ACIT, CHENNAI V. Tyco Sanmar Ltd., CHENNAI

ITA 1255/CHNY/2013

• Counselvise Citation: 125521714 RSA 2013
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 06-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM IRS
• Section: 43B; 143(3); 6; 28; 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . . !' , # '$ % BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI S.S. GODARA, JUDICIAL MEMBER ./ I.T.A. NO.1255/MDS/2013 ( / ASSESSMENT YEAR : 2006-2007) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(2), CHENNAI. ( &' /APPELLANT) VS M/S. TYCO SANMAR LTD NO.9, CATHEDRAL ROAD, CHENNAI 600 086 [PAN: AAACT7409H] ( ()&' /RESPONDENT) / APPELLANT BY : SHRI. GURU BHASHYAM, IRS, JCIT. / RESPONDENT BY : SHRI. SAROJ KUMAR PARIDA, ADV /DATE OF HEARING : 11.03.2014 /DATE OF PRONOUNCEMENT : 13.03.2014 '* / O R D E R PER S.S. GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL ARISES FROM ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), TRICHY DATED 01.02.2013, PASSED IN ITA NO.316/09-10 FOR ASSESSMENT YEAR 2006 -2007, IN I.T.A.NO.1255/MDS/2013 :- 2 -: PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 [IN SHORT THE ACT]. 2. IT APPEARS FROM THE ARRAY OF GROUNDS RAISED IN T HIS APPEAL THAT THE REVENUES GRIEVANCE HEREIN IN TWO FOLDED I.E. IT CHALLENGES ACTION OF THE CIT(A) IN TREATING EXPENSES TOWARDS OFFICE I NTERIOR WORKS, FLOORING, CUBICLES, ELECTRICAL WORKS AND SPECIAL FL OOR COATING ETC TOTALING F20,02,567/- AS REVENUE IN NATURE. ITS SECOND PL EA IS THAT THE CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF PROVISION FO R GRATUITY AMOUNTING F24,44,329/-. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF MANUFACTURING AND SALE OF SAFETY RELIEF VALVES. ON 25.10.2006, IT HAD FILED ITS RETURN DECLARING TOTAL INCOME OF F21,82 ,28,036/- WHICH WAS SUMMARILY PROCESSED. THEREAFTER, THE ASSESSING O FFICER FRAMED REGULAR ASSESSMENT VIDE ORDER DATED 29.12.2009 MA KING AFORESAID ADDITIONS. IN LOWER APPELLATE PROCEEDINGS, THE SAM E STAND DELETED. THEREFORE, THE REVENUE IS IN APPEAL. 4. COMING TO FIRST GROUND, THE RELEVANT FACTS ARE THAT IN ITS PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAD DEBITED A SUM OF F1,11,55,911/- I.T.A.NO.1255/MDS/2013 :- 3 -: AND ALSO FILED BREAK UP THEREOF. IT HAD INCURRED EX PENDITURE UNDER THE HEAD REPAIRS AND MAINTENANCE-CIVIL OF F5,00,560/- AS CIVIL WORKS CARRIED OUT IN THE FACTORY PREMISES AND F15,02,007/ - AS OFFICE INTERIOR WORKS (FLOORING, CUBICLES AND ELECTRICAL WORKS AT B RANCH AND FACTORY SPECIAL FLOOR COATING). IN ASSESSMENT ORDER, THE ASSESSING OFFICER HELD THE SAME TO BE CAPITAL IN NATURE AS PER THEIR DES CRIPTION. ACCORDINGLY, HE DISALLOWED/ADDED SUM TOTAL OF BOTH EXPENSES COMI NG TO F20,02,567/-. 5. IN LOWER APPELLATE PROCEEDINGS, THE CIT(A) HAS PLAC ED RELIANCE ON THE ORDER OF THE TRIBUNAL IN THE CASE OF DCIT VS. M/S. FLOW SERVE SANMAR LTD (ASSESSEES ASSOCIATE CONCERN) IN ITA NO .2101/MDS/2006 DATED 9 TH NOVEMBER, 2007 HOLDING THEREIN THAT EXPENDITURE IN CURRED ON VINYL FLOORING, PARTITION OF WOODEN STEPS AND PARTI TION EXPENSES IS REVENUE IN NATURE. HE HAS FURTHER OBSERVED THAT N O NEW ASSETS WERE EITHER CONSTRUCTED OR CAME INTO EXISTENCE AND IT WA S ONLY CURRENT RENOVATION. IN THIS MANNER, THE DISALLOWANCE/ADDITI ON IN QUESTION STANDS DELETED. 6. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE DEC ISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL(SUPRA) RELI ED UPON BY THE ASSESSEE IN LOWER APPELLATE PROCEEDINGS. IN THE SAI D DECISION, CO- I.T.A.NO.1255/MDS/2013 :- 4 -: ORDINATE BENCH HAS OBSERVED THAT SINCE THE EXPENDIT URE HAS BEEN INCURRED ON A PERMANENT STRUCTURE, NO NEW ASSET HAS COME INTO EXISTENCE AND FURTHER THAT THE SAME PERTAINS TO CUR RENT RENOVATION WORK. THE ASSESSEE HAS PLACED BEFORE US RELEVANT D ETAILS OF THE EXPENDITURE IN QUESTION. ON BEING GRANTED OPPORTUNI TY TO REBUT, THE REVENUE HAS NEITHER BEEN ABLE TO POINT OUT ANY DIST INCTION ON FACTS NOR FILES ANY CONTRARY EVIDENCE TO DISPEL THE FINDINGS UNDER CHALLENGE. THEREFORE, WE AGREE WITH THE CIT(A) AND REJECT CORR ESPONDING GROUNDS IN THE INSTANT APPEAL. 7. NOW WE COME TO SECOND GROUND PERTAINING TO DISALLOW ANCE OF PROVISION OF GRATUITY OF F24,44,329/-. IN THE COU RSE OF ASSESSMENT, THE ASSESSING OFFICER CAME ACROSS THIS PROVISION O F GRATUITY FUND WITH LIFE INSURANCE CORPORATION OF INDIA CLAIMED UNDER S ECTION 40A(7)(B). IN THE ASSESSMENT ORDER, HE REJECTED THE ASSESSEES EXPLANATION AND HELD THAT SINCE NO ACTUAL PAYMENT HAD BEEN MADE, TH E SAME COULD BE ACCEPTED. 8. IN THE LOWER APPELLATE PROCEEDINGS, THE CIT(A) OBSE RVES THAT SECTION 40A(7)(B) IS IN THE NATURE OF A SPECIFIC PR OVISION WHICH OVERRIDES GENERAL PROVISIONS ALIKE SECTION 43B. I N HIS VIEW, THE FORMER I.T.A.NO.1255/MDS/2013 :- 5 -: PROVISION TAKES PRECEDENCE OVER THE LATTER ONE. TH EREFORE, THE DISALLOWANCE IN QUESTION STANDS DELETED. 9. IN THE COURSE OF HEARING, THE REVENUE QUOTES LAW CA SE M/S. SANMAR SPECIALITY CHEMICALS LTD, IN ITA NO.1411/MDS /2012 INTERPRETING BOTH THE AFORESAID PROVISIONS IN HARAM ONY AS UNDER:- 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. ASSESSING OFFICER HAS STATED IN THE ASSESSMENT ORDE R THAT ASSESSEE HAD DEBITED A SUM OF RS 31,24,172/- TOWARDS GRATUITY IN ITS ACCOUNTS. HOWEVER, THE ASSESSEE IN ITS SUBMISSION DID MENTION THAT IT WAS A PROVISION TOWARDS CONTRIBUTION FOR A GRATUITY FUND MAINTAINED WITH LIC OF INDIA. ASSESSEE ALSO MENTIONED THAT THE CLAIM WA S MADE AS PER SECTION 40A(7)(A) OF THE ACT. SECTION 40A(7)(A) REA DS AS UNDER:- 40A(7)(A) SUBJECT TO THE PROVISIONS OF CLAUSE (B), NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY PROVIS ION (WHETHER CALLED AS SUCH OR BY ANY OTHER NAME) MADE BY THE ASSESSEE FOR THE PAYMENT OF GRATUITY TO HIS EMPLOY EES ON THEIR