ADDL CIT 1(3), MUMBAI V. NYK LINE (INDIA) LTD, MUMBAI

ITA 1218/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100591 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2015
• Appeal Filed By: Department
• Bench Allotted: G
• Next Hearing Date: 11-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 10-02-2011
• Court: TRIBUNAL
• Assessee Lawyers: RAKESH KUMAR AGRAWAL SR
• Keywords: Business expenditure; Question of law; Tax effect
• Section: 43B; 37; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND AMIT SHUKLA, JUDICIAL MEMBER I.T.A. NO. 1218/M/2011 (AY 2006 - 2007) ADDL. CIT 1(3), R.NO.540 / 564, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, NEW MARINE LINES, MUMBAI - 20. / VS. M/S. NYK LINE (INDIA) LTD., TRADE VIEW, 3 RD FLOOR, KAMALA MILLS COMPLEX, PANDURANG BUDHAKAR MARG, LOWER PAREL, MUMBAI - 13. ./ PAN : AAACT3273H ( / APPELLANT) .. ( / RESPONDENT ) C.O. NO.35/M/2015 (ARISING FROM I.T.A. NO. 1218/M/2011) (AY 2006 - 2007) M/S. NYK LINE (INDIA) LTD., TRADE VIEW, 3 RD FLOOR, KAMALA MILLS COMPLEX, PANDURANG BUDHAKAR MARG, LOWER PAREL, MUMBAI - 13. / VS. ADDL. CIT 1(3), R.NO.540 / 564, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, NEW MARINE LINES, MUMBAI - 20. ./ PAN : AAACT3273H CROSS OBJECTOR .. ( / RESPONDENT ) / ASSESSEE BY : SHRI RAKESH KUMAR AGRAWAL, SR. AR / REVENUE BY : SHRI GIRISH DAVE / DATE OF HEARING : 20 .07.2015 / DATE OF PRONOUNCEMENT : 12 .08.2015 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION. APPEAL ITA NO.1218/M/2011 IS FILED BY THE REVENUE AND THE CROSS OBJECTION NO.35/M/2015 IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT (A) - 2, MUMBAI DATED 2.11.2010 FOR THE ASSESSMENT YEAR 2006 - 2007. SINCE, THE ISSUES RAISED IN BOTH THESE APPEALS ARE CONNECTED, THEREFORE, FOR THE SAKE OF CO MPLETENESS, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS OF THIS ORDER. 2 ITA NO.1218/M/2011 (BY REVENUE) 2. THIS APPEAL FILED BY THE REVENUE AGAINST THE SAID ORDER OF THE CIT (A) - 2, MUMBAI DATED 2.11.2010. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DELETING THE DISALL OWANCE OF RS. 9,36,700/ - BEING EXPENSES INCURRED TOWARDS FEASIBILITY STUDY HOLDING IT TO BE REVENUE IN NATURE AGAINST EXPENSES HELD BY THE AO. 1.1. THE LD CIT (A) FURTHER ERRED IN OVERLOOKING THE FACT THAT ASSESSEE WAS MERELY ACTING AS AGENT OF THE PRINCIP AL & THE EXPENSES INCURRED WAS FOR A NEW LINE OF BUSINESS WHICH DID NOT COMMENCE. 3. IN THIS APPEAL, THE REVENUE CHALLENGED THE CIT (A)S DECISION IN DELETING THE DISALLOWANCE OF RS. 9,36,700/ - MADE BY THE AO ON ACCOUNT OF EXPENDITURE ON FEASIBILITY STUD Y . THE TAX EFFECT FOR THE PRESENT APPEAL IS LESS THAN RS. 4 LAKHS AND ACCORDING TO INSTRUCTION NO.5/2008, DATED 15.5.2008 OF THE CBDT, NO APPEAL SHOULD BE FILED BY THE DEPARTMENT BEFORE THE TRIBUNAL IF THE TAX EFFECT IS LESS THAN RS. 4 LAKHS. IT IS ALSO HELD BY THE HONBLE BOMBAY HIGH COURT IN THE FOLLOWING CASES THAT THE INSTRUCTIONS OF THE CBDT DESCRIBING THE LIMIT TO THE TAX EFFECT WOULD BE APPLICABLE TO THE PENDING APPEALS ALSO. (I) CIT VS. SMT. VIJAYA KAVEKAR [(2013) 30 TAXMANN.COM 412], BOMBAY HIGH COUR T (II) CIT VS. MADHUKAR INAMDAR [(2009) 185 TAXMAN 101], BOMBAY HIGH COURT 4. LD DR DID NOT CONTROVERT TO THE FACT THAT THE TAX EFFECT IN THE PRESENT APPEAL IS LESS THAN RS. 4 LAKHS. 5. IN THIS VIEW OF THE SITUATION, APPEAL FILED BY THE REVENUE IS DISMISSED ON ACCOUNT OF LOW TAX EFFECT. CROSS OBJECTION NO.35/M/2015 (BY ASSESSEE) 6. THIS CROSS OBJECTION FILED BY THE ASSESSEE ON 11.2.2015 AGAINST THE SAID ORDER OF THE CIT (A) - 2, MUMBAI DATED 2.11.2010. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 3 1. THE LD CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 3,19,333/ - BEING EMPLOYEES CONTRIBUTION DEPOSITED AFTER THE STATUTORY DUE DATE BUT BEFORE THE END OF THE RELEVANT FINANCIAL YEAR. 2. THE LD CIT (A) OUGHT TO HAVE FOLLOWED THE DICISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD (319 ITR 306) (SC) WHEREIN IT HAS BEEN HELD THAT NO DISTINCTION SH OULD BE MADE BETWEEN EMPLOYERS AND EMPLOYEES CONTRIBUTION TO PROVIDENT FUND. 3. THE LD CIT (A) ERRED IN DIRECTING TO ALLOW DEDUCTION FOR ENTRANCE FEES OF RS. 6,00,000/ - ON DEFERRED BASIS OVER A PERIOD OF 5 YEARS. 4. THE RESPONDENT SUBMITS THAT THE SAID EXPENDITURE OF RS. 6,00,000/ - BEING REVENUE IN NATURE OUGHT TO HAVE BEEN ALLOWED AS DEDUCTION ENTIRELY IN THE YEAR IN WHICH SUCH EXPENDITURE IS INCURRED. IN THIS REGARD, THE RESPONDENT RELIES ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF UNITED GLASS MFG. CO. LTD (CIVIL APPEAL NO.6447 OF 2012). THE HONBLE SUPREME COURT, IN THE SAID DECISION HAS HELD THAT CLUB MEMBERSHIP FEES FOR EMPLOYEES IS BUSINESS EXPENDITURE AND ALLOWABLE AS DEDUCTION UNDER SECTION 37 OF THE ACT. 7. CROSS OBJECTION NO.1 RELATES TO THE ADDITION OF RS. 3,19,333/ - MADE ON ACCOUNT OF EMPLOYEES CONTRIBUTION DEPOSITED BY THE EMPLOYER AFTE R THE DUE DATE, BUT BEFORE THE END OF THE FY. IN THIS REGARD, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CLAIM OF THE ASSESSEE IS FULLY ALLOWABLE IN VIEW OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD [319 ITR 306 (SC)]. HE FURTHER SUBMITTED THAT NO DISTINCTION IS REQUIRED TO BE DISPLACED BETWEEN THE EMPLOYERS AND EMPLOYEES CONTRIBUTION, AND THEREFORE, THE CLAIM IS FULLY ALLOWABLE. TO FURTHER CEMENT THE SAID PROPOSITION, LD COUNSEL FOR THE ASSESSEE ALSO FIL ED JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. M/S. HINDUSTAN ORGANICS CHEMICALS LTD , ITA NO.399 OF 2012, DATED 11.7.2014 , WHEREIN THE HIGH COURT DEALT WITH THE DEVELOPMENTS