The DCIT, Circle-2,, JUNAGADH v. Amreli Jilla Madhyasth Sahakari Bank Ltd.,, AMRELI

ITA 39/RJT/2013 | 2009-2010
Pronouncement Date: 25-10-2013 | Result: Partly Allowed

Appeal Details

RSA Number 3924914 RSA 2013
Assessee PAN AAATA2737J
Bench Rajkot
Appeal Number ITA 39/RJT/2013
Duration Of Justice 8 month(s) 13 day(s)
Appellant The DCIT, Circle-2,, JUNAGADH
Respondent Amreli Jilla Madhyasth Sahakari Bank Ltd.,, AMRELI
Appeal Type Income Tax Appeal
Pronouncement Date 25-10-2013
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 25-10-2013
Date Of Final Hearing 02-08-2013
Next Hearing Date 02-08-2013
Assessment Year 2009-2010
Appeal Filed On 11-02-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBULAL: RAJKOT BENCH: RAJKOT BEFORE SHRI T K SHARMA JM AND SHRI D K SRIVASTAVA AM ITA NO. 39/RJT/2013 ASSESSMENT YEAR: 2009-10 DCIT CIRCLE-2 JUNAGADH V. AMRELI JILLA MADHYASTH SAHAKARI BANK LTD BHOJALRAM BHAVAN AMRELI PAN : AAATA 2737 J DATE OF HEARING : 02.08.2013 DATE OF PRONOUNCEMENT : 25.10.2013 REVENUE BY : SHRI VILAS V SHINDE DR ASSESSEE BY : SHRI D M RINDANI CA ORDER D. K. SRIVASTAVA: THE ASSESSEE A CO-OPERATIVE BANK FILED ITS RETURN OF INCOME ON 27.09.2009 WHICH WAS SUBSEQUENTLY REVISED ON 30.11.2009 RETURNING TOTAL INCOME AT RS.1 45 61 299/-. ASSESSMENT U/S 143(3) O F THE INCOME-TAX ACT WAS COMPLETED ON 16.09.2011 ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT RS.1 91 73 760/- AFTER ADDING/DISALLOWING INTER-AL IA A SUM OF (I) RS.8 25 055/- BEING EXPENDITURE DISALLOWED U/S 40(A)(IA); AND (II) RS.1 0 92 000/- BEING THE AMOUNT OF GIFTS GIVEN TO ITS MEMBERS AND DIRECTORS. ON APPEAL THE LD. CIT(A) HAS DELETED BOTH THE AFORESAID ADDITIONS/DISALLOWANCES. AGGRIEVED BY THE ORDER OF LD. CIT(A) THE REVENUE IS NOW IN APPEAL BEFORE THIS TRIBUNAL. 2. GROUND NO.1 TAKEN BY THE REVENUE READS AS UNDER :- THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF TH E CASE AND HOLDING THAT THE AMENDMENT BROUGHT OUT BY FINANCE ACT 2010 IN SEC. 4 0(A)(IA) IS RETROSPECTIVE IN OPERATION. 3. THE ASSESSING OFFICER HAS MADE THE IMPUGNED DISA LLOWANCE WITH THE FOLLOWING OBSERVATIONS:- DISALLOWANCE U/S 40(A)(IA): UPON PERUSAL OF THE ANNEXURE-H OF THE FORM NO.3CD O F AUDIT REPORT IT IS FOUND THAT TDS OF RS.24 701/- WAS DEDUCTED UNDER SECTION 194C AND 194J FROM PAYMENTS OF RS.7 85 819/-. THESE PAYMENTS WERE MADE FROM 8.04.2008 TO 27.01.2009 BUT TDS AMOUNT WAS DEPOSITED ON 2.04.200 9 AS PER DETAILS ON PAGE-2 OF THE ANNEXURE-H. SINCE PAYMENTS WERE MADE BEFORE LAST MONTH I.E. 2 39-RJT-2013 AMRELI JILLA MADHYASTH SAHAKARI BANK LTD MARCH OF THE ACCOUNTING YEAR TDS WAS REQUIRED TO B E DEPOSITED ON OR BEFORE 31.03.2009. VIDE LETTER DATED 17.08.2011 ASSESSEE BANK WAS CONFRONTED THIS INFRINGEMENT OF LAW AND ITS CONSEQUENTIAL