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2022 (3) TMI 895 - AT - Income TaxInterest on share capital paid to the members of the bank - As per AO said interest amount should be treated as an appropriation of profit and added to the total income - whether interest paid on share capital is allowable deduction or not? - HELD THAT - CIT(A) has considered the order in the case of Visakhapatnam Cooperative Urban Bank Ltd. 2016 (9) TMI 1465 - ITAT VISAKHAPATNAM and came to a conclusion that interest on share capital paid to the members is an allowable deduction.we find no infirmity in the order passed by the ld.CIT(A). Thus, these grounds of appeal raised by the revenue are dismissed. TDS u/s 194A - Disallowance of interest paid to the members of the cooperative bank under section 40(a)(ia) - CIT-A deleted the addition - HELD THAT - As decided in VISAKHAPATNAM CO-OP. BANK LTD. 2016 (9) TMI 1465 - ITAT VISAKHAPATNAM we find no infirmity in the order of the ld. CIT(A). Thus, these grounds of appeal raised by the Revenue are dismissed. Amortization of premium on Government Securities i.e. HTM - AO has not accepted the explanation of the assessee for the reason that the actual expenditure was not incurred by the assessee and only a provision i.e., a contingent liability was made which may become payable at a future date. Contingent liabilities do not constitute expenditure and cannot be the subject matter of deduction even under the mercantile system of accounting - CIT-A allowed the claim - HELD THAT - From the details filed, it is seen that the securities were held under HTM category and the premium paid over the cost of acquisition have been amortized over a period of maturity and claimed as allowance. He found that assessee s claim is in accordance with the CBDT Instruction and directed the AO to allow this claim and delete the addition. The ld. Departmental Representative has not pointed out any error in the order passed by the CIT(A), which is neither contrary to any provision of law nor CBDT Circular. We have also considered CBDT circular and find that ld. CIT(A) by following the Circular No. 17/2008, dated 26/11/2008 directed the Assessing Officer to delete the addition. We find no infirmity in the order of the ld.CIT(A). Thus, these grounds of appeal raised by the Revenue are dismissed. Disallowance of premium paid to LIC of India towards gratuity liability of employees - HELD THAT - Admitted facts are that the payments towards liability directly made to LIC of India as a premium based on actuarial valuation, where the policy governing the fund is unapproved by CIT as on the date of contribution by way of premium. CIT(A) also agreed to the fact that the application for approval of gratuity fund was made by the assessee to CIT on 08.11.2011, which is yet to be approved by CIT. The Ld.CIT(A) relying on the decision of Capital IQ Information Systems (India) P Ltd 2014 (1) TMI 649 - ITAT HYDERABAD allowed the claim of the assessee. Thus we concur with in the directions of the Ld.CIT(A) and consequently this ground raised by the Revenue is dismissed.
Issues Involved:
1. Interest on share capital paid to the members of the bank. 2. Disallowance of interest paid to the members of the cooperative bank under section 40(a)(ia) of the Act. 3. Amortization of premium on Government Securities (HTM). 4. Disallowance of premium paid to LIC of India towards gratuity liability of employees. Detailed Analysis: Issue 1: Interest on Share Capital Paid to the Members of the Bank During the assessment proceedings, the Assessing Officer (AO) noted that the assessee had debited ?94,00,000/- towards interest on share capital for the Assessment Year (A.Y.) 2014-15. The AO contended that this interest should be treated as an appropriation of profit and not allowed as a deduction. The assessee argued that under the A.P. Mutually Aided Cooperative Societies Act, 1995, interest on share capital is permissible. The AO disallowed the claim, but on appeal, the CIT(A) referenced a prior ITAT decision in the case of Visakhapatnam Cooperative Urban Bank Ltd., which allowed such deductions. The Tribunal upheld the CIT(A)'s decision, affirming that interest on share capital paid to members is an allowable deduction. Issue 2: Disallowance of Interest Paid to the Members of the Cooperative Bank Under Section 40(a)(ia) The AO observed that the assessee paid interest exceeding ?10,000/- to various depositors totaling ?12,25,69,245/- without deducting tax at source (TDS) as required under section 194A of the Act. The assessee argued that section 194A(3)(v) exempts cooperative societies from deducting TDS on interest paid to members. The AO rejected this claim, but the CIT(A) referenced the ITAT's decision in the case of Visakhapatnam Cooperative Bank Ltd., which held that such interest payments to members are exempt from TDS under section 194A(3)(v). The Tribunal upheld the CIT(A)'s decision, confirming that the assessee was entitled to the exemption and the disallowance was unjustified. Issue 3: Amortization of Premium on Government Securities (HTM) The assessee claimed ?2,43,742/- as amortization of premium on Government Securities (HTM) in its profit & loss account for A.Y. 2014-15. The AO disallowed this claim, considering it a contingent liability. On appeal, the CIT(A) followed CBDT Instruction No. 17/2008, which allows amortization of premium on HTM securities over their maturity period. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in allowing the claim as it was consistent with the CBDT instruction. Issue 4: Disallowance of Premium Paid to LIC of India Towards Gratuity Liability of Employees The AO disallowed ?5,75,212/- paid to LIC of India for gratuity liability, as the gratuity fund was not approved by the CIT. The CIT(A) allowed the claim, referencing a decision by ITAT, Hyderabad. The Tribunal concurred with the CIT(A), noting that the premium was paid based on actuarial valuation, and the application for fund approval was pending. The Tribunal found no error in the CIT(A)'s decision and dismissed the Revenue's appeal. Cross Objections by the Assessee The cross objections filed by the assessee were in support of the CIT(A)'s orders and were dismissed as infructuous since there was no grievance against the CIT(A)'s decisions. Conclusion The Tribunal dismissed the appeal filed by the Revenue and the cross objections filed by the assessee, upholding the CIT(A)'s decisions on all issues. The order was pronounced in open Court on 16th March, 2022.
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