Assistant Commissioner of Income-tax, V. The Satara District Central Co.op. Bank Ltd., Satara

ITA 922/PUN/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2839 (ITAT-PUNE)
• Duration Of Justice: 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 12-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K BIJU
• Keywords: Capital asset; Business income; Depreciation; Question of law; Cost of acquisition; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , A M . / ITA NO. 9 22 /PN/201 5 / ASSESSMENT YEAR : 20 1 0 - 1 1 THE DY. COMMISSIONER OF INCOME TAX, SATARA CIRCLE, SATARA . / APPELLANT VS. THE SATARA DISTRICT CENTRAL CO - OP. BANK LTD., HEAD OFFICE, SHIVAJI CIRCLE, RAVIWAR PETH, SATARA 415001 . / RESPONDENT PAN: AAAA T3706H / APPELLANT BY : SHRI M.K. BIJU , JCIT / RESPONDENT BY : SHRI M.K. KULKARNI / DATE OF HEARING : 0 3 . 0 2 .201 6 / DATE OF PRONOUNCEMENT: 10 . 0 2 .201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CIT (A) - 4 , PUNE , DATED 18 . 0 3 .20 1 5 RELATING TO ASSESSMENT YEAR 20 1 0 - 1 1 AGAINST ORDER PASSED UNDER SECTION 143(3) OF T HE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE COMMISSIONER OF INCOME - TAX (APPEALS) ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING THE ADDITION OF RS.31,73,359/ - ON ACCOUNT OF AMORTISATION OF PREMIUM PAID ON PURCHASE OF GOVERNMENT SECURITIES HELD UNDER HTM CATEGORIES. ITA NO. 9 22 /PN/20 1 5 THE SATARA DIST. CENTRAL CO - OP. BANK LTD. 2 3. THE COMMISSIONER OF I NCOME - TAX (APPEALS) ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN NOT APPRECIATING THE FACT THAT THE HTM SECURITIES ARE CAPITAL ASSETS AND ANY PREMIUM PAID TOWARDS ITS ACQUISITIO N IS CAPITAL EXPENDITURE WHICH IS NOT ADMISSIBLE AS DEDUCTION . 4. THE COMMISSIONER OF INCOME - TAX (APPEALS) ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING THE ADDITION OF RS.29,57,503/ - ON ACCOUNT OF EX - GRATIA PAYMENT WHICH IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 35DDA OF THE IN COME TAX ACT. 5. FOR THIS AND SUCH OTHER REASONS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, AL TER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL DURING THE COURSE OF THE APPELLATE PROCEEDINGS BEFORE THE ITAT. 3. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS GENERAL IN NATURE, HENCE, THE SAME IS DISMISSED. 4. THE ISSUE IN GROUNDS OF APPEAL NO.2 AND 3 IS AGAINST THE DELETION OF ADDITION MADE ON ACCOUNT OF HTM SECURITIES. 5. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE IDENTICAL ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN CROSS APPEALS VI DE ITA NOS. 2537/PN/2012 AND 2522/PN/2012, RELATING TO ASSESSMENT YEAR 2009 - 10, ORDER DATED 30.12.2014. 6 . BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE BANK WAS A CO - OPERATIVE BANK. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 31 , 73 , 359 / - AS AMORTIZATION OF PREMIUM PAID ON ACQUISITION OF HELD TO MATURITY (HTM) SECURITIES AND THE SAME HAS BEEN DISALLOWED BY THE ASSESSING OFFICER. 7 . THE CIT(A) IN TURN, FOLLOWING THE ORDER OF PUNE BENCH OF TRIBUNAL IN ASSESSEES O WN CASE RELATING TO ASSESSMENT YEAR 2009 - 10 (SUPRA) , DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. ITA NO. 9 22 /PN/20 1 5 THE SATARA DIST. CENTRAL CO - OP. BANK LTD. 3 8 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RESPECT OF AMORTIZATION OF PREMIUM PAID ON GOVER NMENT SECURITIES. THE ASSESSEE WAS A CO - OPERATIVE BANK. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED A DEDUCTION OF RS.3 1 , 73 , 359 / - AS AMORTIZATION OF PREMIUM PAID ON ACQUISITION OF CERTAIN SECURITIES. THE ASSESSEE HAD PURCHASED SOME SECURIT IES AT AN ACQUISITION COST WHICH WAS HIGHER THAN THE FACE VALUE OF THE SECURITIES. THE SAID SECURITIES HAD BEEN CLASSIFIED BY THE ASSESSEE AS HELD TO MATURITY (HTM SECURITIES). THESE WERE THE SECURITIES, WHICH WERE ACQUIRED BY THE BANK WITH AN INTENTIO N TO HOLD THEM UPTO THE MATURITY OF THE SECURITIES. THE AMOUNT IN EXCESS OF THE FACE VALUE PAID BY THE ASSESSEE WAS AMORTIZED OVER THE LIFE OF THE SECURITIES AND PROPORTIONATE CLAIM WAS MADE DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER DISA LLOWED THE CLAIM OF THE ASSESSEE. IN APPEAL, THE CIT(A) HAD ALLOWED THE CLAIM OF ASSESSEE BY FOLLOWING THE ORDERS OF TRIBUNAL. 9 . WE FIND THAT THE SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN ACIT VS. ALIBAGH CO - OPERATIVE URBAN BANK LTD., IN ITA NO.2173/ PN/2012 RELATING TO ASSESSMENT YEAR 2009 - 10, ORDER DATED 23.09.2013 AND IN ITA NO.698/PN/2014, RELATING TO ASSESSMENT YEAR 2010 - 11, ORDER DATED 31.08.2015. THE TRIBUNAL HAD ALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE, IN TURN FOLLOWING THE RATIO LAID DO WN BY THE TRIBUNAL IN EARLIER YEARS. FURTHER, THE HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD. IN INCOME TAX APPEAL NO.330 OF 2012, JUDGMENT DATED 23.07.2014 HAS HELD AS UNDER: - 4. WE DO NOT AGREE. IN THE CASE AT HAND, AS RECORDED BY THE ITAT, UN DISPUTEDLY THE ASSESSEES OWN FUNDS AND OTHER NON - INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX FREE SECURITIES. THE ITAT THEREFORE HELD THAT THERE WAS NO BASIS FOR DEEMING THAT THE ASSESSEE HAD USED THE BORROWED FUNDS FOR INVESTMENT IN TAX FREE SECURITIES. ON THIS FACTUAL ASPECT, THE ITAT DID NOT FIND ANY MERIT IN THE CONTENTION RAISED BY THE REVENUE AND THEREFORE, ACCORDINGLY ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE. ON GOING THROUGH THE ORDER OF THE CIT(APPEALS) DATED 28 TH MAR CH 2005 AS WELL AS THE IMPUGNED ORDER, WE DO NOT FIND THAT THE CIT(APPEALS) OR THE ITAT ERRED IN ITA NO. 9 22 /PN/20 1 5 THE SATARA DIST. CENTRAL CO - OP. BANK LTD. 4 HOLDING IN FAVOUR OF THE ASSESSEE. IN THIS REGARD, THE SUBMISSION OF MR MISTRY, THE LEARNED SENIOR COUNSEL APPEARING ON BEHALF OF THE ASSESSEE, THAT THIS ISSU E IS SQUARELY COVERED BY A JUDGMENT OF THIS COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V/S RELIANCE UTILITIES AND POWER LTD., REPORTED IN (2009) 313 ITR 340 (BOM) IS WELL FOUNDED. THE FACTS OF THAT CASE WERE THAT THE ASSESSEE VIZ. M/S RELIANCE UTILIT IES AND POWER LTD. HAD INVESTED CERTAIN AMOUNTS IN RELIANCE GAS LTD. AND RELIANCE STRATEGIC INVESTMENTS LTD. IT WAS THE CASE OF THE ASSESSEE THAT THEY THEMSELVES WERE IN THE BUSINESS OF GENERATION OF POWER AND THEY HAD EARNED REGULAR BUSINESS INCOME THERE FROM. THE INVESTMENTS MADE BY THE ASSESSEE IN M/S RELIANCE GAS LTD. AND M/S RELIANCE STRATEGIC INVESTMENTS LTD. WERE DONE OUT OF THEIR OWN FUNDS AND WERE IN THE REGULAR COURSE OF BUSINESS AND THEREFORE NO PART OF THE INTEREST COULD BE DISALLOWED. IT WAS ALSO POINTED OUT THAT THE ASSESSEE HAD BORROWED RS.43.62 CRORES BY WAY OF ISSUE OF DEBENTURES AND THE SAID AMOUNT WAS UTILIZED AS CAPITAL EXPENDITURE AND INTER - CORPORATE DEPOSIT. IT WAS THE ASSESSEES SUBMISSION THAT NO PART OF THE INTEREST BEARING FUNDS (VIZ. ISSUE OF DEBENTURES) HAD GONE INTO MAKING INVESTMENTS IN THE SAID TWO COMPANIES. IT WAS POINTED OUT THAT THE INCOME FROM THE OPERATIONS OF THE ASSESSEE WAS RS.313.53 CRORES AND WITH THE AVAILABILITY OF OTHER INTEREST FREE FUNDS WITH THE ASSESSEE THE AMOUNT AVAILABLE FOR INVESTMENTS OUT OF ITS OWN FUNDS WERE TO THE TUNE OF RS.398.19 CRORES. IN VIEW THEREOF, IT WAS SUBMITTED THAT FROM THE ANALYSIS OF THE BALANCE - SHEET, THE ASSESSEE HAD ENOUGH INTEREST FREE FUNDS AT ITS DISPOSAL FOR MAKING THE INVESTME NTS. THE CIT (APPEALS) ON EXAMINING THE SAID MATERIAL, AGREED