M/s. Tamilnadu State Transport Corpn. (Coimbatore) Ltd., Coimbatore V. DCIT, Coimbatore

CO 54/CHNY/2011

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6560 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 07-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K RAMESH
• Keywords: Business expenditure; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO. 430/MDS/2011 (ASSESSMENT YEAR : 2007-08) THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE - I(2), COIMBATORE. (APPELLANT) V. M/S TAMILNADU STATE TRANSPORT CORPORATION (COIMBATORE) LTD., 37, METTUPALAYAM ROAD, COIMBATORE 641 043. PAN : AAACC9092M (RESPONDENT) C.O. NO. 54/MDS/2011 (IN I.T.A. NO. 430/MDS/2011) ASSESSMENT YEAR : 2007-08 M/S TAMILNADU STATE TRANSPORT CORPORATION (COIMBATORE) LTD., 37, METTUPALAYAM ROAD, COIMBATORE 641 043. (CROSS-OBJECTOR) V. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE - I(2), COIMBATORE. (RESPONDENT) REVENUE BY : SHRI K. RAMESH, CIT -DR ASSESSEE BY : NONE DATE OF HEARING : 12.10.2011 DATE OF PRONOUNCEMENT : I.T.A. NO. 430/MDS/11 & CO NO. 54/MDS/2011 2 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS O BJECTION FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-I COIMBATORE DATED 21.12.2010 FOR ASSESSMENT YEAR 200 7-08. 2. ONE SHRI RAGHU, CLAIMING HIMSELF TO BE THE AUTHO RIZED REPRESENTATIVE OF THE ASSESSEE HAS FILED ADJOURNMEN T APPLICATION FOR ADJOURNING OF THE HEARING OF THE CASE FOR THE REASO N THAT DUE TO SOME URGENT PROFESSIONAL WORK AT BANGALORE, HE WILL NOT BE ABLE TO BE PRESENT FOR THE HEARING. WE FIND FROM THE RECOR DS THAT NO VAKALATNAMA OF THE SAID SHRI K. RAGHU HAS BEEN FILE D. HENCE THE ADJOURNMENT APPLICATION WAS REJECTED BY THE BENCH A ND THE BENCH PROCEEDED TO HEAR THE APPEAL AND DECIDE THE SAME ON THE BASIS OF MATERIALS AVAILABLE ON RECORD. WE WOULD ALSO LIKE TO STATE HERE THAT THE APPEAL WAS FIXED FOR HEARING ON 12.5.2011 AND O N THAT DATE ALSO NO ONE WAS PRESENT ON BEHALF OF THE ASSESSEE AND TH EREFORE, THE CASE WAS ADJOURNED FOR TODAY. I.T.A. NO. 430/MDS/11 & CO NO. 54/MDS/2011 3 3. IN THE REVENUES APPEAL, THE SOLE GROUND OF APPE AL TAKEN BY THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETIN G THE DISALLOWANCE OF PENSION FUND CONTRIBUTION OF RS. 12,02,95,996/- . 4. THE ASSESSING OFFICER HAS DISALLOWED THE DEDUCTI ON BY OBSERVING AS UNDER: (A) CONTRIBUTION TO PENSION FUND : IT WAS NOTICED THAT THE ASSESSEE HAS CLAIMED EXPEND ITURE OF RS. 21,68,94,716 TOWARDS PENSION UND CONTRIBUTION. AS PER THE PROVISIONS CONTAINED IN SECTION 36(1)(IV) DEDUCT ION TOWARDS SUCH EXPENDITURE IS ALLOWED ONLY IF THE AMOUNT S WERE PAID TO A RECOGNIZED PROVIDENT FUND OR AN APPROVED SUPERANNUATION FUND. IN THIS CASE EXPENSES WAS INCUR RED TOWARDS TNSTC EMPLOYEES PENSION FUND TRUST. THE ASS ESSEE COMPANY VIDE THEIR SUBMISSION DATED 21/12/2009 HAVE CONFIRMED THAT THE TRUST HAS NOT YET OBTAINED THE NE CESSARY RECOGNITION FROM THE COMPETENT AUTHORITIES. AS THE TRUST HAS NOT YET OBTAINED THE NECESSARY RECOGNITION FROM THE INCOME- TAX AUTHORITIES, THE AMOUNT OF RS. 21,68,94,716/- SHO WN AS EXPENDITURE TOWARDS PENSION FUND CONTRIBUTION FOR TH IS YEAR HAS IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME. IT MAY BE PERTINENT TO MENTION IN THIS REGARD THAT HON 'BLE HIGH COURT OF MADRAS IN THEIR JUDGEMENT IN THE CASE OF CIT VS. I.T.A. NO. 430/MDS/11 & CO NO. 54/MDS/2011 4 KATTABOMMAN TRANSPORT CORPORATION LTD. (268 ITR 507 ) HAS CLEARLY HELD THAT THE CONTRIBUTIONS TO UNRECOGNIZED P ROVIDENT FUND IS NOT AN ALLOWABLE EXPENDITURE U/S 36(1)(IV) OF THE I.T. ACT. 5. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER: 5. GROUND NO. 2, 3 & 4 REFER TO THE DISALLOWANCE OF DEDUCTION OF RS.21,68,94,716/- U/S 36(1)(IV). THE AP PELLANT SUBMITTED THE BREAK-UP OF RS.21,68,94,716/- AS UNDER: (I) INTEREST PROVIDED FOR DELAYED PAYMENT TO PENSION FUND 2,96,93,464 (II) PF CONTRIBUTION BY EMPLOYEES 6,37,94,501 (III) THE APPELLANT HAD CLAIMED DEDUCTION OF ACTUAL AMOUNT PAID AS PENSION TO THE EMPLOYEES DURING THE PREVIOUS YEAR, WHICH NOT A MERE PROVISION FOR CONTRIBUTION REFERRED TO IN SECTION 36(1)(IV), AND HENCE ALLOWABLE. 12,02,95,996 (IV) BALANCE NOT SATISFYING THE REQUIREMENT OF SEC. 36(1)(IV) 31,10,755 I.T.A. NO. 430/MDS/11 & CO NO. 54/MDS/2011 5 ACCORDING TO THE APPELLANT, AN AMOUNT OF RS. 31,10,755/- ALONE QUALIFIES FOR DISALLOWANCE U/S 36(1 )(IV). 6. I HAVE GONE THROUGH THE ORDER OF THE ASSESSING O FFICER AND THE SUBMISSIONS OF THE APPELLANT. AS PER THE PR OVISIONS OF SECTION 36(1)(IV), DEDUCTION TOWARDS PENSION FUND CONTRIBUTION IS ALLOWED ONLY IF THE AMOUNTS WERE PAID TO A RECOGNIZED PROVIDENT FUND OR AN APPROVED SUPERANNUATI ON FUND. THE A.O. OBSERVED THAT THE EXPENSES WERE INCUR RED TOWARDS TNSTC EMPLOYEES PENSION FUND TRUST WHICH HAS NOT OBTAINED THE NECESSARY RECOGNITION FROM THE COMPETE NT AUTHORITIES. HOWEVER, AS SEEN FROM THE BREAK-UP, TH E APPELLANT HAS NOT CLAIMED DEDUCTION IN THE STATEMENT OF TOTAL INCOME WITH REGARD TO (I) INTEREST PROVIDED FOR DELAYED PAYMENT TO PENSION FUN D. (II) PROVIDENT FUND CONTRIBUTION BY THE EMPLOYEES. 7. AS SEEN FROM THE REVISION SUMMARY OF COMPUTATION O F TOTAL INCOME FILED BY THE AR BEFORE ME, THESE AMOUNT S WERE ADDED DURING THE COURSE OF COMPUTATION. SIMILARLY, WITH REGARD TO THE AMOUNT OF RS. 12,02,95,996/-, THE APPE LLANT HAS CLAIMED THE DEDUCTION OF ACTUAL AMOUNT PAID AS PENSION TO THE EMPLOYEES AND NOT AS A MERE PROVISION FOR CONTR IBUTION TO ANY FUND. HENCE, IT IS AN ALLOWABLE EXPENDITURE. TH E I.T.A. NO. 430/MDS/11 & CO NO. 54/MDS/2011 6 BALANCE AMOUNT OF RS. 31,10,755/- NOT SATISFYING THE REQUIREMENT OF SECTION 36(1)(IV) IS ONLY TO BE ADDED . THE ADDITION TO THIS EXTENT IS CONFIRMED. 6. THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW PENSION FUND CONTRIB UTION AS BUSINESS EXPENDITURE U/S 37 OF THE ACT AND THAT THE LD. CIT( A) SHOULD HAVE APPRECIATED THAT THE PENSION FUND IS NOT AN APPROVE D FUND. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT IN THE CASE O F M/S KATTABOMMAN TRANSPORT CORPORATION LTD [2005] 142 TA XMANN 375 [MAD] THE HON'BLE JURISDICTIONAL HIGH COURT HAS HEL D THAT CONTRIBUTION TO ANY FUND NOT APPROVED BY T EH LD. C IT(A) IS NOT AN ALLOWABLE DEDUCTION U/S 37 OF THE ACT. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT THE ISSUE IN THE ASSESSEES CASE F ALLS WITHIN THE PURVIEW OF SECTION 36(1)(IB) OF THE ACT AS MENTION ED BY THE LD. CIT(A). 7. WE HAVE HEARD THE LD. D.R. AND PERUSED THE ORDER S OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE, THE LD. CIT(A) FOUND THAT THE ASSESSI NG OFFICER HAS I.T.A. NO. 430/MDS/11 & CO NO. 54/MDS/2011 7 DISALLOWED RS. 21,68,94,716/- ON THE GROUND THAT T HE ASSESSEE HAS MADE THE SAID PAYMENT TO AN UNRECOGNIZED PROVIDENT FUND. HOWEVER, ACCORDING TO THE LD. CIT(A), OUT OF THE SA ID RS. 21,68,94,716/-, RS. 12,02,95,996/- WAS PAYMENT MAD E DIRECTLY TO THE EMPLOYEES AS PENSION DURING THE YEAR. AS THE S AID PAYMENT WAS NOT MADE TO ANY UNRECOGNIZED PROVIDENT FUND AND THE SAID PAYMENT WAS MADE OUT OF COMMERCIAL EXPEDIENCY, HE DELETED T HE DISALLOWANCE OF RS. 12,08,95,996/-. 8. BEFORE US, THE LD. D.R. SUBMITTED THAT THE PAYME NTS WERE MADE TO UNRECOGNIZED PROVIDENT FUND AND THE LD. CIT (A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE. WHEN IT WA S POINTED OUT FROM THE BENCH THAT THE FINDING OF THE LD. CIT(A) I S THAT THE AFORESAID PAYMENT OF RS. 12,08,95,996/- IS NOT TO ANY UNRECOGNIZED PROVIDENT FUND BUT WAS MADE DIRECTLY TO EMPLOYEES A S PENSION DURING THE YEAR UNDER CONSIDERATION, THE LD. D.R. C OULD NOT BRING ANY MATERIAL BEFORE US TO CONTROVERT THE FINDING OF THE LD. CIT(A). IN THE ABOVE CIRCUMSTANCES, WE DO NOT FIND ANY REAS ON TO INTERFERE I.T.A. NO. 430/MDS/11 & CO NO. 54/MDS/2011 8 WITH THE ORDER OF THE LD. CIT(A). IT IS CONFIRMED. THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 9. IN THE CROSS OBJECTION, THE ASSESSEE HAS RAISED THE ONLY ISSUE OF CONFIRMATION OF RS. 2 CRORES PAID TO SETC FOR O BTAINING ROUTE PERMITS DURING THE PREVIOUS YEAR TO AVOID COMPETITI ON ON THE SAME ROUTES BY TREATING THE SAME AS CAPITAL EXPENDITURE. 10. THE ASSESSING OFFICER DISALLOWED THE DEDUCTION BY OBSERVING AS UNDER: (B) COMPENSATION PAID TO SETC FOR PARALLEL OPERATI ON 2,00,00,000/- ON PERUSAL OF THE RECORDS OF ASSESSMENTS FOR A.Y. 20 07- 08, IT IS SEEN FROM PAGE 63 OF THE ANNUAL REPORT FOR THE RELEVANT PERIOD THAT A SUM OF RS. 2,00,00,000/- WAS PAID AS COMPENSATION TO SETC FOR PARALLEL OPERATION AND W AS CLAIMED AS MISCELLANEOUS EXPENDITURE (SCHEDULE T OF P ROFIT AND LOSS ACCOUNT). IN VIEW OF THE DECISIONS OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. KATTABOMMA N I.T.A. NO. 430/MDS/11 & CO NO. 54/MDS/2011 9 TRANSPORT CORPORATION LTD. (268 ITR 507) AND ANNA T RANSPORT CORPORATION LTD. VS. CIT (215 ITR 800) SUCH EXPENDIT URE CANNOT BE ALLOWED AS REVENUE EXPENDITURE. THE AMOUNT OF RS. 2 CRORES PAID AS COMPENSATION TO SETC FOR PARALLEL OPERATIONS ON BUS ROUTES IS CLEARL Y A CAPITAL EXPENDITURE AND NOT REVENUE IN NATURE. IF IT WAS FOR EARNING PROFIT FROM EXISTING BUSINESS AS CLAIMED BY THE ASSESSEE COMPANY, THERE WAS NO NEED FOR THE ASSESSE E COMPANY TO PAY COMPENSATION TO SETC FOR PARALLEL OPERATION. RATHER, SETC SHOULD HAVE PAID THE APPEL LANT- COMPANY COMPENSATION FOR PARALLEL OPERATIONS. THIS ACTION OF THE ASSESSEE COMPANY IS THEREFORE HIT BY THE DECISI ON OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF ANNA TRANS PORT CORPORATION LTD. AND OTHERS VS. CIT REPORTED IN 215 ITR 800. IN THAT CASE, THE HON'BLE HIGH COURT HAS CLEARLY HEL D, ON A SIMILAR FACTS, THAT THE ASSESSEE HAD NOT PAID COMP ENSATION FOR THE PURPOSE OF EARNING PROFIT FROM THE EXISTING BUSINESS AND FURTHER HELD THE COMPENSATION PAID BY THE ASSE SSEE FOR OBTAINING AND USAGE OF ROUTES AND ROUTE PERMITS WOULD B E CAPITAL IN NATURE. IN THE INSTANT CASE ALSO SIMILAR LY THE ASSESSEE COMPANYS PAYMENT OF COMPENSATION TO SETC FOR PARALLEL OPERATIONS WAS SPECIFICALLY FOR USAGE AND OPERATION OF THE SAME BUS ROUTES AND THIS ACT CERTAINLY IS NOT FOR EARNING PROFIT FROM EXISTING BUSINESS. THE RATIO OF THIS I.T.A. NO. 430/MDS/11 & CO NO. 54/MDS/2011 10 DECISION OF THE HON'BLE MADRAS HIGH COURT ON THE SAM E ISSUE HAS BEEN FOLLOWED BY THEIR LORDSHIPS IN THE CASE OF CIT VS. KATTABOMMAN TRANSPORT CORPORATION LTD. (268 ITR 507 ). RESPECTFULLY FOLLOWING THE RATIO OF THE DECISIONS OF THE HON'BLE MADRAS HIGH COURT IN THE CASES OF ANNA TRANS PORT CORPORATION LTD. AND OTHERS VS. CIT (215 ITR 800) A ND CIT VS. KATTABOMMAN TRANSPORT CORPORATION LTD. (268 ITR 507 ), THE PAYMENT OF RS. 2 CRORES MADE BY THE APPELLANT-COMPA NY AS COMPENSATION TO SETC BY PARALLEL OPERATIONS ON TH E SAME ROUTES IS TREATED AS CAPITAL IN NATURE AND NOT REVENUE EXPENDITURE AS CLAIMED BY THE ASSESSEE COMPANY. 11. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ADDITIO N BY OBSERVING AS UNDER: 8. REGARDING THE GROUND NO.5 & 6, THE APPELLANT OB JECTS TO THE ACTION OF THE ASSESSING OFFICER IN HOLDING THE EXPENDITURE OF RS.2,00,00,000/- TOWARDS COMPENSATION PAID TO SE TC AS CAPITAL EXPENDITURE. RELYING ON THE RATIO OF THE D ECISION OF THE HON'BLE HIGH COURT OF MADRAS IN THE CASE OF ANNA TRANSPORT CORPORATION LIMITED VS CIT (215 ITR 800) AND CIT VS KATTABOMMAN TRANSPORT CORPORATION LIMITED (268 ITR 507), THE A.O. DISALLOWED THE PAYMENT OF RS. 2,00,00,000/ - AS CAPITAL EXPENDITURE IN NATURE. THE SUBMISSION OF THE APPELLANT THAT THE FACTS OF THE CASE ARE DIFFERENT DOES NOT DESERVE ANY MERIT. THE COMPENSATION WAS PAID BY TH E I.T.A. NO. 430/MDS/11 & CO NO. 54/MDS/2011 11 APPELLANT FOR OBTAINING THE ROUTE PERMITS AND TO AVO ID COMPETITION ON THE SAME ROUTES. THIS IS IN THE NATUR E OF CAPITAL EXPENDITURE AND I CONFIRM THE ADDITION MADE BY THE A.O. THIS GROUND OF APPEAL IS DISMISSED. 12. WE HAVE HEARD THE LD. D.R. AND PERUSED THE ORDE RS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE, WE FIND THAT THE CLAIM OF THE ASSESSE E FOR DEDUCTION OF RS. 2 CRORES PAID AS COMPENSATION TO SETC WAS DISA LLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THE SAID PAYME NT WAS FOR PURCHASE OF ROUTE PERMITS AND THEREFORE, CAPITAL IN NATURE. THE LD. CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSESSING O FFICER. IT IS OBSERVED THAT THE CONSISTENT CLAIM OF THE ASSESSEE IS THAT THE PAYMENTS WERE MADE TO SETC FOR PARALLEL OPERATION. WE FIND THAT COPY OF AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE SAID SETC WAS NOT BROUGHT ON RECORD BY ANY OF THE LOWER AUTHO RITIES NOR THE SAME WAS FILED BEFORE US. FURTHER, FROM THE ORDERS OF THE LOWER AUTHORITIES, IT IS NOT DISCERNIBLE AS TO WHY THE SA ID AMOUNT WAS HELD AS PAYMENT FOR PURCHASE OF ROUTE PERMITS. IN THE AB OVE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, IT SHALL BE FAIR AND JUST TO I.T.A. NO. 430/MDS/11 & CO NO. 54/MDS/2011 12 RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFF ICER FOR PROPER VERIFICATION AND THEREAFTER READJUDICATION OF THE I SSUE AFRESH AS PER LAW BY PASSING A SPEAKING ORDER. WE ORDER ACCORDIN GLY. NEEDLESS TO MENTION THAT PROPER OPPORTUNITY OF HEARING SHALL BE ALLOWED TO THE ASSESSEE BEFORE ADJUDICATING THE ISSUE AFRESH. THU S THIS GROUND OF CROSS OBJECTION OF THE ASSESSEE IS ALLOWED FOR STAT ISTICAL PURPOSES. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED WHEREAS THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 14 TH OCTOBER, 2011. SD/- SD/- (GEORGE MATHAN) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 14 TH OCTOBER, 2011. VL COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A), CHENNAI (4) CIT, CHENNAI (5) D.R. (6) GUARD FILE