VALSAD DISTRICT CO.OP .BANK LTD.,,SURAT vs. DY.CIT,VALSAD CIRCLE,, VALSAD

Valsad District Co-operative Bank Ltd. v. ACIT- Valsad /I.T.A. No. 826&827/AHD/2016/A.Y.07-08 & 12-13 & I.T.A.No. 842/AHD/2015 A.Y. 2011-12 Page 1 of 14 IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O. P. MEENA, ACCOUNTANT MEMBER I.T.A. No. 826 & 827/AHD/2016: Assessment Year: 2007-08, and 2012-13 I.T.A.No. 842/AHD/2015: Assessment year 2011-12 Valsad District Central Co-Operative Vs. Assistant Commissioner of Income Bank Ltd. , Sahakar Sadan, Kacheri Tax- Road Valsad Valsad Circle, Valsad PAN: AAAAV 0539L Appellant Respondent

Assessee by Shri Mitish S. Modi, CA and Shri Akshay M Modi CA Revenue by Shri Prasoon Kabra, Sr. D.R. Date of hearing 13.05.2019 Date of pronouncement 14.05.2019

ORDER PER O. P. MEENA, AM 1. These are three appeals by the Assessee which are directed against the separate orders of learned Commissioner of Income tax (Appeals)-Valsad (in short “the CIT (A)”) dated 27.01.2016 , 02.01.2015 and 27.01.2016 pertaining to Assessment Year 2007-08, 2012-13 and 2011-12 respectively, which in turn has arisen from the assessment orders passed under section 143 (3)/147 and u/s. 143(3) of Income Tax Act, 1961 (in short ‘the Act’) by the Assistant/ DCIT Commissioner of Income Tax, Circle Valsad (in short “the AO”). I.T.A.No. 826/AHD/2016 A.Y. 2007-08. We are first taking up Ground No. 3 of the appeal. 2. Ground No. 3 relates to sustained disallowance of expenditure of Rs. 16,18,050 being the premises actually paid to LIC under Group Gratuity Scheme – Cum Life Insurance Scheme fully allowable under section 37 (1) of the Act and therefore,

Valsad District Co-operative Bank Ltd. v. ACIT- Valsad /I.T.A. No. 826&827/AHD/2016/A.Y.07-08 & 12-13 & I.T.A.No. 842/AHD/2015 A.Y. 2011-12 Page 2 of 14 disallowance of premium under section 36(1)(v) of the Act is without jurisdiction, illegal bad-in-law and not justified. 3. Succinctly, facts as culled out from the orders of lower authorities are that the assessee is Co-operative Bank engaged in the business of banking since its inception in the year 1965. The AO noticed that the assessee has debited a sum of Rs.16,18,050 on account of Group Gratuity-cum Life Insurance Scheme Premium. Therefore, the assessee was asked to furnish the copy of approval for gratuity fund by the Commissioner of income tax. The assessee vide letter dated 20. 01. 2014 submitted that the assessee bank has entered into an agreement with the LIC under the Group Gratuity-cum Life Insurance Scheme since 1976. The copy of the agreement/Master of proposal and Form No. 6200 of LIC dated 31. 03. 1976 was already produced during the course of original assessment proceedings. It would be seen from that the LIC has entered into the said agreement under the Group Gratuity-cum Life Insurance Scheme Only after the Approval of the Commissioner of Income Tax had been obtained. This is evident from column 4 of the said agreement which inter-alia contains “Yes under Part “C” for the 4th Schedule of Income Tax. The Group Gratuity premium paid by the assessee is in fact the recognized Group Gratuity-cum Life Insurance Scheme. It was further submitted that this is not the 1st year in which the premium under the deduction has been paid by the bank, but the bank has paid the premium under the scheme year to year since 1976, which is duly recorded in the audited books of accounts and the scheme has rightly been allowed by the Department in the past, even while framing the assessment under section 143 of (3)/148 of the Act. Therefore, for the above genuine and bona fide reason, the appellant bank has claimed the expenditure under section 37

Valsad District Co-operative Bank Ltd. v. ACIT- Valsad /I.T.A. No. 826&827/AHD/2016/A.Y.07-08 & 12-13 & I.T.A.No. 842/AHD/2015 A.Y. 2011-12 Page 3 of 14 (1) of the Act. However, the AO observed that the matter has been considered carefully and it is clearly mentioned in section 36(1)(v) that “any sum paid by the assessee as an employer by way of contribution towards an approval gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust. There is no dispute with regard to evidence of payment of Gratuity Fund the issue is only allowability.” The claim of the assessee that gratuity expenses are allowable under section 37 of the act is patently misleading one and of clearly envisage that the assessee has not complied with the provisions of section 36(1) (v). In view of these facts and circumstances, the AO disallowed the entire amount of Rs. 16, 18, 049, as the assessee has failed to comply with section 36(1)(v) of the Act. 4. Being aggrieved, the assessee filed an appeal before the ld. CIT (A). However, the CIT (A) was of the view that the claim of gratuity expenses against the Gratuity Fund, which was not approved by the prescribed authority, is not allowable as business expenditure under section 37(1) of the Act. The AO has made this addition on the reason that the appellant has not obtained the approval for gratuity fund in the year 1976, from the then CIT and was unable to produce the copy of said approval. The CIT (A) observed that on the other hand, the AR of the appellant submitted that it being old record, the copy of the same could not be produce. Under the Group Gratuity-cum Life Insurance Scheme, the appellant has entered into an agreement with LIC and the copy of the same was provided. Moreover, this scheme was recognized under Income Tax Act, 1961. The Department and has been allowing premium expenditure in the past. The expenditure claimed is not allowable under section 36(1) (v) then it should have been allowed under section 37(1) of the Act. After considering the rival submissions,

Valsad District Co-operative Bank Ltd. v. ACIT- Valsad /I.T.A. No. 826&827/AHD/2016/A.Y.07-08 & 12-13 & I.T.A.No. 842/AHD/2015 A.Y. 2011-12 Page 4 of 14 the Commissioner of Income-tax (Appeals) observed that he is inclined to upheld the action of the AO for the reason that the appellant has failed to produce any evidence in regard to this claim that it has been approved in the CIT, hence, the claim cannot be allowed under section 36 (1) (v) of the Act under which the appellant has been claiming it in the past. So far the contention of the appellant that this has been allowed in the past, is concerned, every year is independent assessment year the and if some claim has been allowed in the past, but disallowed in the present for want of evidence then it has no bearing on the present case. In the circumstances, the addition made by the AO was confirmed. 5. Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee submitted that the appellant bank had entered in to the Employees Group Gratuity-cum Life Insurance Scheme on behalf of Valsad District Co- operative Bank Employees Group Gratuity Fund created under irrecoverable trust for the exclusive benefit of the employees of the assessee bank under the policy issued by the LIC and much less, the annual contributions/premium has been paid towards the approved gratuity fund created and maintain consistently with LIC in the fulfilment of the conditions laid down under part C to IV Schedule of the Income Tax Act,1961, since 1976 and the Revenue officers has been consistently allowed the expenditure towards the annual premium paid year to year on the actuarial valuation of Gratuity Fund as trading liability made by the LIC under that the schemes under section 36(1)(v) of the Act. The learned counsel for the assessee referred Paper Book Page No. 19 to 36, which a Copy of Original Master policy issued by the LIC, bearing Master Policy No. GGI/16073 dated 14.12.1976 of Valsad Jilla Sahakari Bank Ltd. Group Gratuity-cum Life Insurance

Valsad District Co-operative Bank Ltd. v. ACIT- Valsad /I.T.A. No. 826&827/AHD/2016/A.Y.07-08 & 12-13 & I.T.A.No. 842/AHD/2015 A.Y. 2011-12 Page 5 of 14 Scheme. This Group Gratuity-cum Life Insurance Scheme is being approved under Part “C” to the IV schedule of the Act (PB-37-38). The learned counsel for the assessee contended that this issue is squarely covered by the order dated 05.02.2018 of Hon’ble Gujarat High Court in appellant`s own case for the assessment year 2010-11 in SCA NO. 20801 of 2017 whereby the notice issued u/s.147 of the Act by the AO to reopen the assessment completed under section 143 (3) of the Act recording ditto to ditto reasons for reopening of the case on the same very issue involved in the present appeal has been quashed. [Copy of order placed at Paper Book Page No. 11 to 18]. The learned counsel for the assessee further submitted both the lower authorities have not rightly disputed the very fact that the annual premium had been directly paid to the LIC by the appellant bank and which has been in turn, credited to the tune of the irrevocable trust created under the scheme by the LIC. The bank has absolutely no control over the fund created by the LIC for the exclusive benefit of the employees of the bank, that all the conclusions made by the bank in the said fund ultimately came back to the bank’s employees gratuity fund. The annual premium paid only on the actuarial valuation of liability of gratuity for the relevant year did returned by the LIC, following consistently the mercantile matter of the accounting, as duly and clearly recorded in the audited profit and loss account and balance sheet as on 31. 03. 2007 (PB 127 – 128). It was further submitted that the said expenditure rightfully allowed consistently year to year 4 are the earlier years and also in subsequent years and thus, following the ruling of consistency, it is fully allowable as claimed by the assessee in the light of decision in the case of Radhasaomi Satsang Saomi Bagh vs. CIT (1992) 193 ITR 321(SC) . The Hon`ble Gujarat High Court in the case of Taraben Ramanbhai Patel [1995]n 215 ITR 323

Valsad District Co-operative Bank Ltd. v. ACIT- Valsad /I.T.A. No. 826&827/AHD/2016/A.Y.07-08 & 12-13 & I.T.A.No. 842/AHD/2015 A.Y. 2011-12 Page 6 of 14 (Gujarat) observed that “it is no doubt that strict rule of doctrine of res judicata does not apply to proceeding under the Income Tax Act. At the same time, it is equally true that unless there is a change of circumstances, the authorities will not depart from previous decision at their sweet will in the absence of material circumstances or reasons for such departure. The learned counsel for the assessee further relied in the case of Excel Industries Ltd. [2013] 358 ITR 295 (SC) in support of this contention. The learned counsel for the assessee further supported his view by placing reliance in the case of CIT v. Textool Co. Ltd. [2013] 35 taxmann.com 639 (SC) and other as per his written submissions placed on records. 6. On the other hand, the ld. Sr. D.R. vehemently supported the order of lower authorities and submitted that res-judicata does not apply to the income tax proceeding. It was contended that the assessee has failed to produce the approval granted by the CIT for approval hence, contribution made towards approved Gratuity Fund is not allowed as deduction under section 36(1)(v) of the Act. 7. We have heard the rival submissions and perused the relevant material on record. We find that the AO has disallowed a sum of Rs. 16,18,050 towards gratuity expenses being claim of the assessee on the ground that the gratuity scheme was not approved as per the requirement of section 36(1)(v) of the Act and the assessee has failed to produce necessary certificate in support of the same. However, it is seen that the Gratuity scheme was being managed by the LIC for which an agreement was entered in to between the trustees of the fund and LIC on 31.03.1976 as per Master Policy No. GGI/16073 (PB-22). The assessee has not made provision but made payment before filing of return of income. This claim of the assessee has been allowed in earlier years

Valsad District Co-operative Bank Ltd. v. ACIT- Valsad /I.T.A. No. 826&827/AHD/2016/A.Y.07-08 & 12-13 & I.T.A.No. 842/AHD/2015 A.Y. 2011-12 Page 7 of 14 since inception of fund. The assessee has contended that since the payments has been made to LIC of India is allowable deduction as it was made as per Master Policy Scheme. The assessee has relied on the decision of Co-ordinate Bench of Vishakhapatnam in the case of The District Co-Operative Central Bank v. ITO Wd-2, Eluru I.T.A.No. 49 &50/ Vizag/2012 dated 25.01.2018 wherein after discussing various case laws including Co- ordinate Bench of Ahmedabad in the case of Baroda Gujarat Gramin Bank in I.T.A.No. 1479/Ahd/2010 dated 6.8.2010 deduction claim was allowed on the ground that payment made to LIC is not a provision, but actual expenditure claimed under gratuity scheme. Since the assessee has claimed the expenditure on actual basis, the same is therefore, liable to be allowed8. We further observe that Hon’ble Gujarat High Court in the case of the assessee in its order dated 05.02.2018 in SCA No. 20801 of 2017 [copy filed PB-12-to 19] in para 5 observed as “In such objection, it was inter-alia pointed out that the gratuity scheme was being managed by LIC for which, an agreement was executed between the trustees of the fund and LIC on 31.03.1976. These documents were produced during the course of original assessment proceedings. The LIC accepted the responsibility to manage the fund only after verifying the Commissioner of Income- Tax duly approved that scheme. After examining of such aspects, the petitioners claim for deduction was accepted. It was also pointed out that this is not the first year in which, such claim was made and accepted. The bank has been paying premium under the said scheme year after year since the year 1976.” Thus, this observation of the Hon`ble High Court means that the plea of the assessee that gratuity fund was approved by the Commissioner of Income tax. However, since the scheme was framed back in 1976 itself, the assessee has does not have the order so passed by the Commissioner of

Valsad District Co-operative Bank Ltd. v. ACIT- Valsad /I.T.A. No. 826&827/AHD/2016/A.Y.07-08 & 12-13 & I.T.A.No. 842/AHD/2015 A.Y. 2011-12 Page 8 of 14 Income-Tax. Accordingly, the Hon`ble High Court has quashed the reopening of assessment as there was no failure on the part of the assessee. We find that the Department has been allowing such claim year after year and in some years, the assessment has been made under scrutiny. It is just because the assessee is not able to prove the copy of the approval, the claim has been denied to the assessee. We are of the view that this claim of the assessee is allowable on the plea of consistency. The Hon`ble Supreme Court in the case of Radhasaomi Satsang Saomi Bagh vs. CIT (1992) 193 ITR 321(SC) held that the assessments are quasi-judicial and each assessment year being a unit, what is decided in one year may not apply in the following year , but where a fundamental aspect permeating through the different A.Y. s has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. The Hon`ble Supreme Court in the case of CIT v. Textool Co. Ltd. [2013] 35 taxmann.com 639 (SC) observed as “7.Learned counsel appearing on behalf of the Revenue has submitted before us that the provisions of Section 36(1) (v) of the Act have to be construed strictly and for claiming deduction, conditions laid down in Section 36(1) (v) of the Act must be fulfilled. It is urged that since during the relevant previous year the contribution by the assessee towards the gratuity fund was not in an approved gratuity fund the High Court was not justified in affirming the view taken by the Commissioner as also by the Tribunal while answering the reference in favour of the assessee. However, on a query by us as to whether the contribution made by the assessee in the approved gratuity fund credited by the LIC for the employees of the assessee and ultimately the entire amount deposited with the LIC came back to the fund

Valsad District Co-operative Bank Ltd. v. ACIT- Valsad /I.T.A. No. 826&827/AHD/2016/A.Y.07-08 & 12-13 & I.T.A.No. 842/AHD/2015 A.Y. 2011-12 Page 9 of 14 created by the assessee for the benefit of its employees and approved by the Commissioner w.e.f. 25th February, 1983, or not, learned counsel is not in a position to make a categorical statement in that behalf. 8. Having considered the matter in the light of the background facts, we are of the opinion that there is no merit in the appeal. True that a fiscal statute is to be construed strictly and nothing should be added or subtracted to the language employed in the Section, yet a strict construction of a provision does not rule out the application of the principles of reasonable construction to give effect to the purpose and intention of any particular provision of the Act. (See: Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585/23 Taxman 37 (SC). From a bare reading of Section 36(1)(v) of the Act, it is manifest that the real intention behind the provision is that the employer should not have any control over the funds of the irrevocable trust created exclusively for the benefit of the employees. In the instant case, it is evident from the findings recorded by the Commissioner and affirmed by the Tribunal that the assessee had absolutely no control over the fund created by the LIC for the benefit of the employees of the assessee and further all the contribution made by the assessee in the said fund ultimately came back to the Textool Employees Gratuity Fund, approved by the Commissioner with effect from the following previous year. Thus, the conditions stipulated in Section 36(1)(v) of the Act were satisfied. Having regard to the facts found by the Commissioner and affirmed by the Tribunal, no fault can be found with the opinion expressed by the High Court, warranting our interference.

Valsad District Co-operative Bank Ltd. v. ACIT- Valsad /I.T.A. No. 826&827/AHD/2016/A.Y.07-08 & 12-13 & I.T.A.No. 842/AHD/2015 A.Y. 2011-12 Page 10 of 14 benefit of the employees and that the assessee had absolutely no control over the fund created by the LIC for the benefit of the employees of the assessee and further all the contribution made by the assessee in the said fund ultimately came back to the Bank Employees Gratuity Fund. The assessee has also obtained the policy in favour of the bank. Therefore, the facts of the case of the assessee are squarely covered by the above decisions cited (supra). Therefore, respectfully following the ratio laid down by various High Court as well as Hon`ble Supreme Court and Co-ordinate Bench as discussed above, we hold that the assessee is entitled for deduction for payment of gratuity scheme to LIC accordingly, we allow this ground No. 3 of appeal of the assessee. 9. Ground no. 1 &2 relates to confirming the action of DCIT Valsad Circle Valsad in assuming jurisdiction u/s.147 of the Act and issuance of notice under section 148 of the Act of the Act. 10. Since, we have decided the Ground No. 3 for this assessment year in above paras of this order in favour of the assessee, these grounds of appeal becomes academic in nature, hence, not required our specific adjudication. 11. In the result, the appeal of the assessee stands allowed.

I.T.A.No. 842/Ahd/2015 A.Y. 2011-12 12. Ground No. 1 is general in nature and is covered by subsequent two grounds of appeal; hence, no specific adjudication is required. 13. Ground No. 2 relates to sustaining disallowance of expenditure of Rs. 80,00,000/- being the premises actually paid to LIC under Group Gratuity Scheme – Cum Life Insurance Scheme fully allowable under section 37 (1) of the Act and therefore,

Valsad District Co-operative Bank Ltd. v. ACIT- Valsad /I.T.A. No. 826&827/AHD/2016/A.Y.07-08 & 12-13 & I.T.A.No. 842/AHD/2015 A.Y. 2011-12 Page 11 of 14 disallowance of premium under section 36(1)(v) of the Act is without jurisdiction , illegal bad-in-law and not justified. 14. We have heard the rival submissions and perused the relevant material on record. We find that the facts of these grounds of appeal are identical as that for the assessment year 2007-08 except figures. Therefore, following our reasoning and findings as given in respect of Ground No. 3 for the assessment year 2007-08 in the above part of this order. These grounds of appeal of the assessee stands allowed. 15. Ground No. 3 Relates to making addition of Rs.32,27,046 on account of alleged not showing income from interest of Rs.20,14,545 from Bank of Baroda Valsad and Rs. 12,12,500 from Union Bank of India Chikhli Branch Navsari without accepting crucial evidence placed before them as ledger accounts. 16. Asper information available in E-TDS of ITD system, the AO noticed that the assessee has not claimed the credit of TDS of Rs. 4,02,909 deducted by Bank of Baroda and Rs. 1,21,250 deducted by Union Bank of India. It was explained that the assessee has passed Journal entry for the interest receivable and interest income A/c, net of Rs. 10,91,250 for Union Bank of India and Rs. 16,11,634 from Bank of Baroda net of TDS as they were not aware of exact amount of TDS deducted by the above bank on deposits made with them. Therefore, the assessee has no objection, if the amount of Rs. 1, 21,250 and Rs. 4, 02,909 is added to total income and credit of TDS deducted thereon allowed against payment of taxes. However, the AO viewed that the assessee has excluded exact amount of TDS deducted by the Banks. Therefore, it is established that the bank was aware of the said TDS, otherwise, it would not have been able to exclude the same. The AO further asked the assessee vide order sheet noting dated 13.02.2014