WITH THE CONTENTION OF THE ASSESSEE AND ACCORDINGLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER AND DIRECTED HIM TO ALLOW THE SAME UNDER THE PROVISIONS OF THE INCOME TAX ACT, 1961. THE R EVENUE BEING AGGRIEVED BY THE ORDER PREFERRED AN APPEAL BEFORE THE ITAT WHO UPHELD THE ORDER OF THE CIT (APPEALS) AND DISMISSED THE APPEAL OF THE REVENUE. FROM THE ORDER OF THE ITAT, THE REVENUE APPROACHED THIS COURT BY WAY OF AN APPEAL. AFTER EXAMIN ING TH E ENTIRE FACTUAL MATRIX OF THE MATTER AND THE LAW ON THE SUBJECT, THIS COURT HELD AS UNDER: - SUBJECT, THIS COURT HELD AS UNDER: - IF THERE BE INTEREST - FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUME D THAT THE INVESTMENTS WERE FROM THE INTEREST - FREE FUNDS AVAILABLE. IN OUR OPINION, THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT (1997) 224 ITR 627 HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF I NDIA LTD. (1982) 134 ITR 219 WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDR AFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBERS OF INDIA LTD.'S CASE (1982) 134 ITR 219 THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVER DRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTIO N, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE, THEREFORE, WOULD BE THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THA T INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. IN THIS CASE THIS PRESUMPTION IS ITA NO. 9 22 /PN/20 1 5 THE SATARA DIST. CENTRAL CO - OP. BANK LTD. 5 ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMIS SIONER OF INCOME - TAX (APPEALS) AND THE INCOME - TAX APPELLATE TRIBUNAL. (EMPHASIS SUPPLIED ) 5. WE FIND THAT THE FACTS OF THE PRESENT CASE ARE SQUARELY COVERED BY THE JUDGMENT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA). THE FINDING OF FACT GI VEN BY THE ITAT IN THE PRESENT CASE IS THAT THE ASSESSEE'S OWN FUNDS AND OTHER NON - INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX - FREE SECURITIES. THIS FACTUAL POSITION IS NOT ONE THAT IS DISPUTED. IN THE PRESENT CASE, UNDISPUTEDLY THE ASS ESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN THE TAX - FREE SECURITIES. IN VIEW OF THIS FACTUAL POSITION, AS PER THE JUDGMENT OF THIS COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA), IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST - FREE FUNDS AVAILABLE WITH THE ASSESSEE. WE THEREFORE, ARE UNABLE TO AGREE WITH THE SUBMISSION OF MR SURESH KUMAR THAT THE TRIBUNAL HAD ERRED IN DISMISSING T HE APPEAL OF THE REVENUE ON THIS GROUND. WE DO NOT FIND THAT QUESTION (A) GIVES RISE TO ANY SUBSTANTIAL QUESTION OF LAW AND IS THEREFORE REJECTED. 6. EVEN AS FAR AS QUESTION (B) IS CONCERNED, WE FIND NO INFIRMITY IN THE ORDERS PASSED BY THE CIT (APPEALS) OR THE ITAT. IN DECIDING THIS ISSUE, CIT (APPEALS) AND THE ITAT HAVE MERELY FOLLOWED THE JUDGMENT OF THIS COURT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION V/S COMMISSIONER OF INCOME TAX, REPORTED IN (2002) 258 ITR 601. ON GOING THROU GH THE SAID JUDGMENT, WE FIND THAT QUESTION (B) REPRODUCED ABOVE AND PROJECTED AS SUBSTANTIAL BY MR SURESH KUMAR IS SQUARELY ANSWERED BY THE JUDGMENT OF THIS COURT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION (SUPRA). IN VIEW THEREOF, WE DO NOT FIND THAT EVEN QUESTION (B) GIVES RISE TO ANY SUBSTANTIAL QUESTION OF LAW THAT NEEDS TO BE ANSWERED BY THIS COURT. 7. AS FAR AS QUESTION (C) IS CONCERNED, WE FIND THAT AN IDENTICAL QUESTION OF LAW 7. AS FAR AS QUESTION (C) IS CONCERNED, WE FIND THAT AN IDENTICAL QUESTION OF LAW WAS FRAMED AND ANSWERED IN FAVOUR OF THE ASSESSE E BY THIS COURT IN ITS JUDGEMENT DATED 4TH JULY, 2014 IN INCOME TAX APPEAL NO.1079 OF 2012, COMMISSIONER OF INCOME TAX - 2 V/S M/S LORD KRISHNA BANK LTD. (NOW MERGED WITH HDFC BANK LTD.). MR SURESH KUMAR FAIRLY STATED THAT QUESTION (C) REPRODUCED ABOVE IS CO VERED BY THE SAID ORDER. IN VIEW THEREOF, WE ARE OF THE VIEW THAT EVEN QUESTION (C) DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW THAT REQUI RES AN ANSWER FROM US. 10 . FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE C LAIM OF DEDUCTION ON ACCOUNT OF AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITIES HELD IN HTM CATEGORY. UPHOLDING THE ORDER OF CIT(A), WE DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 11 . THE LAST ISSUE VIDE GROUND OF APPEAL NO.4 IS AGAINST TH E DELETION OF ADDITION OF RS.29,57,503/ - ON ACCOUNT OF EX - GRATIA PAYMENT. ITA NO. 9 22 /PN/20 1 5 THE SATARA DIST. CENTRAL CO - OP. BANK LTD. 6 12. WE FIND THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD CLAIMED EXPENDITURE OF RS. 29,57,503/ - UNDER THE HEAD STAFF VOLUNTARY PAYMENT . BEFORE THE ASSESSING OFFICER, THE ASSESSEE EXPLAINED THAT THE SAID EXPENDITURE PERTAINED TO THE EX - GRATIA PAYMENT MADE TO EMPLOYEES OF THE BANK WHO HAD RESIGNED FROM THEIR SERVICE. THE SAID PAYMENT WAS MADE IN RECOGNITION OF THEIR MERITORIOUS SERVICE. IT WAS ALSO CLARIFIED BEFORE THE A SSESSING OFFICER THAT THE SAID PAYMENTS WERE NOT MADE IN TERMS OF ANY SCHEME FORMULATED UNDER SECTION 35DDA OF THE ACT, BUT WERE IN THE NATURE OF PROFIT IN LIEU OF SALARY ON WHICH DUE TDS WAS DEDUCTED. THE ASSESSING OFFICER NOTED THAT THE EMPLOYEES TO WHOM THE PAYMENTS WERE MADE, WERE NOT IN TERMS OF ANY SCHEME FORMULATED UNDER SECTION 35DDA, DISALLOWED THE SAID CLAIM OF THE ASSESSEE. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOLLOWING THE ORDER OF PUNE BENCH OF TRIBUNAL . 13. WE FIND A SIMILAR ISSUE AR OSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE 13. WE FIND A SIMILAR ISSUE AR OSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE AND VIDE PARAS 21 AND 22, IT WAS HELD AS UNDER: - 21. WE HAVE 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 AS SESSEE CLAIMED TO HAVE MADE CERTAIN EX - GRATIA PAYMENTS TO ITS RETIRING EMPLOYEES IN RECOGNITION OF THEIR SERVICE TO THE ASSESSEE BANK. THE SAID PAYMENTS WERE NOT UNDER ANY SCHEME OF VOLUNTARY RETIREMENT FORMULATED ITS ASSESSEE BUT WERE PURELY EX - GRATIA PAY MENTS 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 EMPLOY EES OF THE BANK WHO RETIRED FROM THE SERVICE DUE TO ILLNESS AND CONSEQUENTLY, THE SAME WAS DISALLOWED BY THE 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 CERTAI N EX - GRATIA PAYMENTS IN RECOGNITION OF THEIR SERVICES, WHICH ARE NOT BASED ON ANY SCHEME OR INSTRUCTION FORMULATED BY THE EMPLOYER ASSESSEE, THEN THE SAME PARTAKES THE NATURE OF PROFIT IN LIEU OF SALARY. THE RELATIONSHIP BETWEEN THE ASSESSEE AND RETIRING E MPLOYEES 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 TH E CHARACTER OF PROFITS IN LIEU OF SALARY TO SUCH EMPLOYEE AND IS DULY ALLOWABLE AS AN EXPENDITURE IN ITA NO. 9 22 /PN/20 1 5 THE SATARA DIST. CENTRAL CO - OP. BANK LTD. 7 THE HANDS 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. 1 4 . FOLLOWING THE SAME PARITY OF REASONING, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE GROUND OF APPEAL NO.4 RAISED BY THE REVENUE. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THUS, DISMISSED. 1 5 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED ON THIS 10 TH DAY OF FEBRU ARY , 201 6 . SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 10 TH FEBR UARY , 201 6 . GCVSR GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 4 , PUNE ; 4. / THE PR. CIT - 3 , PUNE ; 5. , , , / DR A , IT AT, PUNE; / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE