The DCIT, Circle-2, Surat V. Surat National Co.Op.Bank Ltd., Surat

ITA 2793/AHD/2012

• Counselvise Citation: 279320514 RSA 2012
• Duration Of Justice: 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 13-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 11-12-2012
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: R N VEPARI
• Keywords: Gift; Depreciation; Business expenditure; Cost of acquisition
• Section: 37; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEM BER DY COMMISSIONER OF INCOME-TAX, CIRCLE-2, ROOM NO. 110, 1 ST FLOOR, AAYAKAR BHAVAN, MAJURAGATE, SURAT-395001 PAN: AAAAP5502J (APPELLANT) VS SURAT NATIONAL CO- OPERATIVE BANK LTD., 3/4016, NAVNIDHI KARVA ROAD, NAVAPURA, SURAT-395003 (RESPONDENT) REVENUE BY: SRI P.L. KUREEL, SR.D.R. ASSESSEE BY: SRI R. N. VEPARI, A.R. DATE OF HEARING : 13-08-2013 DATE OF PRONOUNCEMENT : 23-08-20 13 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- THIS IS THE REVENUES APPEAL AGAINST THE ORDER OF LD. CIT(A)-II SURAT, DATED 17-09-2012. 2. THE REVENUE HAS TAKEN FOLLOWING EFFECTIVE GROUND S:- ITA NO. 2793/AHD/2012 ASSESSMENT YEAR 2009-10 I.T.A NO.2793/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. SURAT NATIONAL CO-OPERATIVE BANK LTD. 2 [1] ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) SURAT HAS ERRED IN DELETING THE ADDITION OF RS.23,09,727/- MADE ON ACCOUNT OF PREMIUM AMORTIZATION EXPENSES AS THE FACT THAT AS PER THE INCOME TAX ACT NO SUCH PROVISION IS THERE T O ALLOW AMORTIZATION OF PREMIUM EXPENSES INCURRED ON PURCHA SE OF GOVT. SECURITIES WAS NOT APPRECIATED. [2] ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.17, 10,728/- MADE ON ACCOUNT OF GIFT EXPENSES WITHOUT APPRECIATING THE F ACT THAT THE ASSESSEE HAS DISTRIBUTED THE GIFT ONLY TO ITS MEMBE RS WHO ARE SHARE HOLDERS AND NOT INCLUDED ALL THE CUSTOMERS AND HENC E THE ALLEGEDLY DISTRIBUTED GIFT ARE NOTHING BUT DIVIDEND GRANTED T O SHARE HOLDERS AND ALSO THE FACTS OF THE CASE LAW QUOTED BY THE LD. CI T(A) IS DISTINGUISHABLE FROM THE FACTS OF THE INSTANT CASE AS IN THE SAID CASE THE ASSESSEE HAS DISTRIBUTED GIFT TO ALL ITS CUSTOM ERS. [3] ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.38, 37,116/- MADE ON ACCOUNT OF STAFF EX-GRATIA WITHOUT APPRECIATING THE FACT THAT A CONTINGENT LIABILITY CANNOT CONSTITUTE DEDUCTIBLE E XPENDITURE FOR THE PURPOSE OF INCOME-TAX ACT AND THUS PUTTING ASIDE OF MONEY WHICH MAY BECOME EXPENDITURE ON THE HAPPENING OF AN EVENT WOULD NORMALLY NOT CONSTITUTE AN ALLOWABLE EXPENDITURE UNDER THE INCOME- TAX ACT. [4] ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.17, 50,000/- MADE ON ACCOUNT OF DISALLOWANCE OF SPECIAL LONG TERM FINANC E FUND EXPENSES CLAIMED U/S 36(1)(VII) OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO PROVE THAT WHATEVE R AMOUNT SET ASIDE BY IT CONSTITUTES 20% OF THE PROFITS DERIVED FROM T HE ELIGIBLE BUSINESS COMPUTED UNDER THE HEAD PROFITS & GAINS OF BUSINESS & PROFESSION. 