RETIREMENT OR ON TERMINATION OF THEIR EMPLOYMENT FO R ANY REASON. (B) NOTHING IN CLAUSE (A) SHALL APPLY IN RELATION TO ANY PROVISION MADE BY THE ASSESSEE FOR THE PURPOSE OF P AYMENT OF A SUM BY WAY OF ANY CONTRIBUTION TOWARDS AN APPROVE D GRATUITY FUND, OR FOR THE PURPOSE OF PAYMENT OF ANY GRATUITY, THAT HAS BECOME PAYABLE DURING THE PREVIOUS YEAR. EXPLANATION FOR THE REMOVAL OF DOUBTS, IT IS HERE BY DECLARED THAT WHERE ANY PROVISION MADE BY THE ASSESSEE FOR T HE PAYMENT OF GRATUITY TO HIS EMPLOYEES ON THEIR RETIR EMENT OR TERMINATION OF THEIR EMPLOYMENT FOR ANY REASON HAS BEEN ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF T HE ASSESSEE FOR ANY ASSESSMENT YEAR, ANY SUM PAID OUT OF SUCH PROVISION BY WAY OF CONTRIBUTION TOWARDS AN APPROVE D GRATUITY FUND OR BY WAY OF GRATUITY TO ANY EMPLOYEE SHALL NOT BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME O F THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE SUM IS S O PAID. I.T.A.NO.1255/MDS/2013 :- 6 -: SECTION 43B READS AS UNDER:- 43B. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWA BLE UNDER THIS ACT IN RESPECT OF - (A) ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEE, BY WHATEVER NAME CALLED, UNDER ANY LAW FOR THE TIME BEING IN FORCE, OR (B) ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATIO N FUND OR GRATUITY FUND OR ANY OTHER FUND FOR THE WELFARE OF EMPLOYEES, [OR] (C) ANY SUM REFERRED TO IN CLAUSE (II) OFSUB-SECTIO N (1) OF SECTION 36 [OR] (D) ANY SUM PAYABLE BY THE ASSESSEE AS INTEREST ON ANY LOAN OR BORROWING FROM ANY PUBLIC FINANCIAL INSTITUTION [OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTM ENT CORPORATION], IN ACCORDANCE WITH THE TERMS AND COND ITIONS OF THE AGREEMENT GOVERNING SUCH LOAN OR BORROWING [OR] (E) ANY SUM PAYABLE BY THE ASSESSEE AS INTEREST ON ANY [LOAN OR ADVANCES] FROM A SCHEDULED BANK IN ACCORDANCE WI TH THE TERMS AND CONDITIONS OF THE AGREEMENT GOVERNING SUC H LOAN [OR ADVANCES] [OR] (F) ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER IN LIEOF ANY LEAVE AT THE CREDIT OF HIS EMPLOYEE, SHALL BE A LLOWED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIA BILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM) ONL Y IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF T HE PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM: PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHA LL APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE A SSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR F URNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 1 39 IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED AS AFORESAID AND THE EVIDENCE OF S UCH PAYMENT IS FURNISHED BY THE ASSESSEE ALONG WITH SUC H RETURN. I.T.A.NO.1255/MDS/2013 :- 7 -: 9. THE QUESTION BEFORE US IS WHETHER SECTION 40A(7 ) OVERRIDES SECTION 43B OF THE ACT. A SIMILAR ISSUE, WHERE PAYM ENTS WERE EFFECTED