THE KALUPUR COMMERCIAL CO.OP. BANK LTD.,,AHMEDABAD vs. THE ASSTT. COMMISSIONER OF INCOME TAX,CIRCLE-1(3),, AHMEDABAD

The assessee has raised following grounds of appeal:- “(1) The learned Commissioner of Income Tax (Appeals ) -10, Ahmedabad has erred both in law and on facts of the case in framing appellate order u/s.250 of the I.T. Act. for A.Y.2012.13 on 20-06-2016 (2) The learned CIT(A)-10 Ahmedabad has erred in confirming the following disallowance Particulars Amount Business Promotion Members' Gift Rs. 20,870

The brief fact of the case is that assessee has filed return of income declaring income of Rs. 69,51,17,191/- on 20th Sep, 2012. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 142(1) of the act on 24th Dec, 2014. During the course of appellate proceedings, the assessing officer has observed that assessee has claimed the following expenses which are not pertained to the business of the assessee. I Gift paid to members Rs. 20,870/- II Payment towards scholarship to children of members Rs. 5,59,258/- III Members incentive Rs.18,70,000/- Total Rs. 24,50,128/-

Aggrieved assessee filed appeal before the ld. CIT A). The ld. CIT (A) has sustained the disallowance made by the assessing officer stating that his predecessor has also sustained such expenses in the case of the assessee in the earlier years.

During the course of appellate proceedings before us the Ld. Counsel has contended that Co-ordinate Bench of the ITAT vide ITA No. 2614/Ahd/2011 dated 17/08/2016 in the case of the assessee for the assessment year 2008-09 has decided the identical issue in favour of the assessee. On the other hand, the Ld. DR has supported the order of the lower authorities.

We have heard the both sides and perused the material on record carefully. The assessing officer has disallowed the claim of the assessee in respect of expenditure debited to the P & L a/c pertaining to business promotion, members’ gift, scholarship to children of members and payment to legal heirs of members. The assessing officer has disallowed the aforesaid expenses by following the decision of his predecessor on the ground that these expenses are nothing but distribution of profit of the shareholders. We have noticed that the Co-ordinate Bench of the ITAT vide ITA No. 2614/Ahd/2011 dated 17/08/2016 in the case of the assessee for the assessment year 2008-09 has decided the identical issue in favour of the assessee. Relevant part of the above cited decision of the Co-ordinate Bench is reproduced as under:- “5.4 We have heard both sides, perused the material available on record and gone through the orders of the authorities below. The main source of income of the assessee is that of receipt of interest realized on the advances made by the bank and out of the total advances outstanding at the end of the year at Rs.735.65 crores, advances to the members works out to be Rs.722.36 crores which comprises more than 98% of total advances. The principal source of recurring income of the assessee is from the members and therefore the expenditure for keeping members' support and attraction towards the bank is wholly and exclusively necessary for the purpose of business. The Hon'ble High Court of Gujarat (Full Bench) in the case of Karjan Co-operative Cotton Sales Ginning Pressing Society (supra) has held that it was absolutely necessary for the assessee to maintain goodwill amongst its members and to lure them to continue to do their business with the society if it give presents to its members and to commemorate silver jubilee celebrations, it could not be said that the society was not doing something as a prudent business. 5.5 Reliance is also placed in the case of CIT vs. Dascroi Taluka Coop Purchase & Sales Union Ltd, 126 ITR 413 of Hon'ble Gujarat High Court judgment, where it was held that the amount spent by the assessee-society on purchase of stainless steel utensils and other for the purpose of tour expenses of members was considered to be business expenditure within the meaning of Section 37 of the Act. 5.6 Considering to the above stated facts and circumstances, the volume of earning of the assessee bank are mainly made through its members. These expenses are incurred by the assessee bank to attract the members confidence and loyalty towards the bank in

The revenue has raised following grounds of appeal:- “(1) That the ld.CIT(A) has erred in law and on facts in deleting the addition made by the AO on the issue of disallowance of amortized premium amounting to Rs.2,10,11,715/-. (2) That the Id. CIT(A) has erred in law and on facts in restricting the addition to Rs.9,50,000/- out of Rs.42,65,343/- made by the AO on account of disallowance u/s 14A of the Act. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent.”

During the year under consideration, the assessee has written off govt. security premium to the extent of Rs. 2,10,11,715/-. The assessing officer has disallowed the premium amount amortized by the asssessee bank in respect of purchase of securities under the category held to be maturity stating that definitely the same is of capital outlay which cannot be allowed as expenditure.

Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has deleted the addition stating that his predecessor has deleted the same in the case of the assessee in the earlier years.

We have heard the rival contentions and perused the material on record carefully. The assessee has made investment in the HTM category as per the guidelines laid down by the RBI and claimed amortization of premium till the period maturity. The assessing officer has disallowed the claim following the similar addition made by his predecessors on the ground that the premium amount paid for acquiring the capital investment cannot be allowed as deduction expenditure. The ld. CIT(A) has deleted the addition by following the decision of his predecessors. We have noticed that as per RBI guidelines dated 16th Oct, 2000, the investment portfolio of the bank is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (ATS). Investment classified under HTM category needs to be marked to market and are carried at acquisition cost unless these are more than the face value in which case the premium should be amortized over the remaining period. Allowable of amortized expenses on premium on government securities has been provided u/s. 36(1)(ii) of the act and explained by CBDT vide instruction No. 17 of 2008 dated 26-11-2008. The Hon’ble High Court of Gujarat vide (2014) 43 taxmann.com 161 (Gujarat) in the case of CIT, Rajkot-II vs. Rajkot Dist. Co-op. Bank Ltd. held that instructions clearly provide for amortization of premium paid on securities when the same are acquired at the rate higher than the face value. Such amortization would have to be for the remaining period of maturity. In view

During the course of assessment proceedings, the assessing officer has noticed that assessee has claimed dividend income of Rs. 1.52 crores and interest earned on other trustee securities of Rs. 85,91,096/- as exempt income. He observed that assessee has not disallowed any expenditure incurred towards earning exempt income as per the provision of section 14A of the act. Therefore, the assessing officer has worked out disallowance according to section 14A r.w. Rule 8D of the act and disallowed an amount of Rs. 42,65.343/-.

Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has stated that his predecessor in the case of the assessee itself has decided the similar issue in favour of the assessee. The Ld. CIT(A) has deleted the additions of Rs.33,15,343 made by the assessin officer stating that the assessee has more interest free fund available than investment made in securities from which exempt income accrued. However, in respect of addition of Rs. 9.5 lacs made under rule 8D(iii) he stated that assessee has not filed any submission, therefore, he has sustained the addition to the extent of Rs. 9,50,000/-in respect of administrative expenses.

We have heard the rival contentions and perused the material on record carefully. The second issue is pertained to the disallowance of expenses u/s. 14A r.w. Rule 8D of the act incurred towards the exempt income. The ld. CIT(A) has deleted the addition following the decision of his predecessors in the case of the asssessse as the asssessee has more interest free fund available than

In the combined result, the appeal ITA 1818/Ahd/2016 of the assessee is partly allowed and appeal ITA 2124/Ahd/2016 of the revenue is dismissed. Order pronounced in the open court on 21-05-2018