly Rs.8,00,000/-(insteadofRs.31,00,000/-).Inviewoftheabove,Iupholdthedisallowance madebytheAOonaccountofstaffgratuityofRs.47,00,000andleaveencashmentof Rs.31,00,000/-asnoevidencehasbeensubmittedtoshowthattheseexpenseshavebeen debitedtotheP&LA/cintheearlieryearsandreservesofequivalentamounthavealso notbeencreatedintheseyears.Theappealoftheassesseeontheseissuesistherefore, dismissed. 7.BeingaggrievedbytheorderoftheLd.CIT(A),theassesseeisinappeal beforeus. 8.TheLd.ARbeforeusfiledapaperbookrunningfrompages1to97and furtherfiledtheledgeraccountsofall4fundsinsupportofwhichtheaccounting entriesweremade.AspertheLd.ARthesedocumentswerenotfiledbeforethe authoritiesbelowduetosomeunavoidablereason.However,thedocuments regardingtheexpensesareavailablenowsupportedbythepaymentofthe expenditurewhichareallowableasdeductionbyvirtueoftheprovisionofsection 43BoftheAct.Accordingly,theLd.ARrequestedtorestoretheissuetothefileof theAOforfreshadjudicationaspertheprovisionoflaw. 9.Onthecontrary,theLd.DRalsodidnotraiseanyobjectioniftheappealis transferredtotheAOforfreshadjudicationaspertheprovisionoflaw. ITAno.201/AHD/2022 A.Y.2017-18 5 10.Wehaveheardtherivalcontentionofboththepartiesandperusedthe materialsavailableonrecord.Fromtheprecedingdiscussion,wenotethatthere wascertainpaymentmadebytheassesseeintheyearunderconsiderationwhich wereallowableasdeductionundertheprovisionofsection43BoftheAct.Asper theassesseealltheseexpensesinrespectofwhichthepaymentwasmadeinthe currentyearwerepertainingtotheearlieryear. 10.1OnperusaloftheorderoftheLd.CIT(A),wenotethattheLd.CIT(A),has confirmedtheadditionoftheexpenditureshownbytheassesseerepresenting staffex-gratiaandstaffbenefitofRs.33,61,716/-andRs.1,26,273/-respectively. Oneofthereasonsforconfirmingtheadditionwasthattheimpugnedpayments wererepresentingtheappropriationofthefund.Assuch,theimpugnedpayments donotrepresentanyexpenditureandthereforethesamecannotbeallowedas deduction. 10.2Theissuebeforeusariseswhetherthestaffex-gratiaandstaffbenefit wererepresentingappropriationoffundandthereforethesamecannotbe allowedasdeduction.Inthisregard,weareoftheviewthatthequestionof makinganypaymenttowardsstaffex-gratiaandstaffbenefitarisesinrelationto theemployees/managementoftheassessee.Theseemployees/management personsarepaidsalary,remunerationwhichisnowherebeendisallowedbythe authoritiesbelow.Basedonthesalarystructuretheamountofex-gratiaand employeestaffbenefitaredetermined.Thus,weareoftheviewthatthereisa directconnectionbetweentheimpugnedpaymentandtheactivitiesofthe assessee.Therefore,weareoftheviewthattheassesseecannotbedeniedthe benefitofthedeductionwhichavailabletoitundertheAct.Merelythesamehas beenshownunderappropriationoffund,thebenefitavailabletotheassessee cannotbedenied.Thus,wedisagreewiththefindingsoftheLd.CIT(A). ITAno.201/AHD/2022 A.Y.2017-18 6 10.3Atthisjuncture,itisimportanttonotethattheclaimmadebytheassessee withrespecttothepaymentasdiscussedabovewerenotmatchingwiththe copiesoftheledgerfiledbytheassessee.Assuch,toourunderstanding,the amountofpaymentmadebytheassesseeintheyearunderconsiderationunder theheadasdiscussedabovemustmatchwiththebooksofaccountsofthe assessee.Though,weareconsciousaboutthefactsthatentriesinthebooksof accountscannotbedecisivefactorwhetherdeductionistobeallowedor disallowedbutatthesametimeinthegivenfactitistobeseenthattheassessee shouldnotbeclaimdoublebenefitwhilemakingsomeentriesinthebooksof accountsonprovisionalaswellonpaymentbasis.Assuch,theassesseeisnot entitledtogetdoublebenefitofthesamededuction.Accordingly,weareofthe viewthatasfarasquantificationofamountisconcern,itisnecessarytoworkout soastoallowthedeductionu/softhecorrectamountundersection43Bofthe Act.Hence,intheinterestofjusticeandfairplay,werestoretheissuetothefile oftheAOfornecessaryadjudication/verificationaspertheprovisionoflaw. Hencethegroundofappealoftheassesseeispartlyallowedforthestatistical purposes. 11.Intheresult,theappealoftheassesseeisallowedforstatisticalpurposes. OrderpronouncedintheCourton01/11/2023atAhmedabad. Sd/-Sd/- (TRSENTHILKUMAR)(WASEEMAHMED) JUDICIALMEMBERACCOUNTANTMEMBER (TrueCopy) Ahmedabad;Dated01/11/2023 Manish