Prathamik Shikshak Sahakari Bank Ltdd., Satara V. Assistant Commissioner of Income-tax,

ITA 491/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9457 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 16-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital receipt; Revenue expenditure
• Section: 143(3); 234B; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 4 91 /P U N/201 5 / ASSESSMENT YEAR : 20 11 - 12 PRATHAMIK SHIKSHAK SAHAKARI BANK LTD., 12B, RAVIWAR PETH, SATARA. . / APPELLANT PAN: AAAAP0381L VS. THE ASST. COMMISSIONER OF INCOME TAX, SATARA CIRCLE, SATARA . / RESPONDENT / APPELLANT BY : S HRI M.K. KULKARNI / RESPONDENT BY : NONE / DATE OF HEARING : 19 .0 4 . 2017 / DATE OF PRONOUNCEMENT: 17 . 0 5 .201 7 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT (A) - 4 , PUNE , DATED 05 . 0 2 .201 5 RELATING TO ASSESSMENT YEAR 20 11 - 12 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE ASS ESSEE HAS RAISED THE FOLLOWING GROUND S OF APPEAL: - 1) ON THE FACTS, AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) - 4, PUNE WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS.16,97,027/ - CLAIMED AS BROKEN PERIOD INTEREST MADE BY THE A. O . THE ISSUE I S COVERED IN FAVOUR OF THE ASSESSEE BANK BY THE JUDGMENT OF HON'BLE JURISDICTIONAL BOMBAY HIGH COURT JUDGMENT AND ALSO JUDGMENTS OF THE BENCHES OF THE TRIBUNAL. THE ADDITION SUSTAINED BE QUASHED. ITA NO. 4 91 /P U N/20 1 5 PRATHAMIK SHIKSHAK SAH. BANK LTD. 2 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW TH E LD. CIT(A) - 4, WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS.26,05,278/ - MADE BY A. O . AND THE AGITATED BEFORE HER VIDE GROUND OF APPEAL NO. 4 WHICH ARE IN THE NATURE OF VOLUNTARY RETIREMENTS OF THE EMPLOYEES. THE PAYMENTS ARE CONSIDERED IN RECOGNITIO N OF THEIR PAST SERVICES. THE SAME BE ALLOWED TO THE ASSESSEE - BANK. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) - 4 PUNE WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF RS.3,40,185/ - MADE BY THE A. O . BEING CAPITAL RECEIPT ON ACCO UNT OF REFUND OF MUNICIPAL TAX RECEIPT. THE ADDITION SUSTAINED BE DELETED. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) - 4 WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF RS.5000/ - HOLDING IT AS PRIOR PERIOD EXPENDITURE. SINCE TH E LIABILITY WAS CRYSTALLIZED DURING THE YEAR APPEAL THE SAME WAS ALLOWABLE IN THIS YEAR ONLY. THE DISALLOWANCE CONFIRMED BY CIT(A) BE DELETED. 5) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEVY OF INTEREST U/S 234A, 234B AND 234C IS NOT JU STIFIED. 3. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUES RAISED IN THE PRESENT APPEAL ARE COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1725/PN/2014, RELATING TO ASSESSMENT YEAR 2010 - 11, ORDER DAT ED 18.05.2016 IN RESPECT OF FIRST ISSUE RAISED IN THE PRESENT APPEAL. IN RESPECT OF OTHER ISSUES, RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN THE SATARA DISTRICT CENTRAL CO.OP BANK LTD. VS. DCIT IN ITA NO.2537/PN/2012 AND A CIT VS. THE SATARA DISTRICT CENTRAL CO.OP. BANK LTD. IN ITA NO.2522/PN/2012, RELATING TO ASSESSMENT YEAR 2009 - 10, ORDER DATED 30.12.2014. 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE HAD FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.2,31,6 1,482/ - . THE CASE OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.16,97,027/ - TOWARDS BROKEN PERIOD INTEREST. THE ASSESSEE WAS SHOW ITA NO. 4 91 /P U N/20 1 5 PRATHAMIK SHIKSHAK SAH. BANK LTD. 3 CAUSED T O EXPLAIN WHY THE SAME SHOULD BE ALLOWED . THE SHOW CAUSE NOTICE ISSUED BY THE ASSESSING OFFICER AND THE SUBMISSIONS OF ASSESSEE ARE REPRODUCED IN THE ASSESSMENT ORDER. HOWEVER, THE ASSESSING OFFICER HELD THAT THE ASSESSEE WAS NOT ELIGIBLE FOR BROKEN PERI OD INTEREST IN RESPECT OF SECURITIES PURCHASED DURING THE PREVIOUS YEAR BY THE BANK FOR THE REASON THAT SUCH EXPENDITURE WAS LAID OUT AS CAPITAL OUTLAY. THEREFORE, ANY INTEREST ELEMENT INCLUDED IN THE PURCHASE CONSIDERATION WAS NOT ALLOWABLE AS EXPENDITUR E AGAINST INCOME ACCRUING IN THOSE SECURITIES. RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN VIJAYA BANK VS. CIT REPORTED IN 187 ITR 541 (SC) AND THE HONBLE HIGH COURT OF RAJASTHAN IN CIT VS. BANK OF RAJASTHAN LTD. (2009) 178 TAXMAN 304 (RAJ). 5. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER. 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE MOVED AN APPLICATION FOR ADJOURNMENT WHICH WAS REJECTED SINCE TH E ISSUE IS MAJORLY COVERED. 8. SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2010 - 11. THE TRIBUNAL RELIED ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD. REPORTED IN 366 ITR 5 05 (BOM), WHICH IN TURN HAD RELIED ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION VS. CIT REPORTED IN 258 ITR 601 (BOM), WHICH IN TURN, HAD DISTINGUISHED THE RATIO ITA NO. 4 91 /P U N/20 1 5 PRATHAMIK SHIKSHAK SAH. BANK LTD. 4 LAID DOWN BY THE HON'BLE SUPR EME COURT IN VIJAYA BANK VS. CIT (SUPRA) AND THE HONBLE HIGH COURT OF RAJASTHAN IN CIT VS. BANK OF RAJASTHAN LTD. (SUPRA) AND HAD HELD THAT BROKEN PERIOD INTEREST IS ALLOWABLE AS DEDUCTION. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE ASSESSE E IS ENTITLED TO THE CLAIM OF BROKEN PERIOD INTEREST OF RS.16,97,027/ - . THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 9. THE ISSUE IN GROUND OF APPEAL NO.2 IS AGAINST THE ADDITION OF RS. 26,05,728/ - BY DISALLOWING THE PAYMENT MADE ON ACCOUNT OF VOLUNTARY RETIREMENT OF THE EMPLOYEES. 10. BRIEF FACTS RELATING TO THE ISSUE ARE THAT , THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD CLAIMED SUM OF RS.26,05,728/ - AS EX - GRATIA PAYMENTS TO PREMATURELY RETIRED EMPLOYEES. THE ASSESSING O FFICER DISALLOWED THE CLAIM OF ASSESSEE IN THE ABSENCE OF ANY SCHEME FORMULATED BY THE ASSESSEE BANK. THE PLEA OF THE ASSESSEE THAT THE EX - GRATIA PAYMENT WAS MADE TO THE EMPLOYEES IN RECOGNITION OF THEIR LONG TERM AND MERITORIOUS SERVICES TO THE BANK, WAS NOT ACCEPTED IN THE ABSENCE OF FORMULATION OF ANY VOLUNTARY RETIREMENT SCHEME. THE ASSESSEE CLAIMED THE EX - GRATIA PAYMENT AS IN THE NATURE OF PROFITS AND IN LIEU OF SALARY, ON WHICH TDS HAD BEEN DEDUCTED ; BUT THE ASSESSING OFFICER HELD THE EXPENDITURE IN CURRED NEITHER QUALIFIED FOR DEDUCTION UNDER SECTION 35DDA OF THE ACT NOR AS REVENUE EXPENSES UNDER SECTION 37(1) OF THE ACT. 11. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER. ITA NO. 4 91 /P U N/20 1 5 PRATHAMIK SHIKSHAK SAH. BANK LTD. 5 12. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 13. THE LEARNE D AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID ISSUE IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE BY THE PUNE BENCH OF TRIBUNAL IN THE SATARA DISTRICT CENTRAL CO.OP BANK LTD. VS. DCIT (SUPRA) , WHEREIN IT WAS HELD AS UNDER: - 21. WE HA VE HEARD THE RIVAL CONTENTION AND PERUSED THE RECORD. THE ASSESSEE HAD DEBITED A SUM OF RS.32,46,100/ - UNDER THE HEAD STAFF VOLUNTARY PAYMENTS. THE ASSESSEE CLAIMED TO HAVE MADE CERTAIN EX - GRATIA PAYMENTS TO ITS RETIRING EMPLOYEES IN RECOGNITION OF THEIR S ERVICE TO THE ASSESSEE BANK. THE SAID PAYMENTS WERE NOT UNDER ANY SCHEME OF VOLUNTARY RETIREMENT FORMULATED ITS ASSESSEE BUT WERE PURELY EX - GRATIA PAYMENTS MADE IN RECOGNITION OF MERITORIOUS SERVICE GIVEN BY THE RETIRING EMPLOYEES. THE ASSESSEE CLAIMED THE SAID EXPENDITURE TO BE ALLOWABLE UNDER SECTION 37(1). THE ASSESSING OFFICER ON VERIFICATION OF THE DETAILS NOTED THAT THE AMOUNT WAS PAID TO 9 EMPLOYEES OF THE BANK WHO RETIRED FROM THE SERVICE DUE TO ILLNESS AND CONSEQUENTLY, THE SAME WAS DISALLOWED BY T HE ASSESSING OFFICER. THE CIT(A) ON THE OTHER HAND TREATED THE SAID EXPENDITURE TO BE CAPITAL IN NATURE AS THE SERVICES OF THE SAID EMPLOYEES RESULTED IN LONG TERM BENEFIT TO THE ASSESSEE AND HENCE WAS NOT ALLOWABLE AS REVENUE EXPENDITURE UNDER SECTION 37( 1). 22. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHERE THE ASSESSEE IN RECOGNITION OF THE SERVICES PROVIDED TO ITS RETIRING EMPLOYEES MAKE CERTAIN EX - GRATIA PAYMENTS IN RECOGNITION OF THEIR SERVICES, WHICH ARE NOT BASED ON ANY SCHEME OR INSTRUCTION FO RMULATED BY THE EMPLOYER ASSESSEE, THEN THE SAME PARTAKES THE NATURE OF PROFIT IN LIEU OF SALARY. THE RELATIONSHIP BETWEEN THE ASSESSEE AND RETIRING EMPLOYEES WAS ADMITTEDLY AS OF EMPLOYER AND EMPLOYEE AND THE REMUNERATION PAID TO SUCH EMPLOYEES IS PART OF THE SALARY DUE TO THE SAID EMPLOYEE. EVEN THE EX - GRATIA PAYMENT MADE BY THE ASSESSEE OVER AND ABOVE THE REMUNERATION DUE TO THE EMPLOYEES PARTAKES THE CHARACTER OF PROFITS IN LIEU OF SALARY TO SUCH EMPLOYEE AND IS DULY ALLOWABLE AS AN EXPENDITURE IN THE H ANDS OF THE ASSESSEE UNDER SECTION 37(1) OF THE ACT. WE FIND NO MERIT IN THE STAND OF THE CIT(A) THAT SUCH EXPENDITURE IS CAPITAL IN NATURE. REVERSING THE ORDER OF THE CIT(A), WE DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE OF RS.32,46,180/ - . THE GROUND NO.3, IS THUS ALLOWED. 14. THE ISSUE ARISING BEFORE US IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN THE SATARA DISTRICT CENTRAL CO.OP BANK LTD. VS. DCIT (SUPRA) AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE EX - GRATIA PAYMENT MADE TO THE RETIRING EMPLOYEES IN RECOGNITION OF THEIR SERVICES WAS PROFITS IN LIEU OF SALARY ITA NO. 4 91 /P U N/20 1 5 PRATHAMIK SHIKSHAK SAH. BANK LTD. 6 AND IS DULY ALLOWABLE AS EXPENDITURE UNDER SECTION 37(1) OF THE ACT. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 15. THE GROUND OF APPEAL NO. 3 RAISED BY THE ASSESSEE IS AGAINST THE ADDITION OF RS.3,40,185/ - . THE ASSESSEE HAD RECEIVED REFUND OF MUNICIPAL TAX RECEIPTS WHICH WAS PAID IN THE EARLIER YEARS AND THE SAID REFUND WAS TREATED AS CAPITAL RECEIPT BY THE ASSESSEE. HOWEVER, THE ASSESSING O FFICER TREATED THE SAME TO BE REVENUE IN NATURE AND MADE AN ADDITION IN THIS REGARD. 16. THE CIT(A) HAS UPHELD THE SAID ADDITION IN THE HANDS OF ASSESSEE. 17. ON PERUSAL OF RECORD, IT TRANSPIRES THAT THE ASSESSEE HAD CLAIMED THE DEDUCTION ON ACCOUNT OF M UNICIPAL TAXES ON ACTUAL PAYMENT BASIS, IN THE EARLIER YEARS, SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. ONCE THE REFUND OF SUCH MUNICIPAL TAXES HAS BEEN RECEIVED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION, THE SAME IS TO BE AD DED AS INCOME IN THE HANDS OF ASSESSEE. ACCORDINGLY, THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS DISMISSED. 18. THE LAST ISSUE RAISED BY THE ASSESSEE IS AGAINST THE ADDITION OF RS.5,000/ - ON ACCOUNT OF PRIOR PERIOD EXPENSES. THE SAID EXPENSES WE RE ON ACCOUNT OF ADVERTISEMENT EXPENDITURE RELATING TO ASSESSMENT YEAR 2010 - 11. THE ASSESSEE CLAIMED THAT THE EXPENDITURE WAS TREATED AS ACCRUED AS AND WHEN THE BILLS WERE SUBMITTED TO THE BANK AND WERE SANCTIONED FOR PAYMENT. HOWEVER, THE ASSESSING OFFI CER DID NOT ALLOW THE SAID EXPENDITURE AND THE CIT(A) UPHELD THE SAME. WE FIND MERIT IN THE PLEA OF THE ASSESSEE THAT WHERE ITA NO. 4 91 /P U N/20 1 5 PRATHAMIK SHIKSHAK SAH. BANK LTD. 7 THE BILL FOR PRIOR EXPENDITURE WAS RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND HENCE, THE SAME MERITS TO BE AL LOWED AS DEDUCTION. WE DIRECT SO. THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS THUS, ALLOWED. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 19 . IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED O N THIS 17 TH D AY OF MAY , 201 7 . SD/ - SD/ - (ANIL CHATURVEDI ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 17 TH MAY , 201 7 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPEL LANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - 4 , PUNE ; 4. / THE PR. CIT /CIT - 3, PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / ASSISTANT REGISTRAR, , / ITAT, PUNE