M/s. Star Paper Mills Ltd., Kolkata V. DCIT, Circle - 4(2), Kolkata

ITA 1179/KOL/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 3406 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-02-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 16-05-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DHRUBAJYOTI ROY
• Keywords: Rule of consistency
• Section: 43B; 37(1); 80G; 195; 37

Judgement Text

ITA NO.1179/KOL/2019 STAR PAPER MILLS LTD. A.Y. 2012-13 1 | P A GE , A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA [BEFORE SHRI J. SUDHAKAR REDDY, AM AND SHRI A. T. VARKEY, JM] I.T.A. NO. 1179/KOL/2019 ASSESSMENT YEAR: 2012-13 STAR PAPER MILLS LTD. (PAN: AAECS 0759 B) VS. DCIT, CIRCLE-4(2), KOLKATA APPELLANT RESPONDENT DATE OF HEARING 10.02.2021 DATE OF PRONOUNCEMENT 17.02.2021 FOR THE APPELLANT SHRI SUBASH AGARWAL, ADVOCATE FOR THE RESPONDENT SHRI DHRUBAJYOTI ROY, JCIT ORDER PER SHRI A. T. VARKEY, JM: THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAI NST THE ORDER OF LD. CIT(A)-7, KOLKATA DATED 19.03.2019 FOR ASSESSMENT YEAR 2012-1 3. 2. THE FIRST GROUND OF APPEAL READS AS UNDER: 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 1,00,000/- MADE BY THE AO ON ACCOUNT OF CONTRIBUTION MADE TO S TAR SHIKSHA SAMITY WHICH RUNS A SCHOOL IN THE MILLS COMPOUND OF THE APPELLANT FOR EDUCATION AND WELFARE ACTIVITIES OF THE CHILDREN OF THE EMPLOYEES. 3. THE FACTS OF THE CASE IS THAT AO NOTED THAT FROM THE DETAILS OF STAFF WELFARE EXPENSES (OTHERS) FILED BY THE ASSESSEE THAT A SUM OF RS. 1,00,000/- HAS BEEN PAID TO STAR SHIKSHA SAMITY WHICH ACCORDING TO AO IS IN THE NATURE OF DONATION AND LIABLE TO BE DISALLOWED. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ACTION OF AO BY HOLDING AS UNDER: 6.1. I HAVE CONSIDERED THE SUBMISSION OF THE A.R O F THE APPELLANT ALONG WITH THE ASSESSMENT ORDER. AS FAR AS THE ACT IS CONCERNED EX PENDITURE OF SUCH NATURE SHOULD ITA NO.1179/KOL/2019 STAR PAPER MILLS LTD. A.Y. 2012-13 2 | P A GE COME WITHIN THE AMBIT OF SECTION 80G OR SECTION 37 OF THE ACT. I FIND THAT NEITHER OF THE SECTIONS COULD COME TO THE RESCUE OF THE APPELL ANT SINCE THE PAYMENT OF RS. 1,00,000/- COULD NOT BE PROVED TO BE PAYMENT U/S 80 G OR EXPENSE ALLOWABLE U/S 37 OF THE ACT WITH ANY APPROPRIATE DOCUMENTARY EVIDENCES. IN SUCH CIRCUMSTANCES, THE ACTION OF THE AO IS UPHELD IN MAKING THE ADDITION O F RS. 1,00,000/-. THIS GROUND IS DISMISSED. 4. AGGRIEVED THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE US. 5. THE WRITTEN SUBMISSION OF THE LD. A.R. SHRI SUBA SH AGARWAL ON THIS GROUND IS AS UNDER: IN THIS GROUND THE APPELLANT IS AGGRIEVED BY THE A CTION OF THE AO IN TREATING A SUM OF RS. 1,00,000/- PAID BY THE APPELLANT TO STAR SHI KSHA SAMITY AS DONATION AND DISALLOWING THE SAME WHEN SUCH AMOUNT REPRESENTS AM OUNT CONTRIBUTED BY THEM OR MAINTAINING A SCHOOL IN ITS MILL COMPOUND WHICH FAC ILITATED EDUCATION AND WELFARE ACTIVITIES FOR THE CHILDREN OF THE EMPLOYEES. THE A PPELLANT LOOKS AFTER THE MANAGEMENT OF A SCHOOL NAMED AS STAR PAPER MILLS H IGHER SECONDARY SCHOOL WHICH IS FUNDED BY THE STATE GOVERNMENT. THE SALARI ES OF THE TEACHERS OF THE SCHOOL ARE PAID DIRECTLY BY THE STATE GOVT. INTO THE BANK ACCOUNT OF THE TEACHERS. THE OTHER GRANTS WHICH ARE RECEIVED FROM THE GOVT. ARE ALSO D IRECTLY TRANSFERRED TO THE BANK ACCOUNT OF THE SCHOOL. THE AMOUNT OF RS. 1,00,000/- WHICH HAS BEEN PAID BY THE APPELLANT TO STAR SHIKSHA SAMITY WAS USED FOR MAINTENANCE OF THE SCHOOL BUIL DING AND THE PLAYGROUND OF THE SCHOOL. THE AMOUNT PAID WAS USED TO PAY SALARY OF T HE CASUAL/TEMPORARY STAFF AND ALSO FOR CARRYING OUT SOME WELFARE ACTIVITIES LIKE CELEBRATION OF FESTIVALS, INDEPENDENCE DAY, REPUBLIC DAY ETC. SINCE THE SCHOO L IS LOCATED IN THE MILLS COMPOUND ITSELF, CHILDREN OF MANY EMPLOYEES OF THE APPELLANT ARE STUDENTS OF THE SCHOOL. HENCE, IT CAN BE SAID THAT THE AMOUNT PAID BY THE APPELLANT TO STAR SHIKSHA SAMITY WAS USED BY THEM FOR THE WELFARE OF THE SCHO OL AND CHILDREN OF ITS EMPLOYEES. WE PRAY THAT THE AMOUNT SHOULD NOT HAVE BEEN TREATE D AS DONATION BY THE AO BUT AS EXPENSES INCURRED BY THE APPELLANT FOR THE BENEFIT OF ITS EMPLOYEES AND WERE ALLOWABLE U/S 37 AS EXPENSES INCURRED FOR THE WELFA RE OF THE EMPLOYEES. 6. THE LD. D.R SUPPORTED THE ACTION OF THE LD. CIT( A) AND DOES NOT WANT US TO INTERFERE. 7. HAVING HEARD BOTH THE PARTIES. WE NOTE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF PAPER AT ITS FACTORY LOCATED AT SAHARANPUR IN THE STATE OF UTTAR PRADESH. ACCORDING TO ASSESSE E, IT HAS PAID TO RS. 1,00,000/- TO ITA NO.1179/KOL/2019 STAR PAPER MILLS LTD. A.Y. 2012-13 3 | P A GE STAR SHIKSHA SAMITY WHICH WAS DEBITED UNDER THE HEA D STAFF/LABOUR AND OTHER WELFARE EXPENSES. IT IS NOTED THAT THE APPELLANT-ASSESSEE M AINTAINS AND RUNS SCHOOL IN THEIR OWN NAME OF STAR PAPER MILL HIGHER SECONDARY SCHOOL IN THE MILLS COMPOUND ITSELF. ACCORDING TO ASSESSEE, THE SCHOOL IS BEING PARTLY F UNDED BY THE STATE GOVERNMENT AND THE SALARIES OF THE TEACHERS AND OTHER GRANTS A RE PAID DIRECTLY INTO THE RESPECTIVE BANK ACCOUNTS OF THE TEACHERS. ACCORDING TO ASSESSE E, THE CHILDREN OF THE STAFF AND LABOUR OF THE MILLS ARE STUDYING IN THIS SCHOOL AND THE ASSESSEE LOOKS AFTER THE MAINTENANCE OF THE SCHOOL. THE AMOUNT PAID TO STAR SHIKSHA SAMITY IS USED BY THE SCHOOL TO PAY SALARY OF THE TEMPORARY STAFF AND OTH ER WELFARE ACTIVITIES OF THE SCHOOL. WE NOTE THAT THE AO HAS TREATED THIS 1,00,000/- PAI D AS DONATION WHEREAS THE ASSESSEE HAS SHOWN IT UNDER STAFF/LABOUR AND OTHER WELFARE EXPENSES. IT IS NOTED THAT IN THE EARLIER YEARS THERE WAS NO DISALLOWANCE ON T HIS ISSUE. ACCORDING TO LD. A.R THE EXPENSES HAVE BEEN INCURRED FOR LOOKING AFTER THE W ELFARE OF THE CHILDREN OF MILL WORKERS AND THE STAFF SHOULD HAVE BEEN ALLOWED. ACC ORDING TO LD. A.R, THE ASSESSEE TAKES CARE OF THE SCHOOL BY MAINTAINING IT FOR EDUC ATION OF THE CHILDREN OF THE WORKERS AS WELL AS TO THE CHILDREN OF THE LOCAL AREAS AND T HIS CAN BE EVEN TERMED AS PART OF THE CORPORATE SOCIAL RESPONSIBILITY (CSR) AND THEREFORE , IT HAS TO BE ALLOWED. ACCORDING TO LD. A.R. THE AMENDMENT IN THE SCHEME OF SECTION 37(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WHICH HAS BEEN INTRODUCED W.E.F 01.04.2015 CANNOT BE CONSTRUED AS TO THE DISADVANTAGE TO THE A SSESSEE IN THE PERIOD PRIOR TO THIS AMENDMENT. ACCORDING TO HIM, THIS DISABLING PROVISI ON, AS SET OUT IN EXPLANATION 2 TO SECTION 37(1) REFERS ONLY TO SUCH CORPORATE SOCIAL RESPONSIBILITY EXPENSES AS UNDER SECTION 135 OF THE COMPANIES ACT, 2013, AND, AS SUC H, IT CANNOT HAVE ANY APPLICATION FOR THE PERIOD NOT COVERED BY THIS STATUTORY PROVIS ION WHICH ITSELF CAME INTO EXISTENCE IN 2013. THUS, ACCORDING TO LD. A.R EXPLANATION 2 T O SECTION 37(1) IS THEREFORE INHERENTLY INCAPABLE OF RETROSPECTIVE APPLICATION A NY FURTHER. WE NOTE THAT EXPLANATION 2 TO SECTION 37(1) OF THE ACT CAME INTO OPERATION W.E.F 01.08.2015 AND CANNOT BE HELD AS RETROSPECTIVE. WE ALSO FIND THAT THIS CLAIM OF THE ASSESSEE IS NOT AS PER THE CSR. HOWEVER, WE NOTE THAT THE EXPENSES HAV E BEEN CLAIMED UNDER THE HEAD STAFF/LABOUR AND OTHER WELFARE EXPENSES AND THE FAC T DISCERNABLE IS THAT THE ASSESSEE MAINTAINS A SCHOOL IN THE NAME OF STAR PAPER MILL H IGHER SECONDARY SCHOOL IN ITS ITA NO.1179/KOL/2019 STAR PAPER MILLS LTD. A.Y. 2012-13 4 | P A GE OWN MILL COMPOUND AND AS WELL AS EXPENSES ARE MEANT FOR THE MAINTENANCE OF THE SCHOOL AS WELL AS PLAY GROUND ETC. WHICH ARE FOR TH E WELFARE OF THE CHILDREN OF THE MILL WORKERS AS WELL AS TO THE LOCAL RESIDENTS HAV E NOT BEEN CONTROVERTED BY THE AUTHORITIES BELOW. SINCE SUCH SIMILAR CLAIMS MADE BY THE ASSESSEE FOR MAINTENANCE OF SCHOOL HAS NOT BEEN DISALLOWED IN THE EARLIER YE ARS, SO BY APPLYING PRINCIPLE OF CONSISTENCY WE DIRECT THE AO TO ALLOW THE EXPENDITU RE OF RS. 1,00,000/- CLAIMED BY THE ASSESSEE. 8. GROUND NO. 2 RAISED BY THE ASSESSEE READS AS UND ER: 2. FOR THAT THE PAYMENTS IN RESPECT OF ENTRY TAX ON FUEL AMOUNTING TO RS. 46,44,362/- KEPT UNDER ADVANCE ACCOUNT IN THE BALAN CE SHEET BE ALLOWED ON PAYMENT BASIS U/S 43B, WHICH WAS NOT CLAIMED IN THE RETURN OF INCOME NOR BEFORE THE LOWER AUTHORITIES. 9. FROM A PERUSAL OF THE AFORESAID GROUNDS IT IS UN DERSTOOD THAT THIS CLAIM WAS NOT MADE BY THE ASSESSEE IN THE RETURN OF INCOME AN D NOT BEFORE THE LOWER AUTHORITIES AND THIS IS FOR THE FIRST TIME THE ASSESSEE HAS CLA IMED THIS EXPENDITURE U/S 43B OF THE ACT ON THE PAYMENT BASIS. 10. ACCORDING TO LD. A.R THIS AMOUNT CLAIMED BY THE ASSESSEE OF RS. 46,44,362/- WAS SHOWN AS ADVANCE IN THE BALANCE SHEET AS ON 31. 03.2012 PERTAINING TO THIS AY 2012-13. ACCORDING TO LD. A.R THIS AMOUNT WAS PAID AS ENTRY TAX [UP TAX ON ENTRY OF GOODS INTO THE LOCAL AREAS, 2007]. THE ASSESSEE CHALLENGED THE CONSTITUTIONAL VALIDITY OF THIS STATE ACT BY FILING WRIT PETITION BEFORE THE JURISDICTIONAL HIGH COURT IN WRIT TAX NO. 1484 OF 2007. IN COMPLIANCE WITH TH E HONBLE HIGH COURT INTERIM ORDER IN WP NO. 2193 /2008 FOR THE YEAR 2008-09 TO 2011-12 THE BANK GUARANTEE TOTALING TO RS. 83,92,909/- WAS DEPOSITED WITH THE STATE OF UP. LATER THE HONBLE ALLAHABD HIGH COURT DISMISSED THE WRIT PETITION AND UPHELD THE CONSTITUTIONAL VALIDITY IN RESPECT OF ENTRY TAX BY ORDER DATED 23. 12.2011 [PLACED AT PAGE 148 TO 195 OF PB]. THEREAFTER THE ASSESSEE CHALLENGED THIS DEC ISION BEFORE THE HONBLE SUPREME COURT. ITA NO.1179/KOL/2019 STAR PAPER MILLS LTD. A.Y. 2012-13 5 | P A GE 11. ACCORDING TO ASSESSEE ON 17.01.2012 THE HONBLE SUPREME COURT WHILE GRANTING CONDITIONAL STAY ON THE OPERATION OF JUDGM ENT PASSED BY THE HONBLE ALLAHABAD HIGH COURT DATED 23.12.2019 DIRECTED THE ASSESSEE TO PAY 50% OF THE ACCRUED TAX LIABILITY / ARREARS AND FURNISH BANK GU ARANTEES IN RESPECT OF THE BALANCE AMOUNT. CONSEQUENTLY ON 02.02.2012 IN TERMS OF HON BLE SUPREME COURTS ORDER RS. 45 LAKHS WERE ENCASHED BY THE COMMERCIAL TAX DEPAR TMENT OUT OF TOTAL BANK GUARANTEE WORTH RS. 83,92,909/- GIVEN EARLIER AND D RAFTS AMOUNTING TO RS. 38,92,909/- WAS RETURNED BACK TO THE ASSESSEE. ACCO RDING TO THE ASSESSEE IN THE AUDITED ACCOUNTS, IT CAN BE NOTED THAT RS. 46,44,36 2/- WAS SHOWN BY THE ASSESSEE AS ADVANCE FOR ENTRY TAX [REFER PAGE 32 AND 33] AND WA S REFLECTED IN THE FINAL ACCOUNTS UNDER NOTE NO. 18 [SHORT TERM LOAN AND ADVANCE UNDE R STAFF HEAD DEPOSITS ON GOVT. DEPARTMENT AND OTHERS]. ACCORDING TO LD. COUNSEL SI NCE THE HONBLE ALLAHABAD HIGH COURT HAS FINALLY DISMISSED THE APPEAL OF THE ASSESSEE ON 04.05.2018 WHEREIN THE HONBLE COURT HAS UPHELD THE CONSTITUTIONAL VAL IDITY OF THE STATE LEGISLATURE IMPOSING ENTRY TAX, THE ASSESSEE IS CLAIMING AS DED UCTION THE AMOUNT PAID TO THE TUNE OF RS. 46,44,362/- TO THE UP STATE GOVERNMENT. IT IS NOTED THAT SINCE THE ASSESSEE HAD CHALLENGED THE CONSTITUTIONAL VALIDITY OF THE ENTRY TAX IN HONBLE HIGH COURT/SUPREME COURT THE ASSESSEE HAD NOT CLAIMED DE DUCTION OF ENTRY-TAX PAID TO UP GOVERNMENT IN ITS RETURN OF INCOME, BUT SHOWED IT A S ADVANCE IN THE BALANCE-SHEET AS ON 31.03.2012. HOWEVER SINCE THE HONBLE HIGH CO URT HAS UPHELD THE CONSTITUTIONAL VALIDITY OF THE LEGISLATION, THE ASS ESSEE INTENDS TO CLAIM THE TAX PAID AS DEDUCTION WHICH WAS SHOWN BY IT IN ITS AUDITED ACCO UNTS UNDER ADVANCE AS DISCUSSED SUPRA. THE ENTRY TAX LEVIED BY THE GOVT. OF UP IS A N ALLOWABLE DEDUCTION U/S 43B SUB-CLAUSE (A) OF THE ACT PROVIDED THE AMOUNT IS RE MITTED BY THE ASSESSEE (ENTRY TAX) AND WILL BE ALLOWED IN THE YEAR IN WHICH THE SUM IS ACTUALLY PAID BY THE ASSESSEE . SINCE THE ISSUE OF TAX WHICH WAS PAID TO THE UP GOV T. WAS SUB-JUDICE, AS DISCUSSED SUPRA, THE ASSESSEE DID NOT CLAIM THE DEDUCTION BUT WAS SHOWN IN THE BALANCE SHEET AS ADVANCE, AND DID NOT CLAIM IN ITS RETURN OF INCOME. AND SINCE THIS CLAIM/GROUND IS RAISED BEFORE US FOR THE FIRST TIME, IN THE INTERES T OF JUSTICE, THIS ISSUE IS REMANDED TO THE FILE OF AO FOR VERIFICATION. IF THE AO FINDS TH AT THE ASSESSEE HAS ACTUALLY PAID THE ENTRY TAX TO THE GOVT. OF UP AS ENTRY TAX TO THE TU NE OF RS. 46,44,362/-, AND HAS NOT ITA NO.1179/KOL/2019 STAR PAPER MILLS LTD. A.Y. 2012-13 6 | P A GE CLAIMED DEDUCTION IN ITS ROI, THEN THE SUM MAY BE A LLOWED IN ACCORDANCE TO SECTION 43B OF THE ACT. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 17 TH FEBRUARY, 2021. SD/- SD/- (J.S. REDDY) (A. T . VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:17 .02.2021 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. APPELLANT- STAR PAPER MILLS LTD., C/O SUBASH AGARWA L & ASSOCIATES, ADVOCATES, SIDDHA GIBSON, 1, GIBSON LANE, SUITE 213 , 2 ND FLOOR, KOLKATA- 700069. 2. RESPONDENT DCIT, CIRCLE-4(2), KOLKATA 3. THE CIT(A)- 7, KOLKATA (SENT THROUGH E-MAIL) 4. CIT- , KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA (SENT THROUGH E-MAIL) TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES, KOLKATA