BY AN ASSESSEE FOR SETTING UP OR FORMATION OR CONTRIBUTIO N TO A FUND, AND CLAIMED UNDER SECTION 40A(9) AND THE EFFECT OF SUB CLAUSE ( C) TO SECTION 43B ON SUCH CLAIM, HAD COME UP BEFORE HON'BLE JURISDICTIONAL HI GH COURT IN THE CASE OF CIT V. SHASUN CHEMICALS AND DRUGS LTD. IN TC(A) NO. 1415 OF 2007 AND TC(A) NO.48 OF 2008 DATED 25.4.2011. THERE THE PAYM ENTS CLAIMED WERE WITH REGARD TO BONUS OR EXGRATIA MADE TO TRUSTEES OF A W ORKERS UNION TRUST. THE QUESTION WAS WHETHER IT WAS HIT BY SECTION 40(A)(9) OF THE ACT EVEN THOUGH THE PAYMENTS WERE EFFECTED WITHIN THE TIME SPECIFIE D UNDER SECTION 43B(C) OF THE ACT. THEIR LORDSHIP HELD THAT SECTION 40(A)(9) WAS A OVERRIDING SECTION TO SECTION 43B OF THE ACT. AS PER SECTION 40(A)(9), ONLY PAYMENTS TO RECOGNIZED APPROVED FUND OR APPROVED GRATUITY FUND WERE EXEMPT FROM DISALLOWANCE. THEIR LORDSHIP FURTHER NOTED THAT SEC TION 43B(C) INTRODUCED LATER TO SECTION 40(A)(9) AND DID NOT MAKE THE LATT ER SECTION INOPERATIVE. FIRST IT WAS TO BE SEEN WHETHER DEDUCTION CAN BE AL LOWED UNDER SECTION 40(A)(9) SINCE IT STARTS WITH A NON OBSTANTE CLAUSE AND THEREAFTER, IT HAS TO BE SEEN WHETHER SUCH CLAIM SATISFIED THE CONDITION SPE CIFIED UNDER SECTION 43B OF THE ACT. 10. ON AN ANALOGY, WITH LAW LAID DOWN BY HON'BLE JU RISDICTIONAL HIGH COURT, IN OUROPINION, WHAT IS TO BE SEEN HERE ALSO IS WHETHER THE PAYMENTS CLAIMED SATISFIED SECTION 40(A)(7)(A) OF THE AND TH EREAFTER IT HAS TO BE SEEN WHETHER IT SATISFIED SECTION 43B OF THE ACT AND PRO VISO THEREUNDER. IN OTHER WORDS, A PROVISION MADE FOR AN APPROVED GRATUITY FU ND IS DEFINITELY ALLOWABLE UNDER SECTION 40(A)(7) OF THE ACT. NEVERT HELESS, ONE MORE CONDITION WHICH IS TO BE SATISFIED IS THAT ACTUAL P AYMENT HAS BEEN EFFECTED EITHER WITHIN THE RELEVANT PREVIOUS YEAR OR WITHIN THE DUE DATE FOR FURNISHING THE RETURN OF INCOME, AS MENTIONED IN PROVISO TO SE CTION 43B OF THE ACT. IN OUR OPINION, THESE ASPECTS HAVE NOT BEEN VERIFIED B Y ANY OF THE AUTHORITIES BELOW. WE, THEREFORE, SET ASIDE THEIR ORDERS ON TH IS ISSUE, AND REMIT IT BACK TO THE FILE OF ASSESSING OFFICER FOR CONSIDERATION AFR ESH IN ACCORDANCE WITH LAW. RELEVANT GROUND TAKEN BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. IN VIEW THEREOF, WE ALSO DEEM IT PROPER TO RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL VERIFY AS TO WHETHER ACTUAL PAYMENT HAS BEEN EFFECTED EITHER IN RELEVANT PREVIOUS YEAR OR BEFORE DUE DATE OF FILING OF RETURN. NEEDLESS TO SAY, HE SHALL DO SO AFTER GIVING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. I.T.A.NO.1255/MDS/2013 :- 8 -: 10. ACCORDINGLY, THE REVENUES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THURSDAY, THE 13TH OF MARCH, 2014, AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) VICE PRESIDENT (S.S. GODARA) JUDICIAL MEMBER DATED:13 TH MARCH, 2014. K.V. COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR