|The Tax Publishers2020 TaxPub(DT) 4957 (Mum-Trib)
INCOME TAX ACT, 1961
Where on finalization of accounts for the year ended, the matter of appropriation of the net profit was considered by Board of Directors of the assessee bank at its Board meeting, wherein resolution was passed to the effect of recommending payment for ex gratia to employees and said exgratia to employees were actually paid by assessee bank and hence, the same cannot be held as contingent liability, therefore, there was no debit to profit and loss account and there cannot be any disallowance of any deduction thereon by AO.
Business expenditure - Provision of ex gratia expenses - Allowable expenses or contingent liability -
AO had sought to examine the allowability of claim of deduction of exgratia and observed that Form 3CD filed by assessee did not contain any details of such expenditure and concluded that the said provision for ex-gratia to its employees was merely a contingent liability and hence not allowable as deduction. Assessee had pleaded before the lower authorities that section 63(2)(d) of the Multi-State Co-operative Bank Societies Act, 2002 inter alia provides that balance of net profits may be utilized for payment of ex-gratia amount to employees to the extent and manner specified in the bye-laws and that as per assessee's bye-law 52(b)(iv), ex-gratia payment out of the profits of bank has to be made and approved by the Board of Directors of the assessee bank. Held: In the case of the assessee, on finalization of accounts for the year ended, the matter of appropriation of the net profit was considered by the Board of Directors of the assessee bank at its Board meeting held on 26-5-2009, wherein resolution was passed to effect of recommending payment for ex gratia to employees. Said ex gratia to employees was actually paid by assessee bank and hence the same cannot be held as contingent liability. Provision for ex-gratia amount was debited to profit and loss account in the earlier assessment year, i.e., 2009-10 and during assessment year 2010-11, the said liability account was debited while making actual payment. Therefore, there was no debit to profit and loss account and there cannot be any disallowance of any deduction thereon by AO.
Relied:CIT v. New India Co-op. Bank Ltd. 2020 TaxPub(DT) 2741 (Bom-HC), CIT v. Travancore Titanium Products [ITA No. 104 of 1988 dated 18-8-1990] and Dy. CIT v. New India Co-op Bank Ltd. [ITA No.4927/Mum/2017, dt. 5-12-2018].
FAVOUR : In assessee's favour.
A.Y. : 2010-11
IN THE ITAT, MUMBAI BENCH
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