Valsad District Co-operative Bank Ltd. v. ACIT- Valsad /I.T.A. No. 826&827/AHD/2016/A.Y.07-08 & 12-13 & I.T.A.No. 842/AHD/2015 A.Y. 2011-12 Page 12 of 14 to produce reconciliation of all income with its corresponding TDS. However, the assessee has only submitted details of interest receivables in which amount of Rs.12, 12,500 from Union Bank of India and Rs. 20, 14,546 was not reflected. Accordingly, the AO made addition of above sums and allowed credit of TDS deducted at Rs. 5,24,159. 17. Being aggrieved, the assessee filed an appeal before the ld. CIT (A). Wherein it was contended that the assessee has recorded interest income net of TDS in books of accounts received from both banks. Therefore, only portion of TDS of Rs. 5,24,159 should be added to total income and not entire interest amount. However, Ld. CIT (A) observed that the AO has given ample opportunities to the appellant to reconcile the amount of interest earned vis-à-vis the TDS deducted and the amount offered for taxation. The AO has clearly brought out that the appellant has neither taken credit of TDS of Rs.5,24,159 nor the amount of interest of Rs.32,27,046 for taxation. Even before him in appellate proceedings only explanation has been given without any evidence of reconciliation. In view of this, the addition made by the AO was confirmed. 18. Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee referred a letter dated 17.02.2014 (PB-229) filed before the AO and submitted that the assessee has accounted net interest in the books of accounts and TDS was left out hence, addition be made only of TDS amount and not entire amount of interest received from both banks. 19. Per contra, the ld. Sr. D.R. submitted that Ld. CIT (A) has analyzed the reply of the assessee and found that the assessee has failed to furnish reconciliation of interest received from these books on the fixed deposits made with them.

Valsad District Co-operative Bank Ltd. v. ACIT- Valsad /I.T.A. No. 826&827/AHD/2016/A.Y.07-08 & 12-13 & I.T.A.No. 842/AHD/2015 A.Y. 2011-12 Page 13 of 14 20. We have heard the rival submissions and perused the relevant material on record. We observe that the AO has asked the assessee vide order sheet noting dated 13.02.2014 to produce reconciliation of all income with its corresponding TDS. However, the assessee has only submitted details of interest receivables in which amount of Rs.12,12,500 from Union Bank of India and Rs. 20,14,546 was not reflected. Accordingly, the AO made addition of above sums and allowed credit of TDS deducted at Rs. 5,24,159. We further note that before Ld. CIT (A), the appellant has failed to furnish any reconciliation of interest received and shown in the books of accounts. In view of this matter, we are not inclined to interfere with order of lower authorities. Accordingly, same is upheld. This ground of appeal is therefore, dismissed. 21. In the result, the appeal of the assessee is partly allowed for this assessment year. I.T.A.No. 827/Ahd/2016 A.Y. 2012-13 22. Ground No. 1 to 3 relates to sustaining the disallowance of expenditure of Rs. 78,00,000/- being the premises actually paid to LIC under Group Gratuity Scheme – Cum Life Insurance Scheme fully allowable under section 37 (1) of the Act and therefore, disallowance of premium under section 36(1)(v) of the Act is without jurisdiction , illegal bad-in-law and not justified. 23. We have heard the rival submissions and perused the relevant material on record. We find that the facts of these grounds of appeal are identical as that for the assessment year 2007-08 except figures. Therefore, following our reasoning and findings as given in respect of Ground No. 3 for the assessment year 2007-08. These grounds of appeal of the assessee stands allowed.

Valsad District Co-operative Bank Ltd. v. ACIT- Valsad /I.T.A. No. 826&827/AHD/2016/A.Y.07-08 & 12-13 & I.T.A.No. 842/AHD/2015 A.Y. 2011-12 Page 14 of 14 24. In the result, the appeal of the assessee stands allowed. 25. In view of above, appeal of the assessee for the A.Y. 2007-08 in I.T.A.No. 826/Ahd/2016 and appeal in A.Y. 2012-13 in I.T.A.No. 827/Ahd/2016 stands allowed and appeal for the assessment year 2011-12 in I.T.A.No. 842/Ahd/2015 is partly allowed 26. The order pronounced in the open Court on 14.05.2019

Sd/- Sd/- (BHAVNESH SAINI) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat: Dated: 14th May, 2019/opm Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat