TaxTMI 
TaxTMI 
2016 (9) TMI 1182
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.... (c) Gifts to Members Rs. 82,10,889 Total Rs.1,07,11,630 3. The learned CIT(A) has erred in upholding the addition of Rs. 2,25,617/- made on the basis of AIR data. 4. The learned CIT(A) has erred in not adjudicating upon ground relating to initiation of penalty proceeding. 3. The brief facts of the case are that the assessee is a co-operative bank which filed its original return of income for the year under consideration on 29.09.2008 declaring total income at Rs. 35,17,13,880/-. Thereafter, a revised return was filed on 08.05.2009 declaring total income at Rs. 34,57,36,040/-, which was consequent to change of depreciation. Subsequently, the case of the assessee was selected for scrutiny through CASS and the assessment was framed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") vide order dated 28.12.2010. While framing the assessment, the Assessing Officer made various additions under the following heads:- i) Scholarship of students - Rs. 5,05,741/- ii) Payment to legal heirs of members - Rs.19,95,000/- iii) Gifts to Members - Rs.82,10,889/- iv) Interest ot....
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....During the course of appellate proceedings, the appellant was also asked to explain the scheme of gift coupons and also the accounting treatment of the funds utilised for gift. The appellant has submitted that gift coupons are issued on the basis of membership i.e. one coupon is given to each member irrespective of shares held by members. The value of the one coupon did not exceed Rs. 250/- to Rs. 300/-. The gifts were given between two three years to members so that they continue to place deposit with the appellant bank only. The appellant has also relied on the decision of High Court of Gujarat in the case of Karzan Co-operative Cotton Sales Ginning and Processing Society Vs. CIT [199 ITR 17, Gujarat]. Regarding the accounting treatment, it was explained by the appellant that every year, certain provision is made from the profit of the company by setting aside 5% of the profit to the member / customer incentive fund. This adjustment is in the nature of appropriation of the profit and is done below the profit and loss account. Whenever, some gift or any expenditure is made from this fund, the same is claimed as deduction out of the taxable income for the year in the statement of i....
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....who were also customers of the bank. He referred to various para of the details furnished to the Assessing Officer mentioned in the paper-book filed. The scholarship to student is provided to promote the education and to inspire students to secure more marks and the amount of scholarship per student vary from Rs. 1001/- to Rs. 3501/-. More than 95% business of advances/deposits etc is through members only and nature of gifts which hardly cost to Rs. 250 to Rs. 300/- per coupon are provided for keeping good relation with members. He also stated that expenditures as explained above were incurred to increase the confidence and faith of the members in the bank which certainly help to promote and increase the business activity. The nature of these expenditure is not of capital nature or personal in nature and incurred for business expediency according to the scheme framed with rules and regulations approved in the AGM of bank. 5.2 Ld. Counsel for the assessee also relied on the following case laws:- a) Judgment of Hon'ble Calcutta High Court in the case of Indian Leaf Tobacco Development Co. Ltd, 137 ITR 827; b) Hon'ble Calcutta High Court's judgment in the case of ....
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.... prevailing competition so that the members place their deposits with the assessee bank and also continue to borrow funds from the assessee bank in order to improve the profit earning and income of the assessee bank. We have also considered that the amount spent on the aforesaid expenditures is very marginal compared to the amount of interest realized on the advances made to the members by the bank and amount of deposit made by the members with the bank. Under these circumstances the amount spent on scholarship to the children of members, payment to legal heirs of members and gifts to members could be said to be expenditure incurred wholly and exclusively for the purpose of business since the amount was spent for keeping alive its good image amongst its members and ensuring that goodwill and continuity of business with the members. In view of above mentioned facts and circumstances, we find that the assessee had incurred above stated expenditure for promoting the business, even though there is no legal obligation to incur these expenditure but the assessee had incurred it for preserving business connection and goodwill of the business. Therefore, in view of above findings, we allow....