2017 (12) TMI 303 - AT - Income Tax

Disallowance of expenditure of an amount paid as Tips & Baksis by the bank to casual workers on festive occasion - AO as well as the Ld. CIT (A) did not allow this expenditure on the ground that there was no commercial expediency behind incurring this expenditure and that the explanation is not satisfactory - as per assessee the disallowance is bad in law the assessee has produced sufficient evidence in the form of vouchers and receipts in evidence of any payment of Tips & Baksis - Held that - Payments were made by the Head Office, Regional Offices as well as 44 branches situated in different parts of West Bengal. Such payments are made after due authorization from the management. The revenue authorities were wrong in coming to a conclusion that there is no commercial expediency in making these payments. The disallowance arbitrarily unjustified. Hence we allow this ground of the assessee. Addition of a provision for amortisation - Held that - Referring to the CBDT vide its instruction no 17/2008 dated 26.11.2008 and case of Catholic Syrian Bank Ltd. vs ACIT (2009 (8) TMI 858 - ITAT COCHIN) allowing amortisation of the premium paid on acquisition of HTM bonds. Provision made for fraudulent withdrawals - Held that - Fraudulent withdrawals were committed by one of the employees of the bank in the earlier years. There was no debit to the profit and loss account during the year on this issue. The provision was made in the books of account in the earlier assessment years and no provision was made in this year. Under these circumstances we failed to understand as to how an addition can be made during the year. The A.O. on the one hand observes that the said amount is debited to the profit and loss account in the impugned assessment year 2009-10 and on the other hand makes an addition of a provision made for fraudulent withdrawals in the earlier year without any change in the facts and circumstances of the case. Such addition cannot be sustained. Hence we delete the said addition Addition for provision for gratuity - Held that - As there is no provision in the account, Section 40A(7) of the Act has no application. Hence this addition is hereby deleted. Disallowance of interest payable on deposits borrowings etc. - Held that - Central Board of direct taxes in circular no 559 dated 24.04.1999 has clarified that securities held by bank must be regarded as stock in trade and that interest payments and receipts from broken period on purchase of securities must be regarded as stock in trade and that only the net interest on securities should be brought to tax as business income. This circular was later withdrawn by CBDT and it was clarified that the issue whether a particular investment in security would constitute stock in trade or not is a question of fact. All these issues have not been property considered by the A.O. or the Ld. CIT(A). The addition under such circumstances cannot be sustained.On these facts and circumstances of the case, we are of considered opinion that all these issues have to be examined in details by the A.O. and a fresh decision taken denovo, in accordance with law. Hence we set aside this issue to the file of the A.O.

Summary

Issues Involved:
Appeal against CIT (Appeals) order for assessment year 2009-10 involving additions on account of Bakshis & Tips, fraudulent withdrawals, provisions for gratuity, disallowance of interest paid on securities purchased as investments.

Analysis:

1. The appeal challenged the CIT (Appeals) order, arguing that the disallowances made were arbitrary and unjustified. The first ground was a general challenge to the order.

2. Grounds 2 and 3 contested the disallowance of expenditure on Tips & Baksis paid to casual workers during festivals. The Tribunal found that the payments were ex-gratia/bonus, authorized by the Board of Directors, and allowed this ground.

3. Ground 4 challenged the addition related to a provision for amortization. The Tribunal referred to CBDT instructions and previous tribunal decisions to allow this claim, deleting the disallowance.

4. Grounds 5, 6, and 7 disputed the addition of a sum for fraudulent withdrawals, which were provisions made in earlier years and not debited in the current year. The Tribunal found the addition baseless and deleted it.

5. Ground 8 contested the disallowance of a provision for gratuity, which the assessee proved was not made. The Tribunal deleted this addition.

6. Grounds 9, 10, and 11 involved the disallowance of interest payable on deposits and borrowings. The Tribunal found inconsistencies in the AO's treatment of pre-acquisition interest, directing a fresh examination by the AO.

7. The Tribunal allowed the appeal in part, setting aside certain additions and directing a fresh decision on the interest payable issue.

8. The decision was pronounced on 30th November 2017, with the appeal partially allowed for statistical purposes.