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2018 (9) TMI 1620 - AT - Income TaxAddition on account of interest on reverse fund - Held that - The assessee has made a provision in the profit & loss account as interest on reserve fund . This provision is made by the assessee on notional basis and not accrued liability, therefore, Assessing Officer has made addition on this count and the ld. CIT(A) confirmed the same on the ground that it is a provision on notional basis and does not ascertain to be accrued liability. We find no infirmity in the order passed by the ld. CIT(A). Thus, this ground of appeal raised by the assessee is dismissed. Addition on account of interest on deficit cover fund - Held that - As find that it is a provision made by the assessee on notional basis and it cannot be considered as an accrued liability. Mere provision made in the accounts would not be eligible for deduction. We find that ld. CIT(A) correctly confirmed the order of the Assessing Officer. Thus, this ground of appeal raised by the assessee is dismissed. Addition of claim towards staff gratuity - Held that - In the instant case the assessee has made the payments to the LIC towards group gratuity scheme directly in approved schemes. The assessee has also obtained the policy in favour of the bank. The assessee has no control over the funds contributed to LIC towards the gratuity. The assessee is receiving the gratuity payment directly from the LIC of India as per the scheme which is paid to the employee on happening of the event i. e. retirement or death or resignation. We hold that the assessee is entitled for the deduction for payment of gratuity to LIC and accordingly, we set aside the order of the lower authorities and allow the appeal of the assessee. Amortization loss on account of merger of Palakol Cooperative Urban Bank - Held that - It is very clear that assessee company being an Indian company can only make a claim under section 35DD of the Act. The Income Tax Act, 1961 has defined what is an Indian company, as per section 2(26), Indian company means a company formed and registered under the companies Act 1956. In the present case, the assessee is not an Indian company and not registered under the Companies Act, 1956. It is only a Co-operative bank, therefore, assessee is not eligible to make claim under section 35DD of the Act. The main condition which needs to be fulfilled is that the said loss should have been allowable in the hands of Palakol Bank (Amalgamated bank) as per the provisions of the Act. The entitlement as to allowance of such loss in the hands of Palakollu Bank or its eligibility otherwise to be carried forward under the provisions of section 72 was not proved. Therefore, once this condition is not fulfilled the acquirer bank (assessee) is not eligible to carry forward the said losses/unabsorbed depreciation as per the provisions of section 72AB of the Act. We find that the Assessing Officer has rightly denied the claim of the assessee and the same is confirmed by the ld. CIT(A). We find that the assessee neither acquired goodwill nor any commercial right. Therefore, assessee is not eligible for claim under section 32 of the Act. We find no reason to interfere with the order passed by the ld. CIT(A). Thus, this ground of appeal raised by the assessee is dismissed. Amortization of premium on Government Securities i. e. HTM - 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 Assessing Officer to allow this claim and delete the addition. The ld. Departmental Representative has not pointed out any error in the order passed by the ld. 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, this ground of appeal raised by the Revenue is dismissed.
Issues Involved:
1. Addition of ?26,10,443/- on account of interest on reserve fund. 2. Addition of ?7,72,033/- on account of interest on deficit cover fund. 3. Disallowance of staff gratuity claim. 4. Amortization loss on account of merger of Palakol Cooperative Urban Bank. 5. Interest on share capital paid towards bank. 6. Addition in respect of interest paid to the members of the cooperative bank under section 40(a)(ia) of the Act. 7. Amortization of premium on Government Securities (HTM). Issue-wise Detailed Analysis: 1. Addition of ?26,10,443/- on account of interest on reserve fund: The Assessing Officer (AO) noted that the assessee claimed ?26,10,443/- as interest on the reserve fund, treating it as an expenditure. The AO disallowed this, treating it as appropriation of profit, not an accrued liability. The CIT(A) upheld the AO's decision, stating that the provision was notional. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the assessee's appeal on this ground. 2. Addition of ?7,72,033/- on account of interest on deficit cover fund: The AO disallowed the interest on the deficit cover fund, treating it as appropriation of profit. The CIT(A) confirmed this, stating the provision was notional. The Tribunal upheld the CIT(A)'s decision, agreeing that it was not an accrued liability and dismissed the assessee's appeal. 3. Disallowance of staff gratuity claim: The AO disallowed ?4,58,983/- claimed as staff gratuity since the gratuity fund was not approved by the Commissioner of Income Tax. The CIT(A) upheld this decision. The Tribunal, however, allowed the assessee's appeal, following the coordinate bench's decision in a similar case, stating that the payment made to LIC towards group gratuity scheme is allowable. 4. Amortization loss on account of merger of Palakol Cooperative Urban Bank: The AO disallowed the amortization loss claimed by the assessee, stating that the specific provisions of the Income Tax Act override RBI guidelines. The CIT(A) upheld this, noting that the losses were not eligible for carry forward as per section 72AB. The Tribunal confirmed the CIT(A)'s order, stating that the assessee neither acquired goodwill nor any commercial right, thus not eligible for the claim under section 32 of the Act. 5. Interest on share capital paid towards bank: The AO disallowed ?61,58,437/- claimed as interest on share capital, treating it as appropriation of profit. The CIT(A) allowed the deduction, following the ITAT's decision in a similar case. The Tribunal upheld the CIT(A)'s order, agreeing that the interest on share capital paid to the members is an allowable deduction. 6. Addition in respect of interest paid to the members of the cooperative bank under section 40(a)(ia) of the Act: The AO disallowed interest payments exceeding ?10,000/- to members without TDS deduction. The CIT(A) deleted the disallowance, following the ITAT's decision and CBDT Circular No. 9/2002. The Tribunal upheld the CIT(A)'s order, confirming that the assessee is not required to deduct TDS on interest payments to its members. 7. Amortization of premium on Government Securities (HTM): The AO disallowed the amortization of ?2,68,790/- on Government Securities, treating it as a contingent liability. The CIT(A) directed the AO to allow the claim, following CBDT Instruction No. 17/2008. The Tribunal upheld the CIT(A)'s order, agreeing that the claim was in accordance with the CBDT instruction. Conclusion: The assessee's appeals were partly allowed, particularly on the issue of staff gratuity, while the Revenue's appeals were dismissed, affirming the CIT(A)'s decisions on various grounds. The Tribunal upheld the CIT(A)'s orders where they followed established legal precedents and CBDT instructions.
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