Tamil Nadu Industrial Explosives Ltd., CHENNAI V. ACIT, CHENNAI

CO 52/CHNY/2015

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 1896 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-11-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 08-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K GOPAL RAO
• Assessee Lawyers: P RADHAKRISHNAN
• Keywords: Reasonable cause; Condonation of delay; Revised return
• Section: 143(3); 115JB; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER I.T.A.NOS.1925 & 1926/MDS/2012 & C.O.NOS.52 & 53/MDS/2015 ( IN ITA NOS.1925 & 1926/MDS/2012) ( / ASSESSMENT YEARS: 2001-02 & 2002-03) ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-III(1), CHENNAI-34. VS M/S. TAMIL NADU INDUSTRIAL EXPLOSIVES LTD. 735, ANNA SALAI, LLA BUILDING, 1 ST FLOOR, CHENNAI-600 002. PAN:AABCT0743K ( /APPELLANT) (RESPONDENT/CROSS OBJECTOR) / APPELLANT BY : MR. P.RADHAKRISHNAN, JCIT /RESPONDENT BY : MR. K.GOPAL RAO, C.A. /DATE OF HEARING : 23 RD NOVEMBER, 2015 /DATE OF PRONOUNCEMENT : 29 TH JANUARY, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM: THESE TWO APPEALS AND CROSS OBJECTIONS ARE FILED BY THE REVENUE AND ASSESSEE RESPECTIVELY AGGRIEVED BY THE COMMON ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENNAI DATED 16.07.2012 IN ITA NOS .614 & 615/07-08/A.III PASSED UNDER SECTION 143(3) READ WITH SECTION 263 OF THE ACT. 2. THE CROSS OBJECTIONS FILED BY THE ASSESSEE WERE BARRED BY LIMITATION OF 910 DAYS. THE ASSESSEE HAS FILED A N AFFIDAVIT EXPLAINING THE REASON THAT DUE TO CHANGE IN THE COU NSEL THERE 2 ITA NO.1925 & 1926/MDS/2012 & C.O.NOS.52 & 53/MDS/2015 WAS A DELAY IN FILING OF CROSS OBJECTIONS AND THERE FORE PRAYED FOR CONDONATION OF DELAY. WE HAVE PERUSED THE REASO NS AND ARE SATISFIED THAT THERE IS A REASONABLE CAUSE FOR THE DELAY IN FILING OF THE CROSS OBJECTIONS BY THE ASSESSEE. THE REFORE IN THE INTEREST OF JUSTICE, WE HEREBY CONDONE THE DELA Y IN FILING OF THE CROSS OBJECTIONS. THE PETITION FOR CONDONATION OF DELAY IS ALLOWED AND THE CROSS OBJECTIONS ARE ADMITTED. MORE OVER, THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE ONLY IN SUPPORT OF THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS). 3. THOUGH THE REVENUE CHALLENGES THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON SEVERAL GR OUNDS, HOWEVER THE COMMON EFFECTIVE TWO GROUNDS ARE CONCIS ED AS UNDER:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) HAS ERRED BY HOLDING THAT THE LIABILITY ON ACCOUNT OF G RATUITY FOR BOTH THE ASSESSMENT YEARS AND BONUS FOR THE ASSESSM ENT YEAR 2001-02 ARE ASCERTAINED LIABILITY AND THEREFOR E ALLOWABLE AS DEDUCTION AND ADDITION CANNOT BE MADE IN THE BOO K PROFIT 3 ITA NO.1925 & 1926/MDS/2012 & C.O.NOS.52 & 53/MDS/2015 FOR THE PURPOSE OF COMPUTING TAX UNDER SECTION 115J B OF THE ACT. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN DELETING ADDITION MADE ON ACCOUNT OF UNDER -CREDIT OF THE INSURANCE CLAIM RECEIVED TO THE TUNE OF ` 27,44,789 FOR THE ASSESSMENT YEAR 2002-03. 4. BRIEF FACTS ARE THAT THE ASSESSEE COMPANY IS A GOVERNMENT OF TAMIL NADU UNDERTAKING ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF EXPLOSIVES, FIL ED ITS RETURNS OF INCOME FOR THE ASSESSMENT YEARS 2001-02 ON 31.10.2001 AND 2002-03 ON 30.10.2002. SUBSEQUENTLY, THE ASSESSEE COMPANY FILED REVISED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2001-02 ON 17.12.2002. THEREAFTER, ASSESSMENTS WERE MADE. HOWEVER, PURSUANT TO THE DIRECTIONS OF THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) UNDER SECTION 263 OF THE ACT, ASSESSMENT WAS MADE UNDER SECTION 143(3) READ WITH SECTION 263 OF THE ACT ON 28.12.2007 FOR BOTH THE ASSESSMENT YEARS. 4 ITA NO.1925 & 1926/MDS/2012 & C.O.NOS.52 & 53/MDS/2015 GROUND NO.1: (PROVISION FOR GRATUITY & BONUS): 5. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE HAD PROVIDED A SUM OF RS.68,42,481/- TOWA RDS PROVISION FOR GRATUITY FOR THE ASSESSMENT YEAR 2001 -02 AND RS.53,82,440/- FOR THE ASSESSMENT YEAR 2002-03 AND RS.40,86,811/- ON ACCOUNT OF PROVISION FOR BONUS FO R THE ASSESSMENT YEAR 2001-02. SINCE THE ASSESSEE HAD NOT EXPLAINED AS TO WHY THE PROVISIONS MADE ON ACCOUNT OF GRATUITY AND BONUS WAS NOT ADDED TO THE BOOK PROFIT FOR COMPUTING TAX UNDER SECTION 115JB IN TERMS OF CLAUS E (C) OF THE ACT, HE ADDED THE SAME TO THE BOOK PROFIT OF TH E ASSESSEE. ON APPEAL, THE LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) DELETED THE ADDITION BY OBSERVING AS UNDER:- PROVISION FOR GRATUITY:- 4.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION OF THE LD. AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE ID.AR. AS SUBMITTED BY THE ID.AR, THE APPELLANT FOLLOWS MERCA NTILE SYSTEM OF ACCOUNTING. THE LIABILITY TO PAY GRATUITY IS A STATUTORY LIABILITY AND THE SAME HAS ALSO BEEN ASCERTAINED ON AN ACTUARIAL BASIS. THE HON'BLE BOMB AY HIGH COURT IN THE CASE OF ECHJAY FORGINGS PVT. LTD (SUPRA) HAS HELD THAT WHERE THE ASSESSEE HAS MADE T HE PROVISION FOR GRATUITY ON THE BASIS OF ACTUARIAL CALCULATIONS, THE SAME CANNOT BE SAID TO BE A PROVI SION FOR OTHER THAN AN ASCERTAINED LIABILITY AS PROVIDED FOR 5 ITA NO.1925 & 1926/MDS/2012 & C.O.NOS.52 & 53/MDS/2015 UNDER. EXPLANATION-1 TO SEE 115JB(2). IN THE APPELL ANT'S CASE ALSO, AS STATED EARLIER, THE PROVISION HAS BEE N MADE BASED ON ACTUARIAL VALUATION. THEREFORE, THE S AME CANNOT BE DISALLOWED IN COMPUTING THE BOOK PROFIT U /S 115JB. HENCE, RESPECTFULLY FOLLOWING THE DECISION O F HON'BLE BOMBAY HIGH COURT, THE GROUND IS ALLOWED . PROVISION FOR BONUS:- 6.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION OF THE ID. AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE ID.AR. THE PROVISION MADE FOR BONUS IS A DEFERRED WAGE AND IT IS REQUIRED TO BE PROVIDED WITH REFERENCE TO THE SERVI CE OF THE EMPLOYEE DURING THE YEAR. WHERE THE APPELLANT FOLLOWS ACCRUAL BASIS OF ACCOUNTING, THE SAME HAS T O BE NECESSARILY PROVIDED FOR. FURTHER, THE SAID PROVISI ON IS ALSO A STATUTORY LIABILITY IN ACCORDANCE WITH THE P AYMENT OF BONUS ACT. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF ECHJAY FORGINGS PVT. LTD (SUPRA) HAS HELD T HAT THE PROVISION FOR PAYMENT OF BONUS TO THE EMPLOYEES IN ACCORDANCE WITH THE PAYMENT OF BONUS ACT IS AN ASCERTAINED LIABILITY AND, THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE SAME WAS NOT LIABLE F OR INCLUSION WHILE WORKING OUT THE BOOK PROFIT U/S 115 J. RESPECTFULLY FOLLOWING THE ABOVE DECISION, THE ABOV E PROVISION MADE HAS TO BE ALLOWED .AS DEDUCTION IN COMPUTING THE BOOK PROFITS. THE GROUND IS ALLOWED. 6. BEFORE US, LEARNED DEPARTMENTAL REPRESENTATIVE R ELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER WHILE AS THE LEARNED AUTHORIZED REPRESENTATIVE ARGUED IN SUPPORT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS). AFTER HEARING BOTH THE SIDES, WE ARE IN AGREEMENT W ITH THE VIEW OF THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS). AS EXPLAINED BY LEARNED AUTHORIZED REPRESENTATIVE B OTH PROVISION FOR GRATUITY AND BONUS ARE STATUTORY OBLI GATION WHICH 6 ITA NO.1925 & 1926/MDS/2012 & C.O.NOS.52 & 53/MDS/2015 HAS BEEN INCURRED BY THE ASSESSEE AND SINCE THE A SSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING THE SA ME HAS TO BE CHARGED TO THE PROFIT AND LOSS ACCOUNT OF THE AS SESSEE DURING THE RELEVANT PREVIOUS YEAR IN WHICH SUCH OBL IGATION HAS RESULTED. THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) AFTER PLACING RELIANCE ON THE DECISIONS CITED BY TH E LEARNED AUTHORIZED REPRESENTATIVE IN THE CASE OF M/S. ECHJA Y FORGINGS PVT. LTD. (251 ITR 15)(BOM) AND IN THE CAS E OF APOLLO TYRES LTD. VS. CIT (255 ITR 273)(SC) HAS ALLOWED THE APPEAL OF THE ASSESSEE. THEREFORE, WE DO NOT FI ND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LEARNE D COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE. GROUND NO.2: (INSURANCE CLAIM RECEIVED): 7. THE ASSESSEE HAS RECEIVED A SUM OF RS.1,40,29,20 9/- DURING THE RELEVANT PREVIOUS YEAR 2002-03 TOWARDS I NSURANCE CLAIM DUE TO MAJOR ACCIDENT IN THE FACTORY. THE ASS ESSEE CREDITED A SUM OF RS.1,12,84,470/- IN ITS PROFIT AN D LOSS ACCOUNT AND THE BALANCE AMOUNT OF RS. 27,44,739/- W AS 7 ITA NO.1925 & 1926/MDS/2012 & C.O.NOS.52 & 53/MDS/2015 ADJUSTED AGAINST RAW MATERIALS, BUILDING AND PLANT & MACHINERY. THE LEARNED CIT IN THE 263 PROCEEDINGS W AS OF THE OPINION THAT DIFFERENCE AMOUNT OF RS. 27,44,739 /- HAS ALSO TO BE PROFIT & LOSS ACCOUNT OF THE ASSESSEE. H E THEREFORE DIRECTED THE LEARNED ASSESSING OFFICER TO LOOK INTO THE MATTER. IN THE PROCEEDINGS BEFORE THE LEARNED ASSESSING OFF ICER, RESULTING FROM THE DIRECTIONS OF THE LEARNED CIT, T HE ASSESSEE DID NOT FURNISH ANY DETAILS; HENCE THE AMOUNT OF RS . 27,44,739/- WAS ADDED TO THE INCOME OF THE ASSESSEE WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF TH E ACT. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) THE ASSESSEE HAD MADE THE FOLLOWING SUBMISSIONS:- OUT OF THE INSURANCE AMOUNT RECEIVED, A SUM OF RS .5.54 LAKHS WAS ACCOUNTED AS REDUCTION FROM RAW MATERIAL CONSUMED SINCE IT RELATED TO RAW MATERIAL. SIMILARLY, A SUM OF RS.3.43 LAKHS BEING THE WRITTEN DOWN VALUE OF BUILDING AND A SUM OF RS.18.47 LAKHS BEING THE WRITTEN DOWN VALUE OF PLANT & MACHI NERY WERE CREDITED WITH THE CLAIM RECEIVED. THE BALANCE AMOUN T OF RS.112.85 LAKHS WAS ACCOUNTED AS INCOME IN THE BOOK S OF ACCOUNT UNDER THE HEAD OTHER INCOME IN SCHEDULE 1 1 OF THE PROFIT & LOSS ACCOUNT. IT WAS CONTENDED THAT THE AB OVE TREATMENT GIVEN IN THE BOOKS OF ACCOUNT WAS BASED ON ACTUAL F IGURES AND THEREFORE THE ASSESSING OFFICER WAS NOT CORRECT IN ADDING THE SUM OF RS.27,44,789/- TO TAX. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE AP PEAL OF THE ASSESSEE BY OBSERVING AS FOLLOWS:- 8 ITA NO.1925 & 1926/MDS/2012 & C.O.NOS.52 & 53/MDS/2015 8.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSION OF THE LEARNED AUTHORIZED REPRESENTATIVE. FROM THE FACTS IT IS CLEAR THAT THE APPELLANT HAD APPORTIONED THE INSURANCE CLAIM RECEIVED BASED ON THE LOSSES SUFFERED DUE TO ACCIDENT IN WHICH 24 WORKMEN WAS ALSO KILLED. THE CLAIM RECEIVED WAS APPORTIONED BASED ON THE W.D.V OF BUILDING AND PLANT AND MACHINERY AND AS REDUCTION FROM RAW MATERIALS CONSUMED. WITH REGARD TO REDUCTION IN RAW MATERIAL CONSUMED, THE SAME IS ALREADY CREDITED IN THE PROFIT AND LOSS ACCOUNT AND THEREFORE CANNOT BE ADDED BACK AGAIN. WITH REGARD TO THE APPORTIONMENT OF THE INSURANCE CLAIM TO BUILDING AND PLANT & MACHINERY, THE SAME HAS BEEN MADE BASED ON THE WDV OF THOSE ASSETS AS PER BOOKS OF ACCOUNT SINCE THEY WERE DESTROYED AND THE WDV HAD TO BE COMPLETELY WRITTEN OFF. THEREFORE, THERE IS NO REASON TO ADD THE ABOVE AMOUNT IN COMPUTING THE BOOK PROFITS. FURTHER, WHEN THE APPELLANT HAD FINALIZED ITS ACCOUNTS ON THE ABOVE BASIS AND THE SAME HAVE BEEN AUDITED AND ADOPTED BY THE SHAREHOLDERS, THE ASSESSING OFFICER CANNOT ADD ANY AMOUNTS UNLESS IT IS PROVIDED FOR UNDER VARIOUS CLAUSES OF THE EXPLANATION TO SECTION 115JB(2). RELIANCE IN THIS REGARD MAY BE PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F APOLLO TYRES LTD. (SUPRA). THE ABOVE ADDITION DOES NOT FALL UNDER ANY CLAUSES OF THE EXPLANATION-1 PROVIDED TO SECTION 115JB(2). ACCORDINGLY, THIS GROUND IS ALLOWED. 8. AFTER HEARING BOTH THE SIDES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). THE ASSESSEE HAD RECEIVED RS.1,40,29,209 /- FROM THE INSURANCE COMPANY TOWARDS LOSS OF ITS ASSETS. T HE WRITTEN DOWN VALUE OF THESE ASSETS WHICH WORKS OUT TO RS.27,44,739/- HAS TO BE NECESSARILY REDUCED FROM T HE 9 ITA NO.1925 & 1926/MDS/2012 & C.O.NOS.52 & 53/MDS/2015 AMOUNT OF RS.1,40,29,209/- TO COMPUTE THE NET INCO ME RECEIVED FROM SUCH CLAIM WHICH ONLY IS TO BE CREDIT ED TO THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE. ACCORDINGLY, THE ASSESSEE HAS RIGHTLY REDUCED SUCH AMOUNT AND THE BA LANCE AMOUNT OF RS.1,12,84,470/- IS CREDITED TO ITS PROFI T AND LOSS ACCOUNT WHICH IS IN ORDER. THEREFORE, WE DO NOT FIN D IT NECESSARY TO INTERFERE WITH THE ORDERS OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 9. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED AND THE CROSS OBJECTIONS FILED BY THE ASS ESSEE WHICH ARE IN SUPPORT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JANUARY, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) ! # / JUDICIAL MEMBER # / ACCOUNTANT MEMBER ! /CHENNAI, & /DATED 29 TH JANUARY, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF .