IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD Before Shri Rajpal Yadav, JM, & Shri Manish Borad, AM. ITA No. 355/Ahd/2014 Asst. Year: 2010-11 ACIT, Circle-2, Surat. Vs. M/s Surat National Co-op. Bank Ltd., 3/4016, Navnidhi Navapura, Karwa Road, Surat. Appellant Respondent PAN AAAAS 5702J Appellant by Shri James Kurien, Sr. DR Respondent by None Date of hearing: 30/9/2016 Date of pronouncement: 05/10/2016 ORDER PER Manish Borad, Accountant Member. This appeal of Revenue for Asst. Year 2010-11is directed against order of ld.CIT(A)-II, Surat dated 13.11.2013 in ppeal No.CAS-II/175/2012-13 passed against order u/s 143(3) of IT Act, 1961 (in short Act) framed on 17.12.2012 by DCIT, Circle-2, Surat. Following grounds have been raised by Revenue :- (1) On facts and circumstances of case, whether Ld.CIT(A)-II, Surat was justified in deleting addition of Rs. 21,58,676/- made on account of disallowances of Premium Amortization Expenses incurred on purchase of Govt. Securities, without appreciating fact that there is no such provisions in Income-tax Act, 1961. ITA No. 355/Ahd/2014 2 Asst. Year 2010-11 (2) On facts and circumstances of case, whether Ld.CIT(A)-II, Surat was justified in deleting addition of Rs. 42,76,929/- made on account of disallowances of provisions for Staff Ex-gratia without appreciating fact that contingent liability cannot constitute deductible expenditure for purpose of Income-tax Act and thus putting aside amount which may become expenditure in future is not allowable expenditure in Income-tax Act, 1961. (3) On facts and circumstances of case, whether Ld.CIT(A)-II, Surat was justified in deleting addition of Rs.6,89,508/- made on account of disallowance of claim of payment made to members from Members Welfare Fund. CIT(A) has failed to appreciate that members were actually owners of bank. (4) On facts and in circumstances of case, Ld. CIT(A) ought to have upheld order of Assessing Officer. (5) It is therefore, prayed that order of CIT(A) may be set-side and that of Assessing Officer may be restored to above extent. 2. Briefly stated facts of case are that assessee is Co- op. Bank. Return of income for Asst. Year 2010-11 was filed on 17.09.2010 declaring total income at Rs.4,45,61,640/-. Case was selected for scrutiny assessment and notice u/s 143(2) of Act was issued followed by notice 142(1) of Act along with questionnaire. Necessary details/information/evidences were furnished by assessee. Assessment was completed at income of Rs.5,41,31,288/- after making addition of Rs.95,69,548/- towards following :- 1 Disallowance of claim of premium amortization expenses Rs. 21,58,676 2 Disallowance of Staff ex-gratia expenses Rs. 42, 76,929 3 Disallowance of Special Long term Finance Fund Rs. 24,00,000 4 Disallowance of payment to member from Member Rs. 6,89,508 Welfare fund 5 Disallowance of income Tax Expenses Rs. 44,535 3. Assessee went in appeal before ld. CIT(A) against all additions except disallowance of income-tax expenditure at ITA No. 355/Ahd/2014 3 Asst. Year 2010-11 Rs.44,435/-. Appeal of assessee was allowed by ld. CIT(A) deleting all addition. 4. Aggrieved, Revenue is now in appeal before Tribunal raising various grounds against deletion of Rs.21,58,676/- towards premium amortization expenses, deletion of Rs.42,76,929/- against disallowance of staff ex-gratia expenses, deletion of Rs.6,89,508/- towards disallowance of claim of payment made to its Members from Welfare fund. 5. None appeared on behalf of assessee. However, written submissions dated 14.9.2016 was placed on record. 6. Ld. DR relied on order of Assessing Officer. 7. We, therefore, proceed ahead on basis of written submissions and after hearing ld. DR. We have heard ld. DR and gone through written submissions. We find that all three issues raised by Revenue relate to (i) premium amortization expenses at Rs.21,58,676/-, (ii) disallowance of staff ex-gratia expenses at Rs. 42,76,929/- & (iii) deletion of disallowance towards claim of payment made to its Members from Welfare fund at Rs. 6,89,508/-. 8. First we take up ground no.1 in relation to deletion of Rs. 21,58,676/- towards premium amortization expenses. We find that Co-ordinate Bench in assessee s own case in ITA No.2793/Ahd/2012 ITA No. 355/Ahd/2014 4 Asst. Year 2010-11 for Asst. Year 2009-10 has dealt with this issue and decided in favour of assessee by observing as below :- 6. After taking into consideration submission of assessee, ld. CIT(A) deleted addition by observing as under:- "2.3 I have considered facts of case and legal position on issue. allowability of amortized expenses on premium on Government Securities has been provided u/s. 36(1)(ii) of provisions have been clarified and explained by CBDT, New Delhi vide Instruction No. 17 of 2008 dated 26.11.2008. As per this clarification, investments of banks classified under HTM (Held to Maturity) category need not be marked to market and are carried at acquisition cost unless these are more than face value, in which case, premium should be amortized over period remaining to maturity. On basis of this Instruction, different Tribunals, as mentioned above by assessee, have allowed amortized expenditure. AO has ignored provisions of Instruction which is binding on him while discussing issue and disallowing expenditure. Since, Instructions and Circulars are binding in nature on AOs and different Tribunals have given decisions against revenue, respectfully following same, ground of appeal of assessee is allowed and addition made by AO is deleted." Since Ld. CIT(A) has given relief to assessee by placing reliance on various decisions of Tribunals on issue in view of CBDT Instruction dated 26-11- 2008, we feel no need to interfere with order passed by him and same is hereby upheld. This ground of revenue is dismissed 9. Similar issue came up before Tribunal in case of DCIT vs. Prime Co-op. Bank Ltd. in ITA No.2791/Ahd/2012 for Asst. Year 2009-10 wherein Co-ordinate Bench vide its order dated 23.8.2013 has decided same in favour of assessee by observing as under :- 6. After taking into consideration submission of assessee, Ld. CIT(A) deleted this addition by observing as under:- "2.3 I have considered facts of case and legal position on issue. allowability of amortized expenses on premium on Government securities has been provided u/s.36(1)(vii) of Act and I.T.A No.2791/Ahd/2012 A.Y. 2009- 10 Page No 5 DCIT vs. Prime Co-operative Bank Ltd. these provisions have been clarified and explained by CBDT, New Delht vide Instruction No.17 2008 dated 26.11.2008. As per this clarification, investments of ITA No. 355/Ahd/2014 5 Asst. Year 2010-11 banks classified under HTM (Held to Maturity) category need not be marked to market and are carried at acquisition cost unless these are more than face value, in which case, premium should be amortized over period remaining to maturity. On basis of this Instruction, different Tribunals, mentioned above by assesses, have allowed amortized expenditure. AO has ignored provisions of Instruction which is binding on him while discussing issue and disallowing expenditure. Since, instructions and Circulars are binding in nature on AO's and different Tribunals have given decisions against revenue, respectfully following same, ground of appeal of assessee is allowed and addition made by AO is deleted." Since Ld. CIT(A) has given relief to assessee by placing reliance on various decisions of Tribunals on issue in view of CBDT Instruction dated 26-11- 2008, we feel no need to interfere with order passed by him and same is hereby upheld. This ground of revenue is dismissed. 10. Respectfully following decisions of Tribunal referred to above, we find that issue has been decided in favour of assessee in view of CBDT Instruction dated 26.11.2008. We, therefore, find no reason to interfere with order of ld. CIT(A) and uphold same. ground raised by Revenue is dismissed. 11. As regards ground no.2 regarding disallowance of Rs. Rs. 42,76,929/- on account of ex-gratia payment to staff, we find that similar issue came before Tribunal in assessee s own case in ITA No.2793/Ahd/2012 for Asst. Year 2009-10 and Co-ordinate Bench has decided same vide its order dated 23.08.2013 by observing as under :- 14. After taking into consideration submission of assessee, ld. CIT(A) deleted addition by observing as under:- "4.3 I have considered facts on issue and found that AO has disallowed expenses on account of ex-gratia paid to staff members only on ground that these expenses are provisional expenses being unascertained liability and any contingent liability cannot constitute deductible expenditure for purpose of IT Act. In my opinion, conclusion drawn by AO is misplaced. amount of ex-gratia has been determined on basis of Memorandum of Understanding ITA No. 355/Ahd/2014 6 Asst. Year 2010-11 entered into by bank with union of employees. copy of Memorandum, signed by all staff members, is submitted by appellant which contains method of working ex-gratia payments. Moreover, these expenses are not claimed by appellant first time. In earlier years also i.e. in A.Y. 2007-08 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 being regularly incurred and claimed by appellant and worked out on basis of Memorandum of Understanding, it is ascertained liability which is allowable as per provisions of Act. In view of this, I hold that ex- gratia expenses of Rs. 38,00,386/-are allowable expenses therefore there is no justification in addition made by AO. This ground of appeal is allowed." Since Ld. CIT(A) has given relief to assessee in view of fact that expenses being regularly incurred and claimed by assessee and worked out on basis of Memorandum of Understanding it is ascertainable liability which is allowable as per provision of Act, we are not inclined to interfere with order passed by Ld. CIT(A) and same is hereby upheld. This ground of revenue is also dismissed. I.T.A No.2793/Ahd/2012 A.Y. 2009-10 Page No 10 DCIT vs. Surat National Co-operative Bank Ltd. 12. Respectfully following decisions of Tribunal referred to above, we find that issue has been decided in favour of assessee. We, therefore, find no reason to interfere with order of ld. CIT(A) and uphold same. ground raised by Revenue is dismissed. 13. As regards ground no.3 in relation to deletion of disallowance of payment of Rs.6,89,508/- to Members from its Welfare fund, we find that similar issue came up before Tribunal in assessee s own case in ITA No.3242/Ahd/2010 for Asst. Year 2007-08 and Co- ordinate Bench vide its order dated 23.08.2013 has decided same in favour of assessee by observing as under :- 7. Ground No.2 of appeal is against not allowing deduction of Rs,3,33,0887-in respect of amount spent for welfare of members. AO found that assessee had debited in profit & loss account Rs.3,33,0887- under head "members welfare fund" before offering profit for taxation. assessee was given reasonable opportunity of being heard which was replied by assessee ITA No. 355/Ahd/2014 7 Asst. Year 2010-11 vide letter dated 05-11-2009. assessee's reply was considered by AO but it was held by AO that members are owner of bank and expenditure incurred on owner cannot be allowed as incurred wholly and exclusively for purpose of business as provided u/s 37 of Act. Thus, he made addition of Rs.3,33,0887-. Being aggrieved by this order of AO, assessee carried matter before CIT(A) who has confirmed addition by observing as under;- "7. Decision: 7,1 I have considered submission of appellant. In so far as decisions relied upon by appellant are concerned, same are not applicable to facts of case. above two decisions are in respect ofCo-Op. Societies and not in C-Op. Banks, which are governed by RBI guidelines. appellant has also not controverted finding of Assessing Officer that above deduction claimed is not from income of this year, but created out of profit of earlier years. appellant has also not explained as to whether above claim is as per RBI guidelines and CBDT Instruction No. 17 of 2008 did. 26.11.2008. I view of above, I do not find any justification for allowing above deduction. This ground of appeal is, therefore, dismissed. 8. Now, assessee is in appeal before us. learned Counsel for assessee again drawn out attention to paper book as well as submissions made before authorities below and argued that to create interest in members by bank and keep relation alive between assessee and members, assessee had to incur certain expenditure. He further relied on decision in case of CIT, Guj. - III Vs Dascroi Taluka Co-operative Purchase & Sales Union Ltd. reported in 126 ITR 413 wherein assessee's expenditure incurred on account of silver jubilee and purchase of presentation of articles to members were held to be incurred wholly and exclusively for purpose of assessee's business u/s 37of Act. In support of his contention, he has also relied on decision rendered by Hon'ble Guj'arat High Court in case of Karjan Co-operative Cotton Sales Jinning & Pressing Society reported in 199 ITR 17 and prayed that assessee's claim may be allowed. 9. At outset, learned DR vehemently relied on order of learned CIT(A). 10. We have heard rival submissions and perused materials on record. We find that nature of expenditure is with respect of welfare of members of bank. assessee had to maintain good relation with members and thus, assessee had incurred expenditure towards welfare of members. As held by Hon'ble Gujarat High Court in above cases, supra, such type of expenditure is incurred for purpose of business u/s 37 of Act. Thus we reverse order of CIT(A) and delete addition made by AO. This ground of appeal of assessee stands allowed. ITA No. 355/Ahd/2014 8 Asst. Year 2010-11 14. Respectfully following decisions of Tribunal referred to above, we find that issue has been decided in favour of assessee We, therefore, find no reason to interfere with order of ld. CIT(A) and uphold same. ground raised by Revenue is dismissed. 15. Other grounds are of general nature, which need no adjudication In result, appeal of Revenue is dismissed. Order pronounced in open Court on 05th October, 2016 Sd/- sd/- (Rajpal Yadav) (Manish Borad) Judicial Member Accountant Member Dated 5 /10/2016 Mahata/- Copy of order forwarded to: 1. Appellant 2. Respondent 3. CIT concerned 4. CIT(A) concerned 5. DR, ITAT, Ahmedabad 6. Guard File BY ORDER Asst. Registrar, ITAT, Ahmedabad ITA No. 355/Ahd/2014 9 Asst. Year 2010-11 1. Date of dictation: 30/09/2016 2. Date on which typed draft is placed before Dictating Member: 5/10/2016 other Member: 3. Date on which approved draft comes to Sr. P. S./P.S.: 4. Date on which fair order is placed before Dictating Member for pronouncement: __________ 5. Date on which fair order comes back to Sr. P.S./P.S.: 6. Date on which file goes to Bench Clerk:6/10/16 7. Date on which file goes to Head Clerk: 8. date on which file goes to Assistant Registrar for signature on order: 9. Date of Despatch of Order: ACIT, Circle-2, Surat v. M/s Surat National Co-op. Bank Ltd