2016 (1) TMI 930 - AT - Income Tax

Disallowance of amounts spent on member benevolent fund and member s death relief fund - Held that - The amount spent by the assessee for the welfare of its members out of the earmarked funds cannot be deductible as expenditure wholly and exclusively incurred for the purpose of business. From the findings of the facts, the CIT(A) did not appreciated the facts correctly while deleting the impugned additions. There is difference of findings of facts in the orders of the CIT(A). The assessee contends that the amounts spent out of members benevolent fund and members death relief fund but, the CIT(A) states that the amount contributed to these funds are for the welfare of the employees. Thus, there is clear difference between findings of facts by both the authorities, which needs to be relooked by the CIT(A). Therefore, we remit the issue back to the file of the CIT(A) in the light of the discussion above and direct the CIT(A) to consider the issue after affording an opportunity of hearing to the parties. Disallowance of amortisation of premium paid on Govt. Securities - Held that - The assessee is eligible for deduction towards amortisation of premium paid on Govt. securities as relying on case of Sir.M. Visweswaraya Co-op Bank Ltd., Vs. JCIT 2012 (9) TMI 774 - ITAT, BANGALORE

Summary

Issues Involved:
1. Disallowance of amounts spent on members' benevolent fund and members' death relief fund.
2. Disallowance of amortization of premium paid on Government securities.

Issue-wise Detailed Analysis:

1. Disallowance of amounts spent on members' benevolent fund and members' death relief fund:

The Revenue challenged the deletion of additions amounting to Rs. 12,60,537 and Rs. 4,60,000, respectively, spent from the members' benevolent fund and members' death relief fund. During the assessment proceedings, the Assessing Officer (AO) disallowed these expenditures, arguing they represented an appropriation of profit and could not be deducted while computing taxable income. The assessee contended that these payments were for business purposes, deductible under section 37 of the Income Tax Act. However, the AO maintained that these were personal expenditures for members' benefit and not business expenses.

Upon appeal, the Commissioner of Income-tax (Appeals) [CIT(A)] held that these contributions were intended for employees' welfare, thus deductible under section 37. The Departmental representative argued that the CIT(A) erred in considering these as employees' welfare contributions when they were for members' benefit. The Tribunal noted the discrepancy in the CIT(A)'s findings, which needed reevaluation. The Tribunal remitted the issue back to the CIT(A) for reconsideration, emphasizing that expenditures for members' welfare from earmarked funds should not be deducted from business profits as they are personal in nature.

2. Disallowance of amortization of premium paid on Government securities:

The AO disallowed the amortization of premium paid on Government securities amounting to Rs. 9,93,550, arguing that securities classified as 'Held to maturity' are long-term investments and should be capitalized, not treated as revenue expenditure. The AO cited judgments from the Supreme Court and the Madras High Court to support this stance.

The CIT(A), however, allowed the deduction, referencing a Co-ordinate bench decision in a similar case. The Tribunal upheld the CIT(A)'s decision, noting that the amortization of premium on Government securities is permissible under prudential norms of the RBI and consistent with the method of accounting suggested by the ICAI and CBDT Circular No. 17/2008. The Tribunal referenced several cases where similar deductions were allowed, concluding that the assessee is eligible for this deduction.

Conclusion:

The Tribunal partly allowed the Revenue's appeal for statistical purposes, remitting the issue of disallowance of amounts spent on members' benevolent and death relief funds back to the CIT(A) for reconsideration. The Tribunal upheld the CIT(A)'s decision regarding the amortization of premium paid on Government securities, dismissing the Revenue's ground on this issue. The order was pronounced in the open court on 16.10.2015.