The Bank Employees Cp-Operative Bank Ltd., Kolkata V. A.C.I.T.-Circle-36, Kolkata, Kolkata

ITA 2537/KOL/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1617 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 04-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SALLONG YADEN ADD L
• Assessee Lawyers: J N GUPTA
• Keywords: Business expenditure
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & SHRI J.SU DHAKAR REDDY, AM ] I.T.A NO. 2537/KOL/20 13 ASSESSMENT YEAR : 2010-1 1 THE BANK EMPLOYEES CO-OPERATIVE -VS.- A.C .I.T., CIRCLE-36, BANK LIMITED, KOLKATA KOLKATA [PAN : AABAT 5298 D] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI J.N.GUPTA, FC A FOR THE RESPONDENT : SHRI SALLONG YADEN, ADD L.CIT DATE OF HEARING : 16.08.2017. DATE OF PRONOUNCEMENT : 23.08.2017. ORDER PER N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 22.07.2013 OF CIT- (A)-XX, KOLKATA RELATING TO A.Y.2010-11. 2. THE ASSESSEE HAS FILED REVISED GROUNDS OF APPEAL AND IN THE SAID REVISED GROUNDS OF APPEAL THE ASSESSEE HAS ALSO SOUGHT TO RAISE AN ADD ITIONAL GROUNDS OF APPEAL. 3. THE REVISED GROUNDS OF APPEAL AND ADDITIONAL GRO UNDS OF APPEAL RAISED BY THE ASSESSEE READ AS FOLLOWS :- EXISTING REVISED GROUNDS OF APPEAL 1. THE LD. AO ERRED IN ADDING BACK AND LD. CITA ERRED IN CONFORMING PROVISION OF GRATUITY MADE AND CLAIMED AS DEDUCTION WITHOUT SIMU LTANEOUSLY ALLOWING THE DEDUCTION OF RS.28,58,845/- BEING THE GRATUITY THAT BECAME PAYABLE DURING THE YEAR TO EMPLOYEES RETIRED DURING THE YEAR. 2. THE LD. AO ERRED IN ADDING BACK AND LD. CITA ERRED IN CONFIRMING THE CONTRIBUTION FROM EMPLOYEES AND FROM EMPLOYERS AMOU NTING TO RS.4,91,863/- EACH, TOTALING RS.9,83,726/-. 3. THE APPELLANT CRAVES LEAVE TO ADDUCE ADDITIONAL GRO UNDS AND AMEND OR WITHDRAW ANY OF THE GROUNDS BEFORE OR DURING THE HEARING OF THE APPEAL. ADDITIONAL GROUND OF APPEAL : 2 ITA NO.2537/KOL/2013 THE BANK EMPLOYEES COOPERATIVE BANK LTD. A.YR.2010-11 2 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE ACTUAL GRATUITY PAYMENT OF RS.28,59,845/- IS THE LEGITIMATE BUSINESS EXPEND ITURE ALTHOUGH ERRONEOUSLY ONLY RS.10,00,000 WAS CLAIMED IN THE RETURN OF INCOME AN D THE APPELLANT SHOULD BE ALLOWED THE DEDUCTION OF THE ENTIRE AMOUNT OF RS.28 ,59,845. 4. THE ASSESSEE IS A COOPERATIVE BANK FORMED BY THE EMPLOYEES OF VARIOUS BANKS. FOR A.Y.2010-11 THE RETURN OF INCOME WAS FILED ON 12.10 .2010 DECLARING TOTAL INCOME OF RS.1,19,84,421/-. 