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2016 (3) TMI 911 - AT - Income TaxAddition made on account of HTM securities - Held that - The assessee is entitled to the claim of deduction on account of amortization of premium paid on Government securities held in HTM category. - Decided in favour of assessee Addition on account of Ex-gratia payment - Held that - where the assessee in recognition of the services provided to its retiring employees make certain exgratia payments in recognition of their services, which are not based on any scheme or instruction formulated by the employer assessee, then the same partakes the nature of profit in lieu of salary. The relationship between the assessee and retiring employees was admittedly as of employer and employee and the remuneration paid to such employees is part of the salary due to the said employee. Even the ex-gratia payment made by the assessee over and above the remuneration due to the employees partakes the character of profits in lieu of salary to such employee and is duly allowable as an expenditure in the hands of the assessee under section 37(1) of the Act. - Decided in favour of assessee
Issues Involved:
1. Deletion of addition on account of Amortization of Premium paid on purchase of Government securities held under HTM categories. 2. Deletion of addition on account of Ex-gratia payment not in accordance with the provisions of section 35DDA of the Income Tax Act. Detailed Analysis: 1. Deletion of Addition on Account of Amortization of Premium Paid on Purchase of Government Securities Held Under HTM Categories: The Revenue challenged the CIT(A)'s decision to delete an addition of Rs. 31,73,359/- related to amortization of premium paid on Government securities held under HTM (Held to Maturity) categories. The assessee, a cooperative bank, had claimed this deduction during the assessment year 2010-11. The securities were acquired at a cost higher than their face value, and the excess amount was amortized over the life of the securities. The Assessing Officer disallowed this claim, but the CIT(A) allowed it by following the Tribunal's decision in the assessee's own case for the assessment year 2009-10. The Tribunal noted that similar issues had been decided in favor of the assessee in previous cases, including ACIT Vs. Alibagh Co-operative Urban Bank Ltd. and CIT Vs. HDFC Bank Ltd. The Hon'ble Bombay High Court in CIT Vs. HDFC Bank Ltd. had held that if an assessee's own funds and other non-interest-bearing funds are more than the investment in tax-free securities, it is presumed that the investments were made from interest-free funds. This principle was applied to the present case, and the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal on this ground. 2. Deletion of Addition on Account of Ex-gratia Payment: The second issue pertained to the deletion of an addition of Rs. 29,57,503/- on account of ex-gratia payments made to employees who had resigned. The assessee claimed these payments as 'Staff Voluntary Payment' and clarified that they were not made under any scheme formulated under section 35DDA of the Act but were in the nature of profit in lieu of salary, with due TDS deducted. The Assessing Officer disallowed the claim since the payments were not made under a scheme formulated under section 35DDA. The CIT(A) allowed the claim, following the Tribunal's decision in the assessee's own case for a previous year. The Tribunal reiterated its earlier stance that such ex-gratia payments, made in recognition of meritorious service and not under any formal scheme, are allowable as an expenditure under section 37(1) of the Act. The Tribunal found no merit in the Assessing Officer's disallowance and upheld the CIT(A)'s order, dismissing the Revenue's appeal on this ground as well. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the amortization of premium on HTM securities and the ex-gratia payments to employees. The Tribunal's decision was consistent with prior rulings on similar issues, ensuring that the deductions claimed by the assessee were permissible under the Income Tax Act.
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