Case Law Details

Case Name : DCIT Vs Prathamik Shikshak Sahakari Bank Ltd. (ITAT Pune)
Appeal Number : ITA No.1307/PUN/2017
Date of Judgement/Order : 19/08/2019
Related Assessment Year : 2013-14
Courts : All ITAT (7336) ITAT Pune (249)

DCIT Vs Prathamik Shikshak Sahakari Bank Ltd. (ITAT Pune)

Brief facts relating to the issue are that the Assessing Officer was of the view that in the absence of any scheme formulated by the assessee bank, the amount paid as ex-gratia to prematurely retiring employees was not to be allowed as deduction. The case of assessee on the other hand, was that the said payment was made in recognition of long term and meritorious services of the employees. The assessee had claimed the said expenditure as ex-gratia payment as in the nature of profits and in lieu of salary, and on the same, TDS was also deducted. However, the Assessing Officer disallowed the said expenses in view of section 35DDA of the Act and also held that they were not allowed as deduction under section 37(1) of the Act. The CIT(A) allowed the claim of assessee following the order of Tribunal in the case of another bank.

Where the assessee in recognition of the services provided to its retiring employees make certain ex- gratia payments in recognition of their services, which are not based on any scheme or instruction formulated by the employer assessee, then the same partakes the nature of profit in lieu of salary. The relationship between the assessee and retiring employees was admittedly as of employer and employee and the remuneration paid to such employees is part of the salary due to the said employee. Even the ex-gratia payment made by the assessee over and above the remuneration due to the employees partakes the character of profits in lieu of salary to such employee and is duly allowable as an expenditure in the hands of the assessee under section 37(1) of the Act.

FULL TEXT OF THE ITAT JUDGEMENT

The appeal filed by Revenue is against order of CIT(A)-4, Pune, dated 27.02.2017 relating to assessment year 2013-14 against order passed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’).

2. The Revenue has raised the following grounds of appeal:-

1. On the fact and in circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.2,69,663/- on account of broken period interest.

2. On the facts and in circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.64,47,429/- on account of voluntary retirement payments made to the staff at the time of their leaving the employment, without appreciating the fact that any payments made to them over and above the due salary, cannot partake the character of profits in lieu of salary.

3. For this and such other reasons as may be urged at the time of hearing, the order of the CIT(A) may be vacated and that of the Assessing Officer be restored.

3. The learned Authorized Representative for the assessee at the outset pointed out that both the issues raised in the present appeal are squarely covered by the order of Tribunal in assessee’s own case for assessment year 2011-12.

4. On perusal of record, we find that the first issue raised by Revenue is against deletion of addition made on account of broken period interest. Similar issue arose before the Tribunal in assessee’s own case for assessment year 2010-11 in ITA No.1725/PN/2014, order dated 18.05.2016 and for assessment year 2011-12 in ITA No.491/PUN/2015 order dated 17.05.2017. The Tribunal in turn, relying on the ratio laid down by the Hon’ble Bombay High Court in CIT HDFC Bank Ltd. reported in 366 ITR 505 (Bom) had held that broken period interest was allowable as deduction. The relevant findings of Tribunal in para 8, which are as under:-

“8. Similar issue arose before the Tribunal in assessee’s own case relating to assessment year 2010-11. The Tribunal relied on the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. HDFC Bank Ltd. reported in 366 ITR 505 (Bom), which in turn had relied on the ratio laid down by the Hon’ble Bombay High Court in American Express International Banking Corporation Vs. CIT reported in 258 ITR 601 (Bom), which in turn, had distinguished the ratio laid down by the Hon’ble Supreme Court in Vijaya Bank Vs. CIT (supra) and the Hon’ble High Court of Rajasthan in CIT Vs. Bank of Rajasthan Ltd. (supra) and had held that broken period interest is allowable as deduction. Following the same parity of reasoning, we hold that the assessee is entitled to the claim of broken period interest of Rs.16,97,027/-. The ground of appeal No.1 raised by the assessee is thus, allowed.”

5. Following the same parity of reasoning, we hold that the assessee is entitled to claim the deduction on account of broken period interest and dismiss the ground of appeal No.1 raised by Revenue.

6. Coming to the second issue raised i.e. on account of disallowance of payments made to retiring staff i.e. on their voluntary retirement.

7. Brief facts relating to the issue are that the Assessing Officer was of the view that in the absence of any scheme formulated by the assessee bank, the amount paid as ex-gratia to prematurely retiring employees was not to be allowed as deduction. The case of assessee on the other hand, was that the said payment was made in recognition of long term and meritorious services of the employees. The assessee had claimed the said expenditure as ex-gratia payment as in the nature of profits and in lieu of salary, and on the same, TDS was also deducted. However, the Assessing Officer disallowed the said expenses in view of section 35DDA of the Act and also held that they were not allowed as deduction under section 37(1) of the Act. The CIT(A) allowed the claim of assessee following the order of Tribunal in the case of another bank.

8. We find that this issue also arose before the Tribunal in assessee’s own case in assessment year 2011-12 (supra) and the Tribunal vide paras 9 to 14 had decided the issue and allowed the claim of assessee. We are referring to the said paras but not reproducing the same for the sake of brevity.

Accordingly, we find no merit in the ground of appeal No.2 raised by the Revenue and the same is dismissed.

9. In the result, the appeal of Revenue is dismissed.

Order pronounced on this 19th day of August, 2019.

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