5. AS ALREADY STATED THE ASSESSEE WHICH IS A COOPER ATIVE SOCIETY WAS HOLDING BANKING LICENSE GRANTED BY RESERVE BANK OF INDIA. THE ASSES SEE COLLECTS DEPOSITS FROM MEMBERS AND NON-MEMBERS, LIKE INDIVIDUALS, OTHER COOPERATIV E SOCIETIES AND ALSO OTHER ENTITIES. THE ASSESSEE IS GOVERNED AND REGULATED BY WEST BENG AL COOPERATIVE SOCIETIES ACT AND BENGAL COOPERATIVE SOCIETIES RULES. THESE REGULATIO NS EMPOWER THE ASSESSEE TO MAKE THEIR OWN RULES REGARDING EMPLOYEES AND SOME SORT O F AUTONOMY IS GRANTED IN THEIR OPERATIONAL METHODOLOGY. THE ASSESSEE HAS NO SPECIF IC FUND. HOWEVER, THE EMPLOYEES' INTERESTS ARE SAFEGUARDED BY EXTENDING THE SAME BEN EFITS TO THEM AS ARE AVAILABLE UNDER ANY OTHER APPROVED/RECOGNISED FUNDS. THE MODUS OPER ANDI HAS BEEN MENTIONED IN THE BYE LAWS OF THE ASSESSEES, WHICH IS THE DOCUMENT EV IDENCING THE CONSTITUTION OF THE ASSESSEE AND IS REGISTERED UNDER THE AFORESAID LEGI SLATIONS. IN ACCORDANCE WITH THESE BYE LAWS, IN ORDER TO EXTEND THE BENEFITS SIMILAR TO RE COGNISED PROVIDENT FUND, THE ASSESSEE DEDUCTS AMOUNTS FROM THE SALARY OF THE EMPLOYEES AN D TOGETHER WITH EQUIVALENT AMOUNT CONTRIBUTED BY THE ASSESSEE, THE ASSESSEE DEPOSITS SUCH AMOUNTS IN A SEPARATE EARMARKED BANK DEPOSITS WITH WEST BENGAL COOPERATIV E BANK LTD. THE AMOUNT DEDUCTED AND OWN CONTRIBUTION IS DISCLOSED AS LIABI LITY AND THE BANK DEPOSITS ARE DISCLOSED AS INVESTMENTS IN THE FINANCIAL STATEMENT S OF THE ASSESSEE. THE ASSESSEE PAYS INTEREST ON THE LIABILITY AND ALSO EARNS INTEREST O N THE BANK DEPOSITS. BOTH THESE INTERESTS PAID AND RECEIVED ARE ACCOUNTED FOR AS EXPENSES AND INCOME IN THE FINANCIAL STATEMENTS OF THE ASSESSEE. THERE IS NO COMMENTS FROM THE LD A O AS WELL AS LD CITA ON THE EXISTENCE OF SUCH LIABILITY, CORRESPONDING DEPOSITS , AND THE INTEREST PAID AND RECEIVED ON SUCH ACCOUNTS DURING THE YEAR. THE NOMENCLATURE IN THE FINANCIAL STATEMENTS IS 3 ITA NO.2537/KOL/2013 THE BANK EMPLOYEES COOPERATIVE BANK LTD. A.YR.2010-11 3 MENTIONED AS 'STAFF PROVIDENT FUND' ALTHOUGH IT IS SIMPLY A LIABILITY LIKE ANY OTHER LIABILITY SOLELY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. THE NOMENCLATURE HAS BEEN KEPT LIKE THIS JUST TO INDICA TE THAT THE BENEFITS THERE FROM ARE SIMILAR TO THAT OF ANY OTHER RECOGNISED PROVIDENT F UND. THE LIST OF EMPLOYEES AND THE AMOUNT OF EMPLOYEE AND EMPLOYER CONTRIBUTION AND TH E LIABILITY AT THE BEGINNING AND END OF THE YEAR IS GIVEN IN THE PAPER BOOK. 6. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE AO N OTICED THAT THE ASSESSEE HAS DEBITED A SUM OF RS.10 LAKHS ON ACCOUNT OF CONTRIBUTION TO GRATUITY FUND WHICH WAS REFLECTED IN SCHEDULE-16 TO THE PROFIT AND LOSS ACCOUNT (WHICH G IVES THE BREAK-UP OF THE OPERATING EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT).. THE COMPUTATION OF TOTAL INCOME FOR THE RELEVANT ASSESSMENT YEAR STARTS WITH PROFIT AS PER PROFIT AND LOSS ACCOUNT WHILE COMPUTING INCOME UNDER THE HEAD INCOME FROM BUSINE SS AND PROFESSION. THE AO FOUND THAT A SUM OF RS.10 LAKHS WAS CONTRIBUTED TO GRATUITY FUND WHICH IS NOT APPROVED AND WAS NOT ALLOWABLE AS DEDUCTION IN VIEW OF THE P ROVISION OF SECTION 40A(7) OF THE INCOME TAX ACT, 1961 (ACT). 7. THE AO ALSO NOTICED THAT THE ASSESSEE HAD DEBIT ED IN THE PROFIT AND LOSS ACCOUNT AS SUM OF RS.4,91,863/- AS ASSESSEES (BANKS) OWN CON TRIBUTION AS CONTRIBUTION TO EMPLOYEES PROVIDENT FUND. THE AO ON THE PRESUMPTION THAT THE AFORESAID PAYMENTS WERE MADE TO EMPLOYEES PROVIDENT FUND AS EMPLOYEES SHARE, WAS OF THE VIEW THAT THE EMPLOYEES SHARE OF RS.4,91,863/-CANNOT BE ALLOWED A S DEDUCTION AS IT WAS NOT PAID ON OR BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME TO ANY PROVIDENT FUND OR SUPERANNUATION FUND AND THEREFORE NOT ALLOWABLE AS DEDUCTION U/S 36(1)(VA) OF THE ACT. SIMILARLY THE EMPLOYERS SHARE OF CONTRIBUTION OF RS .4,91,863/- WAS ALSO DISALLOWED FOR THE REASON THAT THE EMPLOYEES PROVIDENT FUND WAS NO T APPROVED AND THEREFORE NOT ALLOWABLE AS DEDUCTION U/S 40A(7) OF THE ACT. BOTH THESE ADDITIONS WERE CONFIRMED BY CIT(A). 8. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE FIRS TLY POINTED OUT THAT LD AO AS WELL AS LD CITA HAVE ADDED BACK GRATUITY AND PROVIDENT FUND BY DELIBERATING ON THE 4 ITA NO.2537/KOL/2013 THE BANK EMPLOYEES COOPERATIVE BANK LTD. A.YR.2010-11 4 APPROVED/UNAPPROVED/RECOGNIZED/ UNRECOGNISED GRATUI TY OR PROVIDENT FUND AND RESULTING DEDUCTIONS UNDER SECTIONS UNDER SECTIONS 2(24)(X) & 36(1)(IV) RELATING TO EMPLOYEES CONTRIBUTION TO THE FUND, 36(1)(VA) RELAT ING TO EMPLOYER'S CONTRIBUTION TO THE FUND AND 36(1)(V) RELATING TO APPROVED GRATUITY FUN D. THESE SECTIONS HAVE NO APPLICABILITY ON THE FACTS AND CIRCUMSTANCES OF THE CASE. FURTHER, LD AO AS WELL AS LD CITA HAVE NOT APPLIED THEIR MIND WHILE DETERMINING THE ALLOWABILITY OF GRATUITY UNDER SECTION 40A(7). THEY HAVE DELIBERATED ONLY ON CLAUS E (A) OF THE SECTION AND TOTALLY OVERLOOKED CLAUSE (B) WHICH OVERRULES CLAUSE (A) UN DER GIVEN SET OF CIRCUMSTANCES, WHICH ARE APPLICABLE TO THE ASSESSEE. SINCE, THE EX PENDITURE IS NOT OF NATURE DESCRIBED IN SECTIONS 30 TO 36, SECTION 37(1) IS VERY MUCH APPLI CABLE SINCE THESE EXPENSES HAVE BEEN INCURRED SOLELY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. 9. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT TH AT AS FAR AS DISALLOWANCE OF RS.10 LAKHS WHICH IS THE PROVISION TOWARDS GRATUITY DEBIT ED IN THE PROFIT AND LOSS ACCOUNT, IS CONCERNED, THE DISALLOWANCE OF SUCH SUM WOULD BE JU STIFIED BUT THE ASSESSEE SHOULD HAVE BEEN ALLOWED DEDUCTION OF A SUM OF RS.28,58,84 5/- WHICH WAS THE ACTUAL GRATUITY AMOUNT PAID TO THE EMPLOYEES DURING THE RELEVANT PR EVIOUS YEAR. IN THIS REGARD THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AMOUNT CREDITED WAS ACTUALLY PAID AND WAS REFLECTED N THE BALANCE SHEET AND WAS NOT CLAIMED A S DEDUCTION IN THE COMPUTATION OF INCOME. IT WAS ALSO BROUGHT TO OUR NOTICE THAT UNDE R SECTION 40A(7)(B) OF THE ACT, PAYMENT OF ANY GRATUITY WHICH BECOMES PAYABLE DURIN G THE PREVIOUS FINANCIAL YEAR HAS TO BE ALLOWED AS DEDUCTION AND THE REQUIREMENT OF A PPROVAL FOR ALLOWING SUCH PAYMENTS AS DEDUCTION IS ONLY WHEN A PROVISION FOR GRATUITY LIABILITY TO THE EMPLOYEES IS MADE IN THE BOOKS OF ACCOUNT. IT WAS THUS SUBMITTED BY THE LD. COUNSEL THAT ON ACTUAL PAYMENT BASIS GRATUITY AMOUNT PAID DURING THE PREVIOUS YEAR IS NORMAL BUSINESS EXPENDITURE AND OUGHT TO HAVE BEEN ALLOWED AS EXPENDITURE U/S 37 WI THOUT ANY RESTRICTIONS AND UNDER ANY PROVISION OF THE ACT RELATING TO COMPUTATION OF INC OME FROM BUSINESS. 5 ITA NO.2537/KOL/2013 THE BANK EMPLOYEES COOPERATIVE BANK LTD. A.YR.2010-11 5 10.AS FAR AS THE EMPLOYERS AND EMPLOYEES CONTRIBUTI ON TO PROVIDENT FUND ARE CONCERNED, THE LD. COUNSEL SUBMITTED THAT AS PER THE WEST BENG AL GOVERNMENT COOPERATIVE SOCIETY ACT AND RULES, PROVIDENT FUND CONTRIBUTION HAS TO B E INVESTED OR DEPOSITED IN THE GOVERNMENT SAVINGS BANK OR ANY SECURITIES MENTIONED IN SECTION 20 OF THE INDIAN TRUSTS ACT 1882 AND IN ANY COOPERATIVE BANK OR ANY OTHER BANK APPROVED BY THE GENERAL BODY. THE ASSESSEE BANK IS THEREFORE NOT REQUIRED T O HAVE ANY RECOGNIZED PROVIDENT FUND. THE CONTRIBUTION TOWARDS PROVIDENT FUND IS AC CUMULATED AND KEPT WITH THE ASSESSEE. INTEREST IS PAID TO THE EMPLOYEES AND THE CONTRIBUTION OF THE EMPLOYEES AND EMPLOYERS ARE DEPOSITED IN THE BANK AND SUCH DEPOSI T YIELDS INTEREST TO THE ASSESSEE. SINCE THERE IS NO RECOGNIZED PROVIDENT FUND OR SUPE RANNUATION FUND THE PROVISION OF SECTION 36(1)(VA) OF THE ACT, WOULD NOT APPLY AND THE EXPENSES CLAIMED BY THE ASSESSEE HAS TO BE ALLOWED AS DEDUCTION U/S 37(1) OF THE ACT . IT WAS POINTED OUT BY THE LD.COUNSEL FOR THE ASSESSEE THAT THESE ASPECTS WERE SPECIFICAL LY PLEADED BEFORE THE AO AND CIT(A) BY PLACING RELIANCE ON SECTION 32OF THE WEST BENGAL COOPERATIVE SOCIETY ACT 2006 WHICH SPECIFICALLY EXCLUDES THE OPERATION OF EMPLOY EES PROVIDENT FUND AND MISCELLANEOUS PROVISIONS ACT 1982 IN THE CASE OF CO OPERATIVE BANKS. THE REVENUE AUTHORITIES HAVE NOT CONSIDERED THE ISSUE IN THE LI GHT OF THE ARGUMENTS SUBMITTED ON BEHALF OF THE ASSESSEE. THE LD.COUNSEL THEREFORE PR AYED THAT THE ORDER OF CIT(A) ON THE MAIN GROUNDS OF APPEAL AND THE ADDITIONAL GROUNDS O F APPEAL MAY BE SET ASIDE AND THE AO SHOULD BE DIRECTED TO EXAMINE THE ISSUE AFRESH I N THE LIGHT OF THE SUBMISSIONS MADE BEFORE THE TRIBUNAL. 11. THE LD. DR WHILE PLACING RELIANCE ON THE OR DER OF CIT(A) HAD NOT EXPRESSED ANY OBJECTION TO THE MATTER BEING SET ASIDE TO THE AO F OR A FRESH CONSIDERATION IN THE LIGHT OF THE SUBMISSIONS MADE BY THE LD. COUNSEL FOR THE ASS ESSEE BEFORE US. 12. IN THESE CIRCUMSTANCES, WE SET ASIDE THE ORD ER OF CIT(A) ON THE ISSUE RAISED IN THE MAIN GROUNDS OF APPEAL AS WELL AS ADDITIONAL GROUND S OF APPEAL AND REMAND THE ISSUES TO THE AO FOR FRESH CONSIDERATION IN THE LIGHT OF THE VARIOUS FACTORS BROUGHT TO OUR NOTICE WHICH ARE NARRATED IN THE EARLIER PART OF THIS ORDE R. THE AO WILL EXAMINE THE ENTRIES IN 6 ITA NO.2537/KOL/2013 THE BANK EMPLOYEES COOPERATIVE BANK LTD. A.YR.2010-11 6 THE BOOKS OF ACCOUNT AND THE LEGALITY OF THE CLAIM THAT THE ASSESSEE IS NOT REQUIRED TO MAKE CONTRIBUTION TO APPROVED THE PROVIDENT FUND CO NTEMPLATED IN THE EMPLOYEES PROVIDENT FUND ACT 1952.HE IS ALSO DIRECTED TO EXAM INE THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH REGARD TO THE ACTUAL PAYMENT OF T HE GRATUITY TO THE TUNE OF RS.28,58,845/- DURING THE PREVIOUS YEAR. IN THE EVE NT OF PAYMENT OF GRATUITY HAVING BEEN MADE DURING THE PREVIOUS YEAR THE AO IS ALSO D IRECTED TO EXAMINE THE PROVISIONS OF SECTION 40A(7)(B) OF THE ACT. REGARDING THE ALLOWAB ILITY OF ACTUAL PAYMENT OF GRATUITY WITH REGARD TO A SUM OF RS.10 LAKHS TOWARDS CONTRIB UTION TO GRATUITY FUND THE GRIEVANCE OF THE ASSESSEE WILL STAND ADDRESSED IF THE ACTUAL GRATUITY OF RS.28,58,845/- CLAIMED TO HAVE BEEN PAID BY THE ASSESSEE IS FOUND TO BE CORRE CT AND ALLOWED AS DEDUCTION. WITH THESE OBSERVATIONS, WE ALLOW THE APPEAL OF THE ASSE SSEE FOR STATISTICAL PURPOSES. 13. IN THE RESULT THE APPEAL BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 23.08 .2017. SD/- SD/- [J.SUDHAKAR REDDY] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 23.08.2017. [RG PS] COPY OF THE ORDER FORWARDED TO: 1.THE BANK EMPLOYEES CO-OPERATIVE BANK LTD., 23A, N .S.ROAD, 3 RD FLOOR,KOLKATA- 700001. 2. A.C.I.T., CIRCLE-36, KOLKATA. 3. CIT(A)-XX, KOLKATA C.I.T.-XII , KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVA TE SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S 7 ITA NO.2537/KOL/2013 THE BANK EMPLOYEES COOPERATIVE BANK LTD. A.YR.2010-11 7