3. FIRST GROUND RELATES TO DELETION OF ADDITION OF RS. 23,09,727/- MADE ON ACCOUNT OF PREMIUM AMORTIZATION EXPENSES. I.T.A NO.2793/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. SURAT NATIONAL CO-OPERATIVE BANK LTD. 3 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING AND ALL FORMS OF BUSINESS ENLISTED IN SECTION 6 OF BANKING REGULATION ACT ; 1949, OUT OF WHICH LENDING IS THE MAIN ACTIVITY PREDOMINANTLY TO THE MEMBERS OF CO-OPERATI VE BANK. DURING THE ASSESSMENT PROCEEDINGS; IT WAS OBSERVED BY AO THAT THE ASSESSEE HAS CLAIMED PREMIUM (AMORTIZATION) EXPENSES OF RS.23,09 ,727/-. ASSESSEE BOUGHT GOVERNMENT SECURITIES BY PAYING PREMIUM OVER ITS BOOK VALUE AND THIS PREMIUM HAS BEEN CLAIMED AS EXPENDITURE UNDER THE HEAD AMORTIZATION TILL THE MATURITY PERIOD AS PER GUIDELINES OF RBI. IN VIEW OF AO, THERE IS NO SUCH PROVISION OF AMORTIZATION OF PREMIUM EXPENSES INCURRED ON PURCHASE OF GOVERNMENT SECURITIES IN THE INCOME TAX ACT , THEREFORE, HE PROPOSED TO DISALLOW THE EXPENSES. THE EXPLANATION OF ASSESSEE THAT THE BANK HAS FOLLOWED THE GUIDELINES OF RBI AND ACCORDINGLY HAS SPREAD THE PREMIUM AMOUNT TILL MATURITY PERIOD OF THE GOVERNMENT SECUR ITIES AND HAS WRITTEN OFF THIS PROPORTIONATE AMOUNT IN P&L ACCOUNT, WAS NOT A CCEPTED BY AO ON THE GROUND THAT ASSESSEE GETS BENEFIT OF THIS EXPENDITU RE AS COST OF ACQUISITION, WHEN EVER IT SELLS THIS SECURITY AND REMAINING PROF IT WILL BE TAXED IN THE HANDS OF ASSESSEE. CONSEQUENTLY, AMORTIZATION EXPEN SES OF RS.23,09,727/- WAS DISALLOWED BY AO AND ADDED BACK TO THE INCOME O F ASSESSEE. 5. BEFORE LD. CIT(A), ASSESSEES SUBMISSION WAS AS FOLLOWS:- 2.2 DURING THE APPELLATE PROCEEDINGS; IT WAS SUBMI TTED BY APPELLANT THAT THE ASSESSEE BANK IS PERMITTED TO INVEST IN GO VERNMENT SECURITIES/BONDS. THE RESERVE BANK OF INDIA (RBI) H AS ASKED THE BANKS TO CLASSIFY THE INVESTMENTS INTO THREE CATEGO RIES. (1) HELD TO MATURITY (2) HELD FOR TRADING (3) AVAILABLE FOR SALE I.T.A NO.2793/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. SURAT NATIONAL CO-OPERATIVE BANK LTD. 4 IT WAS FURTHER SUBMITTED THAT AS PER THE GUIDELINES ISSUED BY RBI, INVESTMENTS CLASSIFIED UNDER THE HELD TO MATURITY C ATEGORY, THEY HAVE TO BE SHOWN AT COST OF ACQUISITION UNLESS SUCH COST IS MORE THAN FACE VALUE AND PREMIUM IS PAID ON ACQUIRING THE SECURITY . THIS PREMIUM IS REQUIRED TO BE AMORTIZED OVER THE PERIOD REMAINING TILL THE MATURITY. THE ASSESSEE BANK HAS FOLLOWED THE GUIDELINES OF RB I AND ACCORDINGLY HAS PAID THE PREMIUM AMOUNT AND IN MATURITY PERIOD OF GOVERNMENT SECURITIES WRITTEN OFF THE PROPORTIONATE AMOUNT IN P&L ACCOUNT. IT WAS ALSO POINTED OUT THAT WHENEVER THE GOVERNMENT S ECURITIES ARE SOLD, THE PROFIT EARNED ON SUCH SALE IS CREDITED TO THE P&L ACCOUNT AND OFFERED FOR TAXATION. IT, THEREFORE, FOLLOWS TH AT THE EXTRA AMOUNT (PREMIUM) PAID BY THE ASSESSEE AUTOMATICALLY BECOME S BUSINESS EXPENDITURE ALLOWABLE AS DEDUCTION. IN SUPPORT OF I TS SUBMISSIONS, ASSESSES RELIED ON THE DECISION OF MUMBAI BENCH TRI BUNAL IN THE CASE OF THE BANK OF RAJASTHAN LTD. ITA NO.3238/MUM/2010 WHEREIN REFERENCE TO INSTRUCTION NO.17 OF 26.11.2008 ISSUED BY CBDT FOR ASSESSMENT OF BANK AND PARA (VII) IS REPRODUCED AS UNDER: 'AS PER RBI GUIDELINES DATED 16 TH OCTOBER, 2000, THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATURITY (HTM), HELD FOR TR ADING (HFT) AND AVAILABLE FOR SAFE (AFS). INVESTMENTS CLA SSIFIED UNDER HTM CATEGORY NEED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS THESE ARE MORE T HAN THE FACE VALVE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTIZE D OVER THE PERIOD REMAINING. IN THE CASE OF HFT AND AFS SECUR ITIES FORMING STOCK IN TRADE OF THE BANK, THE DEPRECIATION/APPRECIATION IS TO BE AGGREGATED SCRIP WISE AND ONLY NET DEPRECIATION IS REQUIRED TO BE PROVIDED FO R IN THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE R EFERRED TO FOR ALLOWING ANY SUCH CLAIMS.' IN ADDITION TO THE ABOVE CBDT INSTRUCTION; APPELLAN T RELIED ON THE DECISIONS OF ITAT BANGALORE IN THE CASE OF NATIONAL CO-OPERATIVE BANK, BANGALORE ITA NOS. 1090(BANG.)/2010 & 7(BANG. )/2011FOR ASSESSMENT YEARS 2007-08 AND 2008-09 AND ALSO THE D ECISION OF ITAT COCHIN BENCH IN THE CASE OF CATHOILC SYRIAN BANK LT D. VS. AC1T REPORTED IN 38 SOT 553 (2010), WHEREIN IT HAS BEEN HELD BY HON'BLE TRIBUNALS THAT IN VIEW OF THE CBDT INSTRUCTION DATE D 26.11.2008, DEDUCTION OF AMORTIZED EXPENDITURE ON PREMIUM ON GO VERNMENT I.T.A NO.2793/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. SURAT NATIONAL CO-OPERATIVE BANK LTD. 5 SECURITIES IS AN ALLOWABLE EXPENDITURE. IN VIEW OF THESE FACTS AND LEGAL POSITION, APPELLANT PLEADED TO ALLOW THE APPEAL. 6. AFTER TAKING INTO CONSIDERATION THE SUBMISSION O F THE ASSESSEE, LD. CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER:- 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND LE GAL POSITION ON THE ISSUE. THE ALLOWABILITY OF AMORTIZED EXPENSES ON PR EMIUM ON GOVERNMENT SECURITIES HAS BEEN PROVIDED U/S. 36(1)( II) OF THE PROVISIONS HAVE BEEN CLARIFIED AND EXPLAINED BY CBD T , NEW DELHI VIDE INSTRUCTION NO. 17 OF 2008 DATED 26.11.2008. A S PER THIS CLARIFICATION, INVESTMENTS OF BANKS CLASSIFIED UNDE R HTM (HELD TO MATURITY) CATEGORY NEED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS THESE ARE MORE THAN THE FAC E VALUE, IN WHICH CASE, THE PREMIUM SHOULD BE AMORTIZED OVER THE PERI OD REMAINING TO MATURITY. ON THE BASIS OF THIS INSTRUCTION, DIFFERE NT TRIBUNALS, AS MENTIONED ABOVE BY ASSESSEE, HAVE ALLOWED THE AMORT IZED EXPENDITURE. THE AO HAS IGNORED THE PROVISIONS OF INSTRUCTION WHICH IS BINDING ON HIM WHILE DISCUSSING THE ISSUE AND DI SALLOWING THE EXPENDITURE. SINCE, THE INSTRUCTIONS AND CIRCULARS ARE BINDING IN NATURE ON AOS AND DIFFERENT TRIBUNALS HAVE GIVEN DE CISIONS AGAINST THE REVENUE, RESPECTFULLY FOLLOWING THE SAME, GROUN D OF APPEAL OF ASSESSEE IS ALLOWED AND ADDITION MADE BY AO IS DELE TED. SINCE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE B Y PLACING RELIANCE ON VARIOUS DECISIONS OF TRIBUNALS ON THE ISSUE IN VIEW OF CBDT INSTRUCTION DATED 26-11-2008, WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY HIM AND THE SAME IS HEREBY UPHELD. THIS GROUND OF THE REVENUE IS DISMISSED 7. GROUND NO. 2 RELATES TO DELETION OF ADDITION OF RS. 17,10,728/- MADE ON ACCOUNT OF GIFT EXPENSES. 8. BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY AO THAT ASSESSES HAS CLAIMED GIFT EX PENSES OF RS.17,10,728/- . AS PER ASSESSEE'S EXPLANATIONS, THESE GIFTS WERE DISTRIBUTED TO THE MEMBERS I.T.A NO.2793/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. SURAT NATIONAL CO-OPERATIVE BANK LTD. 6 OF THE BANK TO KEEP ALIVE GOOD IMAGE ABOUT MEMBERS AND FOR GENERATING GOODWILL AND ENSURING CONTINUITY OF BUSINESS WIT H MEMBERS OF SOCIETIES AND SUCH EXPENSES ARE ALLOWABLE IN THE LIGHT OF D ECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF DASKROI TALUKA CO-OPERATI VE & SALES UNION LTD. REPORTED IN 126 ITR 413. THE EXPLANATION OF ASSESSE E WAS NOT ACCEPTED BY AO ON THE GROUND THAT SUCH EXPENSES APPEARED TO BE AN ALTRUISTIC AND PHILANTHROPIC URGE WHICH SHOULD HAVE BEEN SATISFIED BY ASSESSEE AT ITS OWN COST NOT AT THE COST OF PUBLIC EXCHEQUER OR OTHER T AX PAYERS AND SUCH EXPENSES ALSO PROVE THAT ASSESSEE WANTS TO INCREASE THE EXPENDITURE ON SOME PRETEXT OR OTHER THEREBY REDUCING HIS TAX LIABILITY . WITH THIS CONCLUSION; AO DISALLOWED THE GIFT EXPENSES OF RS.17,10,728/- AND ADDED TO THE INCOME OF ASSESSEE. 9. BEFORE LD. CIT(A), ASSESSEES SUBMISSION WAS AS FOLLOWS:- 3.2 DURING THE APPELLATE PROCEEDINGS, IT WAS SU BMITTED BY APPELLANT THAT THE ASSESSEE BANK HAS GIVEN G IFT TO ITS MEMBERS ON THE OCCASION OF COMPLETION OF 35 YEARS BY TH E BANK WHICH WAS SPREAD INTO TWO YEARS. PART OF TOTAL AMOUNT PAID WA S DISALLOWED BY AO IN THE A.Y. 2008-09, WHICH WAS ALLOWED BY CIT(AP PEALS)-II BY HIS ORDER DATED 06.05.2011. IT WAS FURTHER SUBMITTED T HAT THE CO- OPERATIVE MOVEMENT WAS PRIMARILY FOR THE BENEFIT OF THE CONSUMERS AND ITS MEMBERS AND THIS ASPECT HAS BEEN DISCUSSED IN DETAIL IN THE GUJARAT HIGH COURT JUDGMENT REFERRED TO EARLIER. IN THIS BACKGROUND, APPELLANT REQUESTED TO ALLOW THE DEDUCTION. 10. AFTER TAKING INTO CONSIDERATION THE SUBMISSION OF THE ASSESSEE, LD. CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER:- 3.3 I HAVE CONSIDERED THE FACTS ON THE ISSUE. THIS ISSUE HAS BEEN DISCUSSED BY MY PREDECESSOR IN DETAIL WHILE DECIDIN G THE APPEAL FOR A.Y. 2008-09. TAKING INTO CONSIDERATION THE DECISI ON OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF DASKRO TALUKA CO- OP. & SALE I.T.A NO.2793/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. SURAT NATIONAL CO-OPERATIVE BANK LTD. 7 UNION LTD. 126 ITR 413, LEARNED CIT(APPEAL) HAS DEC IDED THE ISSUE AS UNDER:- I HAVE DULY CONSIDERED THE JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE TALUKA CO-OP. & SALE UNION LTD. ( 126 ITR413) WHERE EXPENDITURE INCURRED FOR PURCHASE OF ARTICLES FOR PRESENTATION ONLY TO ITS MEMBERS FOR KEEPING ALIVE GOOD IMAGE AM ONG MEMBERS AND FOR GENERATING GOODWILL AND ENSURING CONTINUITY OF BUSINESS WITH MEMBER SOCIETIES WAS GELD TO BE EXPENDITURE INCURRE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE FACTS OF THE APPELLANTS CASE, IN SO FAR AS THE ABOVE DECISION IS CONCERNED, DIFFER ONLY TO THE EXTENT THAT IN THE RELIED UPON CASE THE HOUSEHOLD S TAINLESS STEEL UTENSILS WERE DISTRIBUTED TO THE MEMBERS OF THE SAI D CO-OP, SOCIETY, WHEREAS THE BANK ASKED THE MEMBERS TO TAKE THE GIFT ITEM WORTH RS400/- FROM THE SELECTED STORES. 1, THEREFORE, FO LLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE ABOVE REFER RED CASE, DELETE THE ABOVE DISALLOWANCE AND ALLOW THIS GROUND OF APPEAL. ' SINCE, THE FACTS ON ISSUE ARE SAME AS IN THE A.Y. 2 008-09, RESPECTFULLY FOLLOWING THE DECISION OF MY PREDECESSOR, I ALSO DE LETE THE ADDITION MADE BY AO AND ALLOW THE GROUND OF APPEAL. SINCE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE B Y PLACING RELIANCE ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE O F DASKROI TALUKA CO- OPERATIVE & SALE LTD. 126 ITR 413, WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY HIM AND THE SAME IS HEREBY UPHELD. 11. GROUND NO. 3 RELATES TO DELETION OF ADDITION OF RS. 38,37,116/- MADE ON ACCOUNT OF STAFF EX-GRATIA. 12. BRIEF FACTS OF THE CASE ARE THAT IN THE ASSESSM ENT ORDER, IT HAS BEEN OBSERVED BY AO THAT THE ASSESSEE HAS CLAIMED RS.38, 37,116/- AS STAFF EX- GRATIA UNDER THE HEAD 'OTHER LIABILITIES'. IT WAS F URTHER OBSERVED THAT PROVISION OF EXPENSES CANNOT BE ALLOWED AS BUSINESS EXPENDITURE AND THE ASSESSEE'S EXPLANATION THAT IN ORDER TO INCREASE AN D MAINTAIN THE EFFICIENCY OF I.T.A NO.2793/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. SURAT NATIONAL CO-OPERATIVE BANK LTD. 8 STAFF MEMBERS AND ALSO TO ESTABLISH CORDIAL RELATIO N AMONG THE STAFF MEMBERS AND MANAGEMENT THESE EXPENSES HAVE BEEN INCURRED, C ANNOT BE ACCEPTED AS JUSTIFICATION FOR ALLOWING THE EXPENDITURE. THE AO CONCLUDED AS UNDER: 'I HAVE CAREFULLY GONE THROUGH THE SUBMISSION OF TH E A.R. OF THE ASSESSES-BANK. THE CONTENTION OF THE ASSESSEE CANNO T BE ACCEPTED BECAUSE AS PER THE PROVISIONS OF INCOME-TAX ACT NO SUCH PROVIS IONS ALLOWING DEDUCTION OF EX-GRATIA PAID TO AT ONCE TO ITS SERVING EMPLOYEES BASED ON SALARY THEY DREW AT PRESENT AND LENGTH OF SERVICE THEY COMPLETED. IN VIEW OF THAT ASSESSEE CLAIM OF E X-GRATIA EXPENSES OF RS.38,37,116/- IS NOT ACCEPTABLE. FURTHER, ALL THES E EX-GRATIA EXPENSES WARE NOT PAID DURING THE YEAR AND WERE PAID TO EMPL OYEES AFTER THE FINANCIAL YEAR AND THAT MEANS THE EXPENSE CLAIMED B Y ASSESSEE HAS NOT BEEN INCURRED DURING THE YEAR UNDER CONSIDERATION. SECTION 37 OF THE ACT ENVISAGES THAT AN AMOUNT DEBITED IN THE P & L A CCOUNT