2012 (12) TMI 1238 - AT - Income Tax

Co-op Bank's Welfare Expenditure Deemed Allowable under Income Tax Act Section 37(1)

The DCIT, Circle-2, Junagad Versus Amreli Nagrik Sahakari Bank Ltd.

The Revenue's appeal against the order of Ld. CIT(A)-IV, Rajkot, concerning the disallowance of Rs. 14,35,000/- expenditure by a Co-operative Bank for ... - Issues involved: Appeal by Revenue against the order of Ld. CIT(A)-IV, Rajkot regarding the deletion of addition of Rs. 14,35,000/- made by the AO for disallowing expenditure incurred by the bank towards welfare of the members.Summary:Issue 1: The AO disallowed the expenditure of Rs. 14,35,000/- claimed by the Co-operative Bank for welfare activities of its members, stating it does not fall under expenses allowable u/s 37 of the Income Tax Act, 1961, as it was voluntary and not wholly and exclusively for business purposes.Decision 1: The ld. CIT(A) held that the welfare expenditure on members is essential for the business of the bank as members invest and borrow from the bank. Citing the judgment of the Hon'ble Gujarat High Court, the expenditure was considered allowable u/s 37(1) of the Act as it appreciates the members' contribution and motivates their support to the bank.Issue 2: The Revenue contended that the expenditure should not be allowed as it was personal in nature and not directly related to the business activities of the Co-operative Bank.Decision 2: The Tribunal found that the expenditure on welfare activities for members is integral to the business purpose of the bank, as supported by the precedent set by the Hon'ble Gujarat High Court in similar cases. The gifts and welfare activities for members were deemed as serving the business purpose, making them allowable u/s 37(1) of the Act.Final Decision: The appeal by the Revenue was dismissed, upholding the order of Ld. CIT(A)-IV, Rajkot, and confirming the allowance of the expenditure of Rs. 14,35,000/- for welfare activities of the members of the Co-operative Bank.