IN LAW TO THE PROVISIONS OF SECTION 43B OF THE ACT AND EXPLAINED BY STATING THAT THE EMPLOYEES CONTRIBUTION IS REQUIRED TO BE TREATED ON PAR WITH THE EMPLOYERS CONTRIBUTION PAID BELATEDLY BEFORE THE END OF THE FY AS SPECIFIED IN THE PROVISO TO SECTION 43B OF THE ACT. PARAS 5 TO 9 OF THE SAID JUDGMENT OF T HE HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S. HINDUSTAN ORGANICS CHEMICALS LTD (SUPRA) ARE RELEVANT IN THIS REGARD. 5. WE FIND NO MERIT IN THE AFORESTATED CONTENTION. SECTION 43B OF THE INCOME TAX ACT 1961 WAS INSERTED IN THE ACT WITH EFFECT FROM 1S T APRIL 1984 BY WHICH THE MERCANTILE SYSTEM OF ACCOUNTING WITH REGARD TO TAX, DUTY AND CONTRIBUTION TO WELFARE FUNDS STOOD DISCONTINUED AND UNDER SECTION 43B OF THE ACT, IT BECAME MANDATORY FOR THE ASSESSEES TO ACCOUNT FOR THE AFORESTATED ITEMS NOT ON A ME RCANTILE BASIS BUT ON A CASH BASIS. THIS SITUATION CONTINUED BETWEEN 1ST APRIL 1984 AND 1ST APRIL 1988 WHEN PARLIAMENT AGAIN AMENDED SECTION 43B AND INSERTED THE FIRST PROVISO THERETO WHICH INTER ALIA LAID DOWN THAT IN THE CONTEXT OF ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEE, IF PAID BY THE ASSESSEE EVEN AFTER THE CLOSING OF THE ACCOUNTING 4 YEAR BUT BEFORE THE DATE OF FILING OF THE RETURN OF INCOME, THE ASSESSEE WOULD BE ENTITLED TO THE DEDUCTION UNDER SECTION 43B ON ACTUAL PAYMENT BAS IS AND SUCH DEDUCTION WOULD BE ADMISSIBLE FOR THAT ACCOUNTING YEAR. THIS PROVISO HOWEVER DID NOT APPLY TO CONTRIBUTIONS MADE BY THE ASSESSEES TO THE LABOUR WELFARE FUNDS. IN VIEW THEREOF, BY THE FINANCE ACT 1988, THE SECOND PROVISO CAME TO BE INSERTED WHIC H READ AS UNDER : - PROVIDED FURTHER THAT NO DEDUCTION SHALL, IN RESPECT OF ANY SUM REFERRED TO IN CLAUSE (B), BE ALLOWED UNLESS SUCH SUM HAS ACTUALLY BEEN PAID DURING THE PREVIOUS YEAR ON OR BEFORE THE DUE DATE AS DEFINED IN THE EXPLANATION BELOW CLAUSE (VA) OF SUB - SECTION (1) OF SECTION 36. THEREAFTER, THE SAID SECOND PROVISO WAS FURTHER AMENDED VIDE FINANCE ACT 1989 WITH EFFECT FROM 1ST APRIL 1989 WHICH READ AS UNDER: - PROVIDED FURTHER THAT NO DEDUCTION SHALL, IN RESPECT OF ANY SUM REFERRED TO IN CLAUSE (B), BE ALLOWED UNLESS SUCH SUM HAS ACTUALLY BEEN PAID IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE ON OR BEFORE THE DUE DATE AS DEFINED IN THE EXPLANAT ION BELOW CLAUSE (VA) OF SUBSECTION (1) OF SECTION 36, AND WHERE SUCH PAYMENT HAS BEEN MADE OTHERWISE THAN IN CASH, THE SUM HAS BEEN REALISED WITHIN FIFTEEN DAYS FROM THE DUE DATE. 6. ON A PLAIN READING OF THE ABOVE PROVISOS, IT BECAME EX - FACIE CLEAR T HAT THE ASSESSEES EMPLOYERS WERE ENTITLED TO DEDUCTIONS ONLY IF THE CONTRIBUTIONS TO ANY FUND FOR THE WELFARE OF THE EMPLOYEES STOOD CREDITED ON OR BEFORE THE DUE DATE GIVEN IN THE RELEVANT ACT. 7. HOWEVER, THE SECOND PROVISO ONCE AGAIN CREATED FURTHE R DIFFICULTIES FOR THE ASSESSEES EMPLOYERS. THEREFORE, INDUSTRY ONCE AGAIN MADE REPRESENTATIONS TO THE MINISTRY OF FINANCE WHO, AFTER TAKING COGNIZANCE OF THE DIFFICULTIES, INSERTED AN AMENDMENT VIDE FINANCE ACT, 2003 WHICH CAME INTO FORCE WITH EFFECT FR OM 1ST APRIL 2004. IN OTHER WORDS, WITH EFFECT FROM 1 ST APRIL 2004, TWO CHANGES WERE MADE IN SECTION 43B VIZ. DELETION OF THE SECOND PROVISO TO SECTION 43B AND FURTHER AMENDMENT IN THE FIRST PROVISO WHICH READS AS UNDER: - PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUBSECTION (1) OF SECTION 139 IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FURNISHED BY THE ASSESSEE ALONG WITH SUCH RETURN. THEREFORE, THE AMENDMENTS INTRODUCED BY THE FINANCE ACT, 2003 PUT ON PAR THE BENEFIT OF DEDUCTIONS OF TAX, DUTY, CESS AND FEE ON THE ONE HAND WITH CONTRIBUTIONS TO VARIOUS EMPLOYEES WELFARE FUNDS ON THE OTHER. 8. THE SECTION REFERRED TO ABOVE VIZ. SECT ION 43B AND THE AMENDMENTS THERETO CAME UP FOR CONSIDERATION BEFORE THE HON'BLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V/S ALOM EXTRUSIONS LTD., REPORTED IN (2009) 319 ITR 306 (SC) WHEN THE SUPREME COURT INTER ALIA HELD THAT THE AMENDMENTS TO THE SAID SECTION BROUGHT ABOUT BY THE FINANCE ACT, 2003 WITH EFFECT FROM 1ST APRIL 2004 WERE RETROSPECTIVE IN NATURE AND WOULD OPERATE FROM 1ST APRIL 1988. THE ITAT, RELYING UPON THE AFORESAID JUDGMENT OF THE SUPREME COURT, HAS DISMISSED THE REVENUE'S APPEAL AND CONFIRMED THE ORDER PASSED BY THE CIT (APPEALS). IN THIS VIEW OF THE MATTER AND IN VIEW OF THE FACT THAT THE SUPREME COURT HAS EXPRESSLY HELD THAT THE AMENDMENTS TO SECTION 43B THAT WERE BROUGHT ABOUT BY THE FINANCE ACT, 2003 ARE RETROSPECTIVE I N NATURE, WE FIND THAT THE ITAT WAS FULLY JUSTIFIED IN DELETING THE ADDITION OF RS.1,82,77,138/ - ON ACCOUNT OF DELAYED PAYMENT OF PROVIDENT FUND OF EMPLOYEES' CONTRIBUTION. WE THEREFORE FIND THAT NO SUBSTANTIAL 5 QUESTION OF LAW ARISES ON THIS COUNT AS SOUGH T TO BE CONTENDED BY MR MALHOTRA ON BEHALF OF THE REVENUE. 9. EVEN OTHERWISE, WE FAIL TO UNDERSTAND HOW THIS DEDUCTION COULD HAVE BEEN DISALLOWED TO THE ASSESSEE. ADMITTEDLY, THE ASSESSMENT YEAR IN QUESTION IS 2006 - 07. THE SECOND PROVISO TO SECTION 43B QUOTED ABOVE WAS DELETED WITH EFFECT FROM 1ST APRIL 2004 AND SIMULTANEOUSLY THE FIRST PROVISO WAS ALSO AMENDED BRINGING ABOUT A UNIFORMITY IN DEDUCTIONS CLAIMED TOWARDS TAX, DUTY, CESS AND FEE ON THE ONE HAND AND CONTRIBUTION TO THE EMPLOYEES' PROVIDENT FU ND, SUPERANNUATION FUND AND OTHER WELFARE FUNDS ON THE OTHER. THESE DEDUCTIONS BEING CLAIMED IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2006 - 07, THE AMENDMENTS TO SECTION 43B WHICH CAME INTO FORCE WITH EFFECT FROM 1ST APRIL 2004 WOULD HAVE CLEAR LY APPLIED TO THE ASSESSEE'S CASE. IN THIS VIEW OF THE MATTER ALSO, WE FIND THAT THE ITAT WAS FULLY JUSTIFIED IN DELETING THE ADDITION OF RS.1,82,77,138/ - ON ACCOUNT OF DELAYED PAYMENT OF PROVIDENT FUND OF EMPLOYEES' CONTRIBUTION. 8. CONSIDERING THE ABOVE SETTLED POSITION OF LAW, WE ARE OF THE OPINION THAT THE ORDER OF THE CIT (A) IS REQUIRED TO BE REVERSED ON THIS ISSUE AS SUCH, THE ASSESSEE IS ENTITLED TO DEDUCTION. ACCORDINGLY, CROSS OBJECTION NO.1 RAISED BY THE ASSESSEE IS ALLOWED . 9. THE SECOND ISSUE RAISED IN THE GROUNDS RELATES TO THE ALLOWABILITY OF THE CLUB EXPENSES BY WAY OF MEMBERSHIP ENTRY FEE TO THE CLUB. IN THIS REGARD, REVENUE AUTHORITIES RESTRICTED THE DISALLOWANCE TO 1/5 TH OF THE CLAIM. AGGRIEVED WITH THE SAID DECISI ON, ASSESSEE IS IN APPEAL BEFORE US WIDE CROSS OBJECTION NO.2. BEFORE US, AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE FILED AN ORDER OF THE TRIBUNAL IN THE CASE OF CLARIANT CHEMICALS (I) LTD VS. ADDL. CIT [2015] 53 TAXMANN.COM 39 (MUMBAI. TRIB), DATED 19.9 .2014 AND BRINGING OUR ATTENTION TO PARA 5 OF THE SAID TRIBUNALS ORDER, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CLAIM OF THE ASSESSEE IS FULLY ALLOWABLE UNLIKE 1/5 TH OF THE EXPENDITURE ALLOWED BY THE CIT (A). 10. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE SAID ORDER OF THE TRIBUNAL (SUPRA) DATED 19.9.2014, WE FIND THE SAID PARA 5 IS RELEVANT HERE. CONSIDERING THE IMPORTANCE OF THE SAID PARA 5 OF THE TRIBUNALS ORDER (SUPRA) AND FOR THE SAKE OF COMPLETENESS OF THIS ORDER, THE SAME IS EXTRA CTED AS UNDER: 5. BEFORE US, BOTH THE PARTIES AGREED THAT THIS ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2004 - 05, IN ASSESSEES OWN CASE WHEREIN THE TRIBUNAL WHILE ALLOWING THE ASSESSEES CLAIM HAS FOLLOWED THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN OTIS ELEVATOR CO. INDIA LTD (SUPRA). THUS, IN VIEW OF THE AFORESAID ADMITTED POSITION AND ALSO THE JUDICIAL PRECEDENCE OF THE EARLIER YEAR, WE ALSO HOLD THAT SUCH AN EXPENDITURE INCURRED ON ACCOUNT OF PAYMENT OF MEMBE RSHIP ENTRANCE FEE PAID TO THE CLUB IS AN ALLOWABLE EXPENDITURE AND ACCORDINGLY, WE AFFIRM THE FINDINGS OF THE LD CIT (A). THUS, GROUND NO.1 AS RAISED BY THE REVENUE IS DISMISSED. 6 11. CONSIDERING THE ABOVE SETTLED POSITION AT THE LEVEL OF THE COORDINAT E BENCH OF THE ITAT, WE ARE OF THE OPINION THE ORDER OF THE CIT (A) IS REQUIRED TO BE REVERSED ON THIS ISSUE AND THE ASSESSEES CLAIM IS REQUIRED TO BE ALLOWED. ACCORDINGLY, CROSS OBJECTION NO.2 RAISED BY THE ASSESSEE IS ALLOWED . 12. IN THE RESULT, CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED . ORDER PRONOUNCE D IN THE OPEN COURT ON 1 2 T H AUGUST, 2015. S D / - S D / - (AMIT SHUKLA) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 1 2 .8 .2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI