2022 (5) TMI 856 - AT - Income Tax

Tribunal upholds assessee's claims for expenses including centenary celebrations and gift distribution.

Deputy Commissioner of Income Tax Circle-2 (2), Surat Versus The Surat District Co- Operative Bank Ltd. Kanpith

Deputy Commissioner of Income Tax Circle-2 (2), Surat Versus The Surat District Co- Operative Bank Ltd. Kanpith - TMI Issues Involved:1. Deletion of disallowance of Rs. 3,66,25,000/- claimed under Section 36(1)(viia) of the Income Tax Act.2. Deletion of disallowance of Rs. 46,77,004/- for Centenary Celebration Fund.3. Deletion of disallowance of Rs. 7,72,099/- for Gift Distribution Fund.4. Deletion of disallowance of Rs. 8,83,239/- for Society Relief Fund.Detailed Analysis:1. Deletion of Disallowance under Section 36(1)(viia):The Revenue contested the deletion of Rs. 3,66,25,000/- disallowed by the Assessing Officer (AO) under Section 36(1)(viia) of the Income Tax Act. The AO had disallowed the provisions for bad and doubtful debts under various heads, arguing that they did not qualify as provisions for bad and doubtful debts. The AO's contention was that these amounts were reserves created from profits and not provisions for bad debts. The CIT(A) allowed the deduction, noting that the assessee fulfilled the conditions under Section 36(1)(viia), which permits deductions up to 7.5% of total income and 10% of aggregate average advances made by rural branches. The Tribunal upheld the CIT(A)’s decision, noting that the assessee had consistently been allowed similar deductions in previous years and that the provisions were made in compliance with statutory requirements and RBI guidelines.2. Deletion of Disallowance for Centenary Celebration Fund:The AO disallowed Rs. 46,77,004/- claimed for Centenary Celebration Fund due to the assessee's failure to produce supporting bills/vouchers. The CIT(A) overturned this disallowance, accepting the assessee’s submission that the expenses were incurred wholly and exclusively for business purposes, supported by resolutions, office notes, and invoices. The Tribunal upheld the CIT(A)’s decision, noting that the expenses were for a significant business event, presided over by the Governor of Gujarat, and were thus allowable under Section 37(1) of the Act.3. Deletion of Disallowance for Gift Distribution Fund:The AO disallowed Rs. 7,72,099/- for Gift Distribution Fund on similar grounds of lack of evidence. The CIT(A) accepted the assessee's detailed submissions and supporting documents, which demonstrated that the expenses were incurred as part of the centenary celebrations and were business-related. The Tribunal agreed with the CIT(A), noting that the expenses were for gifts to valued customers and contributors, which were reasonable and customary in business practice.4. Deletion of Disallowance for Society Relief Fund:The AO disallowed Rs. 8,83,239/- for Society Relief Fund, citing insufficient evidence. The CIT(A) found that the expenses were properly documented and incurred for legitimate business purposes, such as providing relief to members and supporting community activities. The Tribunal upheld the CIT(A)’s decision, emphasizing that such expenses are common for cooperative banks and are allowable under Section 37(1).Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)’s order that allowed the assessee’s claims under Section 36(1)(viia) and for various expenses related to centenary celebrations, gift distribution, and society relief. The Tribunal’s decision was based on the consistent application of statutory provisions and previous allowances of similar claims, as well as the adequacy of documentation provided by the assessee.