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TMI Blog2018 (6) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... could be disallowed as such. As far as half percent of average investment required to be considered for making disallowance is concerned, the ld.CIT(A) has already upheld disallowance upto ₹ 9.50 lakhs. The assessee has not challenged confirmation of such disallowance. It has raised grounds of appeal, but did not press at the time of hearing. Therefore, after taking into consideration the finding of the ld.CIT(A) we do not find any reason to interfere in it. - ITA No. 1234/Ahd/2016, ITA No. 1934/Ahd/2016 - - - Dated:- 6-6-2018 - Shri Pramod Kumar, Accountant Member And Shri Rajpal Yadav, Judicial Member Assessee by : Shri S.N. Soparkar, AR Revenue by : Shri Saurabh Singh, Sr.DR ORDER Per Rajpal Yadav, Judicial Member Assessee and Revenue are in cross appeals against order of the ld.CIT(A)-4, Ahmedabad dated 3.5.2016. First we take appeal of the assessee i.e. ITA No.1234/Ahd/2016. 2. First ground of appeal of the assessee is general ground of appeal, which does not call for specific adjudication, hence rejected. 3. Ground No.2: The assessee has pleaded that the ld.CIT(A) has erred in confirming the disallowance of ₹ 1,24,39,012/- out of var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4). To sum up, every year bank is creating reserve/fund for to meet with such expenses. When the said reserve/fund is created same is disallowed and added back to amount of net profit to derive at total taxable income. Whenever expenditure is incurred same are debited to respective fund/reserve a/c. As the nature of expenditure is not capital in nature or personal in nature and since it is incurred solely on the strength of business expediency which is duly supported by bye laws resolutions, vouchers, bills etc. etc. expenditure incurred being for the purpose of business only same may kindly be allowed. Your assessee shall be happy to furnish, further details/explanation if so required by your Honour. (b) For making claim of expenditure, though not directly charged to Profit and Loss Account but debited to respective fund a/c, we clarify that your assessee bank is registered under Multi State Co. Op. Societies Act, 1984. The profit of the Bank is apportioned to various reserves like Reserve Fund, Education Fund, Charity Fund, Member/Customer Incentive Fund, Building Fund etc. as per bye-Laws of the Bank. Since these amounts are appropriations, they cannot be consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int of businessman. Here are some illustrative cases where in facts of the cases the expenditure incurred was held allowable on the ground of commercial expediency. (i) Indian Leaf Tobacco Development Co. Ltd. V. C.I. T.( Ex-gratia payments to the dependents of former employees ) 137ITR 827 (Cal) (ii) CITV. Hindustan Mo tors L td. (Payment of pension to the wife of a deceased employees as also to a retired employee) 175 ITR 411 (Cat.) (iii) CIT V. Development TrustPvt. Ltd. (Expenditure incurred by assessee on construction of a school building in a colony) 198 ITR 766 (All.) (iv) Contribution made by a Co. Op. Society to education fund in order to be able to pay a high, dividend to its members is wholly and exclusively for the purpose of its business. Mehsana D/st. Co. Op. Milk Produces V. Union of India 203 ITR 601 (Gujarat) CIT V. Kaira Dist. Co. Op. Milk produces V. Union of India 209 ITR 898 ( Gujarat) (V) Payment made voluntarily are not to be disallowed only on account of their voluntary character so long as there is a reasonable nexus between the expenditure and the business, the expenditure will be regarded having been incurred for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 8D of the Income Tax Rules. The ld.counsel for the assessee did not press this ground of appeal. 9. In Ground No.4, the assessee has challenged initiation of penalty proceedings under section 271(1)(c) of the Act. This is premature at this stage. Penalty is yet to be imposed upon the assessee, hence no separate adjudication is called for, hence it is rejected. 10. Ground No.5: The assessee has challenged charging of interest under section 234/B and 234/C. However, no arguments were advanced, and it was submitted that it is sequential in nature. Hence, this ground is rejected. 11. No other grounds were pressed by the ld.counsel for the assessee. In view of the above, appeal of the assessee is partly allowed. 12. Now we take appeal of the Revenue i.e. ITA No.1934/Ahd/2016. 13. In the first ground of appeal, grievance of the Revenue is that the ld.CIT(A) has erred in deleting disallowance of amortized premium amounting to ₹ 2,80,22,415/-. 14. Brief facts of the case are that on scrutiny of the accounts, it revealed to the AO that the assessee has written off government security premium to the extent of ₹ 2,80,22,415/-. It is pertinent to observe that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um paid on the face value of the security, the loss had to be amortised. Paragraph (vii) of the CBDT Circular No.17 of 2008 dated November 26, 2008 would apply. Such instruction reads as under: (vii) As per RBI guidelines dated 16th October, 2000, the investment portfolio of the banks is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortised over the period remaining to maturity. In the case of HFT and AFT securities forming stock-in-trade of the bank, the depreciation/ appreciation is to be aggregated scrip-wise and only net depreciation, if any, is required to be provided for in the accounts. The latest guidelines of the RBI may be referred to for allowing any such claims. 7. The instructions clearly provide for amortisation of premium paid on acquisition of securities when the same are acquired at the rate higher than the face value. Such amortisation would have to be for the remaining period of ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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