IN RESPECT OF AN ACCRUED OR ASCERTAINED LIABILITY ONLY IS AN A DMISSIBLE DEDUCTION, WHILE ANY PROVISION IN RESPECT OF ANY UNASCERTAINED LIABILITY OR A LIABILITY WHICH HAS NOT ACCUSED, DO NET QUALIFY FOR DEDUCTION. A CONTINGENT LIABILITY CANNOT CONSTITUTE DEDUCTIBLE E XPENDITURE FOR THE PURPOSES OF INCOME-TAX ACT. THUS, PUTTING ASIDE OF MONEY WHICH MAY BECOME EXPENDITURE ON THE HAPPENING OF AN EVENT WOU LD NORMALLY NOT CONSTITUTE AN ALLOWABLE EXPENDITURE UNDER THE INCOM E-TAX ACT.' 13. BEFORE LD. CIT(A), ASSESSEES SUBMISSION WAS AS FOLLOWS:- 4.2 DURING THE APPELLATE PROCEEDINGS, IT HAS BEEN SUBMITTED BY APPELLANT THAT WHILE DISALLOWING THE EX-GRATIA EXPE NSES OF RS.38,37,116/- (CORRECT: FIGURE IS RS.38,00,386/-), AO HAS FAILED TO MAKE DISTINCTION BETWEEN THE ASCERTAINED LIABILITY AND UNASCERTAINED LIABILITY. THESE EXPENSES HAVE BEEN INCURRED AS PER MEMORANDUM OF UNDERSTANDING ENTERED INTO BY BANK WITH THE UNION O F EMPLOYEES AND BASED ON THAT, THIS AMOUNT HAS BEEN DETERMINED AND MADE PAYABLE AND ACTUALLY PAID DURING THE SUBSEQUENT YEAR. FURTH ER, NONE OF THE STAFF MEMBERS IS RELATIVE TO PROMOTERS OF BANK AND PAYMENTS IN THIS ACCOUNT HAVE BEEN MADE IN EARLIER YEARS AS UNDER WH ICH WERE ALLOWED BY AO. ASSESSMENT YEAR AMOUNTS RS. 2007-08 RS. 29,15,540/- 2008-09 RS.32,84,023/- I.T.A NO.2793/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. SURAT NATIONAL CO-OPERATIVE BANK LTD. 9 IN VIEW OF THESE FACTS, APPELLANT HAS PLEADED TO AL LOW THE EXPENSES. 14. AFTER TAKING INTO CONSIDERATION THE SUBMISSION OF THE ASSESSEE, LD. CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER:- 4.3 I HAVE CONSIDERED THE FACTS ON THE ISSUE AND F OUND THAT AO HAS DISALLOWED THE EXPENSES ON ACCOUNT OF EX-GRATIA PAI D TO STAFF MEMBERS ONLY ON THE GROUND THAT THESE EXPENSES ARE PROVISIO NAL EXPENSES BEING UNASCERTAINED LIABILITY AND ANY CONTINGENT LIABILIT Y CANNOT CONSTITUTE DEDUCTIBLE EXPENDITURE FOR THE PURPOSE OF IT ACT. I N MY OPINION, THE CONCLUSION DRAWN BY AO IS MISPLACED. THE AMOUNT OF EX-GRATIA HAS BEEN DETERMINED ON THE BASIS OF MEMORANDUM OF UNDER STANDING ENTERED INTO BY BANK WITH UNION OF EMPLOYEES. THE C OPY OF MEMORANDUM, SIGNED BY ALL THE STAFF MEMBERS, IS SUB MITTED BY APPELLANT WHICH CONTAINS THE METHOD OF WORKING THE EX-GRATIA PAYMENTS. MOREOVER, THESE EXPENSES ARE NOT CLAIMED BY APPELLANT FIRST TIME. IN THE EARLIER YEARS ALSO I.E. IN A.Y. 2007-0 8 AND 2008-09, APPELLANT HAS CLAIMED EX-GRATIA EXPENSES OF RS. 29, 15,540/- AND RS.32,84,023/- RESPECTIVELY WHICH WERE ALLOWED ALSO BY AO WITHOUT RAISING ANY OBJECTION. SINCE, THESE EXPENSES ARE BE ING REGULARLY INCURRED AND CLAIMED BY APPELLANT AND WORKED OUT ON THE BASIS OF MEMORANDUM OF UNDERSTANDING, IT IS ASCERTAINED LIAB ILITY WHICH IS ALLOWABLE AS PER THE PROVISIONS OF THE ACT. IN VIE W OF THIS, I HOLD THAT EX-GRATIA EXPENSES OF RS. 38,00,386/-ARE ALLOWABLE EXPENSES THEREFORE THERE IS NO JUSTIFICATION IN THE ADDITION MADE BY A O. THIS GROUND OF APPEAL IS ALLOWED. SINCE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE I N VIEW OF THE FACT THAT EXPENSES BEING REGULARLY INCURRED AND CLAIMED BY TH E ASSESSEE AND WORKED OUT ON THE BASIS OF MEMORANDUM OF UNDERSTANDING IT IS ASCERTAINABLE LIABILITY WHICH IS ALLOWABLE AS PER THE PROVISION O F THE ACT, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THIS GROUND OF THE REVENUE IS ALSO DISMISSED. I.T.A NO.2793/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. SURAT NATIONAL CO-OPERATIVE BANK LTD. 10 15. GROUND NO. 4 RELATES TO DELETION OF ADDITION OF RS. 17,50,000/- MADE ON ACCOUNT OF DISALLOWANCE OF SPECIAL LONG TERM FIN ANCE FUND CLAIMED U/S. 36(1)(VII) OF THE ACT. 16. BRIEF FACTS OF THE CASE ARE THAT DURING THE AS SESSMENT PROCEEDINGS, IT WAS OBSERVED BY AO THAT THE ASSESSEE HAS CLAIMED SP ECIAL LONG TERM FINANCE FUND EXPENSES OF RS.L7,50 , 000/- U/S.36(1)(VIII) OF THE ACT. HOWEVER, IT WAS FURTHER OBSERVED THAT THE ASSESSEE DID NOT P ROVE THAT WHATEVER AMOUNT SET ASIDE BY IT CONSTITUTES 20% OF THE PROFITS DERI VED FROM THE ELIGIBLE BUSINESS COMPUTED UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS AND PROFESSION' (BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE) CARRIED TO SUCH RESERVE ACCOUNT. IN VIEW OF THIS, AO DISALLOWED THE SAID EXPENSES. 17. BEFORE LD. CIT(A), ASSESSEES SUBMISSION WAS AS FOLLOWS:- 5.2 DURING THE APPELLATE PROCEEDINGS, IT WAS EXPLA INED BY APPELLANT THAT DURING THE ASSESSMENT PROCEEDINGS, COMPLETE DE TAILS OF WORKING THE 20% OF PROFITS DERIVED, WERE FURNISHED TO THE A O BUT THE SAME WAS IGNORED BY HIM. THE SAME HAS BEEN REITERATED BY APP ELLANT AS UNDER:- '(2) IT WOULD BE ALSO NECESSARY TO APPRECIATE THE D EDUCTION ALLOWABLE. THE BANK IS REQUIRED TO CREATE A SPECIAL RESERVE NO T EXCEEDING 20% OF PROFIT DERIVED FROM ELIGIBLE BUSINESS. (3) THE ELIGIBLE BUSINESS MENTIONED IS (A) INDUSTRI AL OR AGRICULTURAL DEVELOPMENT (B) DEVELOPMENT OF INFRASTRUCTURE FACIL ITY IN INDIA OR (C) DEVELOPMENT OF HOUSING IN INDIA. THEREFORE, WHAT IS REQUIRED TO BE DONE IS TO WORK OUT THE PROFIT EARNED FROM THESE TH REE CATEGORIES OF BUSINESS. AFTER DETERMINING SUCH PROFIT, AN AMOUNT NOT EXCEEDING 20% HAS TO BE TAKEN TO SPECIAL RESERVE AND ALLOWED AS D EDUCTION. IN THE CHART THAT WAS FURNISHED EARLIER, THIS WORKING WAS GIVEN BRANCH WISE ACTIVITY WISE. COPY OF THE ABOVE IS AGAIN ENCLOSED FOR YOUR READY REFERENCE. YOU WILL KINDLY NOTE THAT THE FOUR CATEG ORIES MENTIONED THEREIN ARE (1) INTEREST ON MACHINERY LOAN (THIS WO ULD FALL UNDER I.T.A NO.2793/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. SURAT NATIONAL CO-OPERATIVE BANK LTD. 11 INDUSTRIAL DEVELOPMENT) (2) INTEREST ON TERM LOAN F OR CONSTRUCTION OF INDUSTRIAL SHEDS (THIS WOULD ALSO FALL UNDER INDUST RIAL DEVELOPMENT) (3) INTEREST ON NAVNIDHI GRUH FINANCE (THIS WOULD F ALL UNDER DEVELOPMENT OF HOUSING) (4) INTEREST ON STAFF HOUSI NG LOAN (THIS WOULD ALSO AGAIN FALL UNDER DEVELOPMENT OF HOUSING). (4) INTEREST FROM ALL THE FOUR ACTIVITIES EARNED WA S RS. 4,56,88,389/-. THE BANK HAS EARNED 25.02% ON TOTAL INCOME APPLYING THE SAME RATE OF 25.02%. THE BANK HAS WORKED OUT PROFIT AMOUNTING TO RS. 1,14,31,234/-. 20% OF PROFIT THEREOF IS RS. 22,86,2 47/-. AMOUNT CREDITED TO SPECIE RESERVE IS RS.17,50,000/- WHICH IS LESS THAN 20%. THESE FIGURES COME CLEARLY FROM THE PROFIT AND LOSS ACCOUNT COPY WHEREOF IS ATTACHED. THIS WOULD SHOW THAT THE BANK HAS PROPERLY CREATED THE RESERVE AS WORKING HAS BEEN DONE ON THE BASIS OF SECTION 36(1)(VIII) OF THE ACT. THE CLAIM OF THE ASSESSEE IS JUSTIFIED AND IS REQUIRED TO BE ALLOWED. (5) INITIALLY, THE AO QUESTIONED AS TO WHETHER THE CO-OPERATIVE BANK IS ENTITLED TO ABOVE. AS PER PARA (4) OF LETTER DATED 16.11.2011 TO THE AO (PAGE 6), IT WAS EXPLAINED THAT THE BANK WAS ELIGIB LE. BASED ON THE ABOVE IN PARA 7.2 (PAGE 9 OF THE ASSESSMENT ORDER), THE AO ACCEPTED IT BUT HAS STATED THAT THE ASSESSEE DID NOT PROVE THE ABOVE. I AM INSTRUCTED TO POINT OUT THAT THIS CALCULATION WAS G IVEN IN THE COURSE OF ASSESSMENT. THE AO DID NOT RAISE ANY QUERY. NOTHING IS FURTHER REQUIRED TO BE PROVED AS THESE FIGURES ARE FROM P & L ACCOUNT.' 18. AFTER TAKING INTO CONSIDERATION THE SUBMISSION OF THE ASSESSEE, LD. CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER:- 5.3 I HAVE CONSIDERED THE FACTS ON THE ISSUE, B ASIS OF ADDITION MADE BY AO AND SUBMISSIONS OF APPELLANT. THE AO HAS WRON GLY CONCLUDED THAT THE APPELLANT DID NOT PROVE THAT WHATEVER THE AMOUNT SET ASIDE BY IT CONSTITUTES 20% OF PROFITS DERIVED FROM THE ELIG IBLE BUSINESS. ALL THE RELEVANT DETAILS ARE PRESENT IN THE P & L ACCOUNT ONLY AND AO HIMSELF COULD HAVE COMPUTED THE 20% OF PROFIT DERIVED FROM ELIGIBLE BUSINESS. THE APPELLANT HAS AGAIN FURNISHED ALL THE REQUIRED DETAILS AND WORKED OUT THE PROFIT AMOUNTING TO RS. L,14,31,234/-, 20% OF PROFIT THEREOF IS RS.22,86 , 247/-. AMOUNT CREDITED TO SPECIAL RESERVE IS RS.17 , 50 , 000/- WHICH IS LESS THAN 20%. THIS WORKING HAS NOT BEEN C HALLENGE BY AO. IT I.T.A NO.2793/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. SURAT NATIONAL CO-OPERATIVE BANK LTD. 12 IS, THEREFORE; HELD THAT THE APPELLANT HAS CLAIMED EXPENSES UNDER THIS HEAD AS PER PROVISIONS OF SECTION 36(1)(VIII) WHICH ARE ALLOWABLE TO HIM. IN THE RESULT, APPEAL ON THIS GROUND IS ALLOWE D. SINCE THE FINDING OF THE LD. CIT(A) THAT ASSESSEE H AS CREDITED A SUM OF RS. 17,50,000/- TO THE SPECIAL RESERVE WHICH IS LESS TH AN 20% OF THE PROFIT REMAINED UNCONTROVERTED AT THE TIME OF HEARING BEFO RE US, WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY HIM AND THE SAME IS HEREBY UPHELD. THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 19. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (T.R. MEENA) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 23/08/2013 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,