PENAL PRO VISION U/S 40(A)(IA) OF THE ACT. 3.1 VIDE PARA-2 OF THE LETTER DATED 5.09.2011 THE ASSESSE BANK REPLIED AS UNDER WE DEDUCTED TAX AT SOURCE ON PAYMENT/EXPENSES AND SUCH TDS WAS PAID IN NEXT YEAR BUT BEFORE DUE DATE. AS PER AMEND MENT BY FINANCE ACT 2010 RETROSPECTIVE EFFECT FROM THE ASSESSMEN T. YEAR 2005-06 THAT EVEN IF THE TDS WAS PAID BEFORE DUE DATE FOR F ILING RETURN OF INCOME NO DISALLOWANCE U/S 40(A)(IA) COULD BE MADE FOR ANY OF THE ASSESSMENT YEARS STARTING FROM ASSESSMENT YEAR 2005-06. SO WE HAVE PAID THE TDS IN TIME AS PER THE ABOVE AMENDMENT AND REQUESTI NG YOU NOT TO DISALLOW THE ABOVE EXPENSE. CASE REFERENCE : KANUBH AI RAMJIBHAI V/S INCOME-TAX OFFICER (2010) CHARTER ACCOUNTANTS ASSOCIAITON AHMEDABAD DECEMBER 2010 P.411. 3.2 ASSESSEES PLEA THAT AMENDMENT IN SECTION 40(A) (IA) IS FROM AY 2005- 06 IS NOT CORRECT. THE AMENDMENT WAS MADE BY THE FI NANCE ACT 2010 W.E.F. 1.4.2010 AND PRIOR TO THE AMENDMENT THE RELEVANT WO RDS WERE HAS NOT BEEN PAID (A) IN THE CASE WHERE THE TAX WAS DEDUCTIBLE AND WA S SO DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR ON OR BEFORE THE D UE DATE SPECIFIED IN SUB- SECTION (1) OF SECTION 139; OR (B) IN ANY OTHER CAS E ON OR BEFORE THE LAST DAY OF THE PREVIOUS YEAR: THUS FOR THE AY 2009-10 AS PER THE APPLICABLE PRO VISIONS (CLAUSE-B ABOVE) OF SECTION 40(A)(IA) OF THE ACT TDS WAS TO BE PAID BEFORE THE LAST DAY OF THE PREVIOUS YEAR WHICH THE ASSESSEE DID NOT DO. ASSESSEES CONTENTION THAT AMENDMENT IS RETROSPECTIVE IS NOT CORRECT AS I T IS SPECIFICALLY MENTIONED THAT AMENDED PROVISIONS ARE APPLICABLE W.E.F. 01.04 .2010. WHEN THE LEGISLATURE INDENTS TO MAKE ANY AMENDMENT WITH RETR OSPECTIVE EFFECT THE SAME 3 39-RJT-2013 AMRELI JILLA MADHYASTH SAHAKARI BANK LTD IS SPECIFIED. THE CASE LAW RELIED UPON BY ASSESSEE IS DIFFERENTIABLE BECAUSE AS MENTIONED IN FIRST PAGE OF THE JUDGMENT OF HONB LE I.T.A.T. IN THAT CASE TAX WAS DEDUCTED IN MARCH AND PAID IN THE MONTH OF JULY OF SUBSEQUENTLY F.Y. BUT IN THE CASE OF ASSESSEE TAX WAS DEDUCTED BEFORE MAR CH OF THE ACCOUNTING YEAR AND HENCE CLAUSE B AS ABOVE IS APPLICABLE IN ASSESS EES CASE WHEREAS IN THAT CASE CLAUSE A WAS APPLICABLE. THEREFORE A DISALLOWA NCE OF RS.7 85 819/- IS MADE U/S 40(A)(IA) OF THE ACT. SIMILARLY DETAILS / EXPLANATION FILED BY ASSESSEE VIDE ANNEXURE-VIII OF REPLY DTD. 04.08.2011 SHOW T HAT PAYMENT OF RS.39 236/- WAS MADE FOR AUDIT FEES ON 27.10.2008 BUT TDS OF RS .4 243/- WAS DEPOSITED IN GOVERNMENT A/C. ON 2.04.2009 I.E. AFTER THE STIP ULATED DATE OF 31.03.2009. HENCE EXPENDITURE OF RS.39 236/- IS DISALLOWED U/S 40(A)(IA). IN VIEW OF THESE FACTS AN ADDITION OF RS.8 25 055/- [7 85 819/- + 39 236/-] IS MADE TO THE DECLARED INCOME. 4. ON APPEAL THE LD. CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS:- 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SU BMISSIONS OF APPELLANT. THE EARLIER PROVISION OF SECTION 40(A)(IA) ALLOWED THE EXPENDITURE INCURRED IN THE MONTH OF MARCH IN RESPECT OF WHICH TDS WAS DEPO SITED BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. HOWEVER THE TD S IN RESPECT OF EXPENDITURES INCURRED FROM APRIL TO FEBRUARY HAD TO BE DEPOSITED WITH GOVERNMENT ACCOUNT ON OR BEFORE 31 ST MARCH FOR CLAIMING DEDUCTION IN EARLIER PROVISIONS . AN AMENDMENT WAS MADE IN SECTION 40(A)(IA) VIDE FINANC E ACT 2010 AND THE ABOVE DISTINCTION IN CONDITION OF PAYMENT OF TDS FO R EXPENDITURES INCURRED BEFORE MARCH AND IN MARCH WAS REMOVED. AS PER THIS AMENDMENT IF THE TDS IS PAID BEFORE THE DUE DATE OF FILING OF RETURN OF INC OME IN RESPECT OF ANY EXPENDITURE INCURRED DURING THE FINANCIAL YEAR THE EXPENDITURE WAS AN ALLOWABLE EXPENDITURE. THIS AMENDMENT HAS BEEN HELD AS CLARIFICATORY IN NATURE AND HENCE RETROSPECTIVE BY HBLE CALCUTTA HI GH COURT IN CASE OF C.I.T. VS. VIRGIN CREATIONS GA NO.3200/2011. I FIND THAT IN RESPECT OF EXPENDITURE OF RS.8 25 055/- NARRATED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER TDS WAS DEDUCTED AND DEPOSITED BEFORE THE DUE DATE OF FILING OF RETURN OF 4 39-RJT-2013 AMRELI JILLA MADHYASTH SAHAKARI BANK LTD INCOME. THEREFORE THIS SUM CANNOT BE DISALLOWED FOR DEDUCTION U/S 40(A)(IA) OF THE I.T. ACT. I THEREFORE DIRECT THE ASSESSING OFFI CER TO ALLOW THE EXPENDITURE OF RS.8 25 055/- FOR DEDUCTION AND REDUCE THE TOTAL IN COME OF APPELLANT ACCORDINGLY. 5. IN SUPPORT OF APPEAL THE LD. DEPARTMENTAL REPRE SENTATIVE RELIED UPON THE ASSESSMENT ORDER. 6. IN REPLY THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RELIED UPON THE APPELLATE ORDER PASSED BY THE LD. CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES. SUB-CLAUSE (IA) OF CLAUSE (A) OF SECTION 40 AS IT STOOD IN THE YEAR UNDER APPEAL BARRED DEDUCTION OF ANY INTEREST COMMISSION OR BROKERAGE RENT ROYALTY FEES FOR PROFESSIONAL SER VICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT OR AMOUNTS PAYABLE TO A CONT RACTOR OR SUB-CONTRACTOR BEING RESIDENT FOR CARRYING OUT ANY WORK ON WHICH TAX I S DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED O R AFTER DEDUCTION HAS NOT BEEN PAID (A) IN A CASE WHERE THE TAX WAS DEDUCTIBL E AND WAS SO DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR ON OR BEFORE T HE DUE DATE SPECIFIED IN SUB- SECTION (1) OF SECTION 139; OR ( B ) IN ANY OTHER CASE ON OR BEFORE THE LAST DAY OF T HE PREVIOUS YEAR. THE PROVISIONS OF SUB-CLAUSE (IA) OF CLAUSE (A) OF SECTION 40 WERE AMENDED BY THE FINANCE ACT 2010 W.E.F. 1.4.2010 TO ENABLE THE ASSESSEE TO PAY THE TAX DEDUCTED AT SOURCE IN THE YEAR ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139. AS STATED EARLIER THE AFORESAI D AMENDMENT IN SUB-CLAUSE (IA) OF CLAUSE (A) OF SECTION 40 WAS CARRIED OUT BY THE FIN ANCE ACT 2010 WITH EFFECT FROM 01.04.2010. 8. IT IS EVIDENT FROM THE ORDER OF THE AO THAT TAX WAS DEDUCTED UNDER SECTION 194C AND 194J OUT OF PAYMENTS MADE IN THE YEAR UNDE R APPEAL BUT THE AMOUNT OF TDS SO DEDUCTED WAS DEPOSITED ON 2.04.2009. SINCE P AYMENTS OUT OF WHICH TAX WAS DEDUCTED WERE MADE BEFORE THE LAST MONTH I.E. MAR CH OF THE ACCOUNTING YEAR TDS ACCORDING TO THE AO WAS REQUIRED TO BE DEPOSITED O N OR BEFORE 31.03.2009. THE AO THEREFORE INVOKED SECTION 40(A)(IA) AND DISALLOWED THE IMPUGNED EXPENDITURE. ON APPEAL THE LD. CIT(A) FOLLOWING THE JUDGMENT OF T HE HONBLE CALCUTTA HIGH COURT IN CIT V. VIRGIN CREATIONS HELD THAT THE AMENDMENTS M ADE IN SECTION 40(A)(IA) BY THE 5 39-RJT-2013 AMRELI JILLA MADHYASTH SAHAKARI BANK LTD FINANCE ACT 2010 WERE RETROSPECTIVELY AVAILABLE AND THEREFORE THE ASSESSEE COULD PAY THE TAX DEDUCTED AT SOURCE IN THE YEAR UNDER AP PEAL TILL THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139. THE LD. CIT(A) FOUN D THAT THE ASSESSEE HAD PAID THE TAX DEDUCTED AT SOURCE IN THE YEAR UNDER APPEAL WEL L BEFORE THE EXPIRY OF THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 IN CONFORMITY WITH THE AMENDED PROVISIONS. HE THEREFORE DELETED THE IMPUGNED DISAL LOWANCE. 9. THE ISSUE AS TO WHETHER THE AMENDMENTS MADE IN S ECTION 40(A)(IA) BY THE FINANCE ACT 2010 W.E.F. 1.4.2010 WERE RETROSPECTIVE LY APPLICABLE HAS BEEN CONSIDERED BY THE HONBLE CALCUTTA HIGH COURT IN CI T V. VIRGIN CREATIONS IN ITS JUDGMENT DATED 23.11.2011 WHICH READS AS UNDER:- THE COURT: WE HAVE HEARD MR. NIZAMUDDIN AND GONE T HROUGH THE IMPUGNED JUDGMENT AND ORDER. WE HAVE ALSO EXAMINED THE POINT FORMULATED FOR WHICH THE PRESENT APPEAL IS SOUGHT TO BE ADMITTED. IT IS ARGUED BY MR. NIZAMUDDIN THAT THIS COURT NEED S TO TAKE DECISION AS TO WHETHER SECTION 40(A)(IA) IS HAVING RETROSPECTIVE O PERATION OR NOT. THE LEARNED TRIBUNAL ON FACT FOUND THAT THE ASSESSE E HAD DEDUCTED TAX AT SOURCE FROM THE PAID CHARGES BETWEEN THE PERIOD APR IL 1 2005 AND APRIL 28 2006 AND THE SAME WERE PAID BY THE ASSESSEE IN JULY AND AUGUST 2006 I. E. WELL BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. THIS FACTUAL POSITION WAS UNDISPUTED . MOREOVER THE SUPREME COURT AS HAS BEEN RECORDED B Y THE LEARNED TRIBUNAL IN THE CASE OF ALLIED MOTORS PVT. LTD. AND ALSO IN THE CASE OF ALOM EXTRUSIONS LTD. HAS ALREADY DECIDED THAT THE AFORESAID PROVIS ION HAS RETROSPECTIVE APPLICATION. AGAIN IN THE CASE REPORTED IN 82 ITR 570 THE SUPREME COURT HELD THAT THE PROVISION WHICH HAS INSERTED THE REMEDY T O MAKE THE PROVISION WORKABLE REQUIRES TO BE TREATED WITH RETROSPECTIVE OPERATION SO THAT REASONABLE DEDUCTION CAN BE GIVEN TO THE SECTIONS A S WELL. IN VIEW OF THE AUTHORITATIVE PRONOUNCEMENT OF THE S UPREME COURT THIS COURT CANNOT DECIDE OTHERWISE. HENCE WE DISMISS THE APPEA L WITHOUT ANY ORDER AS TO COSTS. 6 39-RJT-2013 AMRELI JILLA MADHYASTH SAHAKARI BANK LTD 10. IT IS QUITE EVIDENT ON PERUSAL OF THE AFORESAID JUDGMENT THAT THE HONBLE CALCUTTA HIGH COURT HAS HELD THAT THE AMENDED PROVI SIONS OF SECTION 40(A)(IA) WERE APPLICABLE TO ALL PENDING MATTERS. WE HAVE BEEN FOL LOWING THE AFORESAID JUDGMENT IN ALL MATTERS. THE LD. CIT(A) HAS ALSO TAKEN A SIMILA R VIEW. IN THIS VIEW OF THE MATTER THE ORDER PASSED BY THE LD. CIT(A) IS CONFIRMED. GROUND NO.1 TAKEN BY THE REVENUE IS DISMISSED. 11. GROUND NO. 2 TAKEN BY THE REVENUE READS AS UNDE R:- THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF TH E CASE AND HOLDING THAT THE EXPENSES INCURRED ON GIFTS OF RS.10 92 000/- IS ALL OWABLE U/S 37(1) OF THE ACT. 12. THE IMPUGNED DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER WITH THE FOLLOWING OBSERVATIONS:- DISALLOWANCE OF EXPENDITURE ON GIFTS TO MEMBERS & DIRECTORS AS PER ANNEXURE-18 OF THE PROFIT & LOSS A/C. AN EXP ENDITURE OF RS.10 92 000/- IS CLAIMED AS GIFT TO MEMBERS. ON BEING ASKED IT IS EXPLAINED VIDE LETTER DATED 4.08.2011 THAT THE GIFT EXPENDITURE PERTAINS TO GIF T TO DIRECTORS AND MEMBERS. THIS IS IN ADDITION TO GIFT EXPENSES OF RS.1 75 639 /- IN RESPECT OF CARRY BAGS GIFTED TO CUSTOMERS. ASSESSEE WAS FURTHER ASKED TO EXPLAIN NATURE OF EACH GIFT GIVEN TO MEMBERS. FURTHER EXPLANATION WAS GIVEN VID E LETTER DTD. 25.08.2011 STATING THAT GIFTS WERE GIVEN AS PER NORMS PRESCRIB ED IN CIRCULAR DTD. 22.05.2007 OF REGISTRAR CO. OP. SOCIETIES GUJARAT STATE. THE ASSESSEE RELIES UPON THE JUDGMENT OF KARJAN CO-OPERATIVE COTTON SAL ES V/S. CIT AND A COPY OF THE JUDGMENT WAS FILED. 4.1 THE CASE RELIED BY ASSESSEE ID DIFFERENTIABLE O N FACTS BECAUSE IN THAT CASE PETTY ITEMS LIKE STEAL GLASSES WERE GIVEN AS P RESENTS WHERE AS IN THE CASE OF ASSESSEE RS.72 000/- WERE GIVEN TO THE DIRE CTORS I.E. RS.3000/- FOR EACH DIRECTOR AND RS.10 20 000/- TO OTHER 281 INDIV IDUAL MEMBERS. THUS THE GIFTS ARE NEITHER AS PER NORMS OF THE CIRCULAR (WHI CH PROHIBITS GIFTS IN CASH) NOR IN THE NATURE OF PRESENTS MENTIONED IN THE CASE REL IED UPON BY ASSESSEE. THUS AFTER CONSIDERING THE EXPLANATION FILED BY ASSESSEE GIFT AMOUNTING TO RS.1 75 639/- GIVEN TO CUSTOMERS CAN ONLY BE CONSID ERED AS EXPENDITURE 7 39-RJT-2013 AMRELI JILLA MADHYASTH SAHAKARI BANK LTD DEDUCTIBLE U/S 37 OF THE ACT. FURTHER EXPENDITURE O F RS.10 92 000/- ON GIFT GIVEN TO DIRECTORS AND OTHER MEMBERS IS NOT EXPENDI TURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES. MEMBERS AND DIRECTORS BEING SHARE HOLDERS AND EXPENDITURE IS MORE IN THE NATURE OF PE RSONAL EXPENDITURE. THE EXPENDITURE DISALLOWED. THIS RESULTS IN AN ADDITION OF RS.10 92 000/- TO THE DECLARED INCOME. 13. ON APPEAL THE LD. CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS:- 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SU BMISSIONS OF APPELLANT. THE MEMBERS AND DIRECTORS ARE AN INTEGRA L PART OF THE CO-OPERATIVE STRUCTURE OF THE BANK WHO INVEST IN THE BANK AND AL SO BORROW FROM THE BANK AND MANAGE THE ACTIVITIES OF BANK. THE DISTRIBUTION OF GIFT BY THE SOCIETY TO THEM IS A RECOGNITION THAT THE MEMBERS AND DIRECTOR S OF THE BANK HAVE BEEN HELPFUL IN DEPOSIT MOBILIZATION AND OVERALL MANAGEM ENT OF BANKING ACTIVITIES. IT IS NOT NECESSARY THAT AN EXPENDITURE HAS TO BE ONLY FOR EARNING PROFIT TO QUALIFY AS BUSINESS EXPENDITURE U/S 37(1) OF THE I.T. ACT. THE EXPENDITURE INCURRED IN KEEPING BUSINESS ASSETS AND PERSONS IN GOOD STATE A ND IN MOTIVATED STATE IS ALSO A BUSINESS EXPENDITURE AND QUALIFIES AS EXPEND ITURE WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE U/S 37(1) OF THE I .T. ACT. THE APPELLANT SAHKARI BANK HAS SPENT RS.10 92 000/- FOR PURCHASE AND DISTRIBUTION OF STAINLESS STEEL LEMON SET AND UTENSILS AMONGST MEMB ERS AND KIT CONTAINING BLANKETS VACUUM BOTTLE GUJARATI DINNER SET WATER JUG BATHROOM SET AMONGST DIRECTORS. THESE EXPENDITURES ARE FOR THE WELFARE O F THE MEMBERS AND DIRECTORS WHO ARE ESSENTIAL PART OF THE BUSINESS OF APPELLANT AND SUCH EXPENDITURES FOR KEEPING THE MEMBERS MOTIVATED AND APPRECIATED IS FO R THE PURPOSE OF BUSINESS AND SUCH EXPENDITURES WERE APPROVED IN BOA RD MEETINGS OF THE BANK. THE RATIO OF THE JUDGMENT OF HBLE GUJARAT HI GH COURT IN CASE OF CIT VS. SLM MANEKLAL INDUSTRIES LTD 107 ITR 133 AND KARJAN COOPERATIVE COTTON SALES VS CIT 199 ITR 17 (GUJ) IS APPLICABLE IN PRES ENT CASE. IT WAS HELD BY HBLE GUJARAT HIGH CIOURT THAT EXPENDITURE INCURRED FOR KEEPING GOOD RELATIONS WITH MEMBERS AND TO CONTINUE BUSINESS WITH SOCIETY IS BUSINESS EXPENDITURE. 8 39-RJT-2013 AMRELI JILLA MADHYASTH SAHAKARI BANK LTD THE NATURE ;OF EXPENDITURE OF RS.10 92 000/- IN PRE SENT CASE IN GIFT ARTICLES OF HOME UTILITY IS SIMILAR TO THE EXPENDITURE IN CASE OF KARJAN COOPERATIVE COTTON SALES VS CIT 199 ITR 17 (GUJ). THEREFORE THIS EXPEN DITURE IS NEITHER CAPITAL EXPENDITURE NOR PERSONAL EXPENDITURE AND IS EXPENDI TURE FOR THE PURPOSE OF BUSINESS. ASSESSING OFFICER HAS NOT ACCEPTED THE AP PLICABILITY OF THIS DECISION OF HBLE GUJARAT HIGH COURT ON THE GROUND THAT APPE LLANT HAD PAID CASH TO THE MEMBERS AND DIRECTORS INSTEAD OF DISTRIBUTING GIFT ARTICLES. THE OBSERVATION OF THE ASSESSING OFFICER IS INCORRECT BECAUSE NO CASH WAS PAID TO DIRECTORS OR THE MEMBERS. THE PROVISION OF RS.10 92 000/- WAS MADE A FTER THE EXECUTIVE COMMITTEE OF SOCIETY TOOK A DECISION ON 28.03.2009 TO DISTRIBUTE GIFT ARTICLES AMONGST DIRECTORS AND THE MEMBERS. THE GIFT ARTICLE S WERE PURCHASED FROM KITCHEN CARE AFTER 4-5 MONTHS AND WERE DISTRIBUTE D AMONGST THE MEMBERS AND DIRECTORS. THE OTHER QUESTION THAT ARISES IN TH IS CASE IS THAT THE APPELLANT HAD MADE A PROVISION OF RS.10 92 000/- IN FINANCIAL YEAR 2008-09 AT THE END OF THE FINANCIAL YEAR. THE ACTUAL PURCHASE AND PAYM ENT OF ABOVE MENTIONED ARTICLES WAS MADE IN THE NEXT FINANCIAL YEAR. I FIN D THAT APPELLANT HAS BEEN REGULARLY FOLLOWING THIS METHOD OF ACCOUNTING. SIMI LAR PURCHASES AND DISTRIBUTIONS WHICH WERE ACTUALLY MADE IN FINANCIA L YEAR 2008-09 WERE CLAIMED FROM THE INCOME OF FINANCIAL YEAR 2007-08. MOREOVER THE RULES OF SOCIETY ALLOW SUCH DISTRIBUTION OF GIFTS TO MEMBERS AND DIRECTORS ONLY IF THE APPELLANT BANK HAS MADE PROFITS AT THE END OF THE Y EAR. THEREFORE AS PER MATCHING PRINCIPLE THE EXPENDITURE FOR WELFARE OF MEMBERS SHOULD BE BOOKED IN THE YEAR IN RESPECT OF WHOSE INCOME THEY RELATE. THE PROVISION OF RS.10 92 000/- MADE BY THE APPELLANT IN FINANCIAL Y EAR 2008-09 RELATES TO INCOME OF FINANCIAL YEAR 2008-09 AND THEREFORE ON T HE BASIS OF MATCHING PRINCIPLE THE YEAR OF CLAIM OF APPELLANT APPEARS TO BE CORRECT. FURTHER THE EXPENDITURE SO PROVIDED ARE ALMOST CERTAINLY INCURR ED AS IS APPARENT FROM THE ACCOUNTS OF APPELLANT IN PAST AND CURRENT FINANCIAL YEARS. THEREFORE I HOLD THAT RS.10 92 000/- INCURRED BY APPELLANT ON MEMBERS AND DIRECTORS IN RECOGNITION OF THEIR HELP IN DEPOSIT MOBILIZATION IS ALLOWABLE EXPENDITURE U/S 37(1) OF THE I.T. ACT. I THEREFORE DIRECT THE ASSESSING OFFICER TO ALLOW SUCH EXPENDITURE OF RS.10 92 000/- FOR DEDUCTION AND REDUCE THE TOTAL I NCOME ACCORDINGLY. 9 39-RJT-2013 AMRELI JILLA MADHYASTH SAHAKARI BANK LTD 14. IN SUPPORT OF APPEAL THE LD. DEPARTMENTAL REPR ESENTATIVE RELIED UPON THE ASSESSMENT ORDER. 15. IN REPLY THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RELIED UPON THE APPELLATE ORDER PASSED BY THE LD CIT(A). 16. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CO NSIDERED THEIR SUBMISSIONS. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS FILED ENGLISH VERSION OF CIRCULAR DATED 22.05.2007 ISSUED BY THE REGISTRAR O F CO-OPERATIVE SOCIETIES GUJARAT WHICH READS AS UNDER:- ENGLISH VERSION OF CIRCULAR: WE CLARIFY THAT AS PE R PRESCRIBED NORMS IN THE AGENDA NO.8(1) OF STATE CO-OPE. COUNCIL DATED 11.04 .2007 A CIRCULAR RELEASED BY THE REGISTRAR CO-OPE. SOCIETIES GUJAR AT STATE ON 22.05.2007 THE BANK CAN GIVE A GIFT TO THEIR DIRECTORS AS PER THE PRESCRIBED NORMS OF THE SAID CIRCULAR. THE OTHER OBJECTS OF THE SAID CIRCULAR ARE; I) THE COOPERATIVE INSTITUTIONS CAN GIVE GIFT TO TH EIR DIRECTORS ONE TIME DURING THE F.Y. ON SPECIAL OCCASION. II) GIFT MUST BE IN FORM BASE AND NOT IN CASH III) THE COOPERATIVE INSTITUTIONS ARE NOT ELIGIBLE TO GIVE THE GIFT TO THEIR MEMBERS IF THE INSTITUTION IS NOT MAKING PROFIT OR DEPEND ON GOVT. RELIEF. IV) THE INSTITUTES MUST BE TAKE PRIOR APPROVAL FOR THE GIFT DISTRIBUTION TO ITS MEMBERS IN THE ANNUAL GENERAL MEETING AND MAKE PROV ISION OF GIFT EXPENSE LIMIT SHALL BE; A. PRIMARY COOPERATIVE SOCIETIES UPTO RS.750 B. BLOCK LEVEL COOPE. INSTITUTIONS UPTO RS.1000 C. DISTRICT LEVEL COOPE. INSTITUTIONS UPTO RS.3000 D. APEX LEVEL COOPE INSTITUTIONS UPTO RS.6000. 17. IT IS QUITE EVIDENT THAT GIFT IN THE FORM OF CA SH IS COMPLETELY PROHIBITED. IT IS ALSO APPARENT FROM THE CIRCULAR THAT THERE CAN BE NO DIS TRIBUTION OF GIFTS WITHOUT PRIOR APPROVAL IN THE ANNUAL GENERAL MEETING. THE ASSESSE E HAS NOT PLACED ANY MATERIAL BEFORE US AS TO SHOW AS TO HOW THE CONDITIONS LAID DOWN IN THE AFORESAID CIRCULAR 10 39-RJT-2013 AMRELI JILLA MADHYASTH SAHAKARI BANK LTD ISSUED BY THE REGISTRAR OF CO-OPERATIVE SOCIETIES A RE FULFILLED. ON THE OTHER HAND PERUSAL OF THE ANNEXURE-D (FORMING PART OF TAX AUDI T REPORT IN FORM NO.3CD) SHOWS THAT A SUM OF RS.3000/- HAS BEEN PAID TO EACH OF TH E 24 DIRECTORS. THEREFORE THE OBSERVATIONS MADE BY THE ASSESSING OFFICER THAT THE GIFTS HAVE BEEN GIVEN TO THE DIRECTORS IN CASH CANNOT BE SAID TO BE INCORRECT. I N FACT THE OBSERVATIONS MADE BY THE LD. CIT(A) THAT THE GIFTS HAVE NOT BEEN GIVEN TO TH E DIRECTORS IN CASH ARE NOT SUPPORTED BY ANNEXURE-D (FORMING PART OF TAX AUDIT REPORT IN FORM NO.3CD). SIMILARLY THE ASSESSEE HAS NOT FILED THE RELEVANT RESOLUTION INDICATING THE PRIOR APPROVAL OF THE ANNUAL GENERAL MEETING FOR DISTRIBU TION OF GIFTS TO THE MEMBERS. IN THIS VIEW OF THE MATTER THE ORDER PASSED BY THE LD CIT(A) IS NOT SUSTAINABLE ON FACTS. THE FACTS RECORDED BY THE LD. CIT(A) NEED TO BE REL OOKED AND VERIFIED. THE MATTER IS THEREFORE RESTORED TO HIS FILE FOR EXAMINING THE IS SUE STRICTLY ACCORDING TO AFORESAID CIRCULAR ISSUED BY THE REGISTRAR COOPERATIVE SOCIE TIES. HE WILL DECIDE THE MATTER AFRESH IN ACCORDANCE WITH LAW AFTER GIVING REASONAB LE OPPORTUNITY OF HEARING TO BOTH THE PARTIES. GROUND NO.2 TAKEN BY THE REVENUE IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSES. 18. IN VIEW OF THE FOREGOING APPEAL FILED BY THE R EVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 25.10.2013 SD/- SD/- (T. K. SHARMA) ( D. K. SRIVASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT: 25.10.2013 BT COPY OF ORDER FORWARDED TO:- 1. APPELLANT DCIT CIRCLE-2 JUNAGADH 2. RESPONDENT- AMRELI JILLA MADHYASTH SAHAKARI BANK LTD BHOJALRAM BHAVAN AMRELI 3. CONCERNED CIT-III RAJKOT 4. CIT(A)-IV RAJKOT 5. DR ITAT RAJKOT 6. GUARD FILE. BY ORDER TRUE COPY PRIVATE SECRETARY ITAT RAJKOT