Emerson Process Management Chennai P Ltd., CHENNAI V. ACIT Company Circle 1(3), CHENNAI

ITA 1270/CHNY/2018

• Counselvise Citation: [2022] 107 COUNSELVISE.COM (IT) 1081 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 15-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 43B; 143(3); 92CA

Judgement Text

आयकरअपीलीयअिधकरण,‘डी’ ायपीठ,चे ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI ी जी मंजूनाथा, लेखा सद ,एवं ी रा#ल चौधरी, ाियक सद के सम% BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER AND SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER आयकरअपीलसं./I.T.A No.:1270/CHNY/2018 िनधा&रणवष&/Assessment Year: 2009 - 2010 M/s. Emerson Process Management Chennai Private Limited, [Formerly known as M/s. Fisher Sanmar Ltd.] No.147, Karapakkam Village, Chennai – 600 097 PAN:AAACF 0483F ............... अपीलाथ(/Appellant Vs. The Assistant Commissioner of Income Tax Company Circle – I(3) Nungambakkam, Chennai – 600 034. ............... )*थ(/Respondent Appearances : For the Appellant/Assessee : Mr. Ibraheem Shaik, C.A For the Respondent/Department : Ms. R. Uma Maheswari, JCIT Date of conclusion of hearing : 31.05.2022 Date of pronouncement of order : 02.06.2022 आदेश /O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant/Assessee has challenged the Order, dated 12.12.2017, passed by the Commissioner of Income Tax (Appeals)-13 [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 2019-2010 dismissing the appeal filed against the Assessment Order, dated 31.03.2013, passed under Section 143(3) read with Section 92CA of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’]. I.T.A. No.1270/CHNY/2018 Assessment Year : 2009 – 2010 - 2 - 2. The brief fact of the case are that the Appellant is a company engaged in the business of manufacturing and sales of industrial valves. The Appellant filed return of income on 26.09.2009 for the Assessment Year 2009-2010 declaring income of INR 39,68,34,515/- . The case of the Appellant was selected for scrutiny, and assessment under Section Section143(3) read with Section 92CA of the Actwas framed vide, order dated 31.03.2013, after making disallowance for Provisions of Gratuity amounting to INR 4,22,526/- under Section 40A(7) read with Section 43B of the Act. 3. The Appellant preferred appeal before CIT(A) against the Assessment Order which was dismissed on the ground that deduction under Section 43B is allowable only on payment basis. Since Appellant has only created a provision for payment of gratuity the Assessing Officer was justified in making the disallowance. 4. Being aggrieved, the Appellant has filed the present appeal raising the following grounds: [1] The learned Commissioner of Income Tax erred on confirming the disallowance of Provision for Gratuity for Rs.4,22,526 made u/s 40A(7) by the Assistant Commissioner of Income Tax for the following reasons. [2] The assessee has incurred expenses of Rs.17,23,526 towards gratuity expenses. The provisions of section 40A(7)(b) and section 43B give rise to a conflict situation. Section 40A(7) provides that no deduction shall be allowed in respect of ‘any provision’ made for the payment of gratuity to employees on their retirement or on termination of their employment for any reason. [3] Section 40A(7)(b) also gives an exception providing that this restriction or disabling section will not apply to provision made for the purpose of I.T.A. No.1270/CHNY/2018 Assessment Year : 2009 – 2010 - 3 - payment of a sum by way of any contribution towards an approved gratuity fund or for the purpose of payment of any gratuity, that has become payable during the relevant previous year. Such an exception carved out in section 40A(1) and will prevail over any contrary provisions contained in any provisions of the Act. [4] Similarly, it must be noted that Section 43B opens with a non obstante clause which provides that notwithstanding anything contained in any other provisions of this Act. Thus, exception carved out in Sec 40A(7)(b) and section 43B are mutually contradictory. It cannot be interpreted that the later provision in Section 43B by introducing the non obstante clause would abrogate the special provision with regard to provision made for payment to an approved gratuity fund contained in Section 40A(7)(b)(i). [5] This principle is subject to the exception embodied in the maxim: generaliaspecialibus non derogant (a general provision does not derogate from a special one). The said principle has been stated in Craies on Statute Law, 5th edition, at page 205,thus : “The rule is, that whenever there is particular enactment and a general enactment in the same statute, and the latter, taken in its most comprehensive sense, would overrule the former, the particular enactment must be operative, and the general enactment must eb taken to effect only the other parts of the statute to which it may properly apply. [6] The exception carved out in Section 40A(7)(b) being a provision of special nature dealing with provision made for payment of a sum byway of any contribution towards an approved gratuity fund etc., will prevail over the general provisions of section 43B(b) dealing with contribution to any gratuity fund. [7] However, the same ground was allowed for the assessee in AY-200708, 2008-09. Hence, on the above grounds and such other grounds that may be extended at the time of hearing, This appeal may be allowed.” All the above grounds, in effect, challenge the solitary disallowance of provision for gratuity amounting to INR 4,22,526/- under Section 40A(7) read with Section 43B of the Act and are, therefore, taken up together hereinafter. 5. The brief facts of the case relevant to the issue before us are that during the relevant previous year the Appellant created Provisions for Gratuity to I.T.A. No.1270/CHNY/2018 Assessment Year : 2009 – 2010 - 4 - employees amounting to INR 17,23,526/- . The Appellant also made a payment of premium of INR 13,01,000/- to Life Insurance Corporation of India towards gratuity.The Assessing Officer made a disallowance of INR 4,22,526/- being the net amount[INR.17,23,526/- minus INR.13,01,000/-]. 6. The learned Authorized Representative of the Appellant appearing before us submitted that the issue stands decided in favour of the Appellant by the judgment of the Jurisdictional High Court in the case of Commissioner of Income Tax – I, Chennai Vs. Easwaran & Sons Engineers Limited, Chennai reported [TC(A) No.596 of 2005, dated 26.09.2011]and the decision of the co-ordinate bench of the Tribunal in the case of ACIT vs. M/s. Tyco Sanmar Limited : ITA No.1551/MDS/2014, dated 12.12.2014. 7. The Learned Departmental Representative relied upon the orders passed by Assessing Officer and the CIT(A). 8. We note that the Hon’ble Madras High Court has, in the case of Commissioner of Income Tax – I, Chennai Vs. Easwaran& Sons Engineers Limited (supra), held as under: “5. Section 43B of the Act is a specific provision which speaks about the granting of deduction on actual payment. Thus, while Section 40A (7) of the Act deals with deduction on the provision made, Section 43B of the Act is with reference to the deduction on actual payment. As far as the present case is concerned, the assessee's case falls under Section 40A(7) of the Act. The Revenue's contention is that the assessee had not let in any evidence to show that the amount payable qualified for deduction under Section 40A(7) (b)(i) of the Act. I.T.A. No.1270/CHNY/2018 Assessment Year : 2009 – 2010 - 5 - 6. As already pointed out, a reading of the order of the authorities below shows that in view of its sickness, the assessee brought in a Voluntary Retirement Scheme, under which, it offered to pay gratuity to those who went in for Voluntary Retirement or resigned. Taking note of the number of persons who had volunteered to retire or resign, the total liability was qualified by the assessee was to the tune of Rs.32,63,863/-, which was the actual amount payable during the relevant accounting year. Thus, the assessee made a provision in respect of the said amount, quantified with reference to the number of persons opting to take advantage of the Voluntary Retirement Scheme. Given the fact that Section40A(7)(b) of the Act contemplatesdeduction in respect of the provision made, not only for the purpose of contribution towards the approved gratuity fund, but equally so for the purpose of payment of gratuity payable during the year, rightly the Commissioner of Income Tax (Appeals) granted the relief. With the above said fact remaining undisturbed, the Tribunal considered the said contention for granting relief to the assessee 7. Going by the provision under Section 40A(7)(b), considering the deduction both in the case of contribution of approved gratuity fund as well as to a case of provision for payment of gratuity that has been payable during the relevant previous year, we have no hesitation in confirming the order of the Tribunal.” (Emphasis Supplied) 9. Similarly, the Chennai Bench of the Tribunal in the case of ACIT vs. M/s. Tyco Sanmar Limited (supra), has also decided the issue in favour of the assessee holding that the provisions of Section 40A(7)(B) of the Act shall override the provision of Section 43B of the Act I.T.A. No.1270/CHNY/2018 Assessment Year : 2009 – 2010 - 6 - “5. Heard both sides. Perused orders of lower authorities and the decision relied on. The assessee during the relevant assessment year 2007-08 created provision of Rs.32,54,120/- towards gratuity with LIC of India. This fund was approved by the Commissioner of Income Tax. The Assessing Officer disallowed the said provision for gratuity for the reason that assessee did not pay the said gratuity during the assessment year 2007-08. The Assessing Officer was of the view that since the assessee has made only provision the same is not allowable in view of the specific provisions of section 43B of the Act. The Commissioner of Income Tax (Appeals) deleted the disallowance following the order passed in assessee's own case for the assessment years 2005-06 & 2006-07 by orders dated 01.12.2011 & 01.02.2013 respectively. It was the submission of the counsel that no further appeal was preferred by the Revenue and the order of the Commissioner of Income Tax (Appeals) was accepted. On a perusal of the decisions relied on by the assessee, we find that this issue has been considered by various High Courts and held that the provisions made by the assessee towards contribution to approved gratuity fund is an ascertained liability and is allowable as deduction under section 40A(7)(b) of the Act. It was further held that the provisions of section 40A(7)(b) overrides section 43B of the Act. Similar view was also taken by the Third Member of Jaipur Bench of this Tribunal in case of Mewar Sugar Mills Ltd., Vs. DCIT (supra). 6. The Hon'ble Kerala High Court in the case of CIT Vs. Common Wealth Trust (P) Ltd., & Anr. (supra) held as under: "Section 40A(7) of the Income-tax Act, 1961, was introduced by the Finance Act, 1975, with retrospective effect from April 1, 1973, and section 43B was introduced by the Finance Act, 1983, with effect from April 1, 1984. Section 40A says that the provisions of I.T.A. No.1270/CHNY/2018 Assessment Year : 2009 – 2010 - 7 - this section shall have effect notwithstanding anything to the contrary contained in any other provision of the Act relating to the computation of income under the head "Profits and gains of business or profession". Similarly, section 43B opens with a non-obstante clause, Section 40A(7) provides that in cases covered by the provisions of clause (a) no deduction shall be allowed in respect of any provisions whether called as such or by any other name made by the assessee for the payment of gratuity of his employees on their retirement or on termination of their employment for any reason. However, clause (b) of section 40A(7) clearly provides that to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year clause (a) will not apply. This means exception has been carved out in respect of payment of sums by way of any contribution towards an approved gratuity fund. Thus the Legislature wanted to give a special treatment to provision made by an assessee for the purpose of payment by way of any contribution towards an approved gratuity fund. This has to be treated as a special provision. The marginal note to section 43B clearly says "certain deductions to be only on actual payment". It deals with various items. Section 43B(b) deals generally with any sum payable by the assessee as an employer by way of contribution to any provident fund at superannuation fund or gratuity fund or any other fund for the welfare of the employees. Of course, the gratuity fund is also referred to Section 40A(7), clause (b), particularly sub-clause (i), thereof is a special provision in regard to a claim for deduction based on a provision made for payment towards the approved gratuity fund. There is no clear inconsistency between the two provisions, viz., sections 40A(7) and 43B. Section 40A(7) is in negative terms and section 43B is in positive terms, the effect of both these provisions is that in order to claim deduction in respect of payment to a gratuity fund there must be actual payment and that I.T.A. No.1270/CHNY/2018 Assessment Year : 2009 – 2010 - 8 - deduction cannot be allowed on the basis of any provision. The only exception to the above rule is with regard to the provision for payment to an approved gratuity fund. It cannot be interpreted that the later provision in section 43B by introducing he non- obstante clause would abrogate the special provision with regard to the provision made for payment to an approved gratuity fund contained in section 40A(7)(b)(i). This is all the more so since no patent conflict or inconsistency can be spelt out. Both the provisions can co-exist. A harmonious construction of the two provisions would clearly indicate that the legislature never intended to take away the benefit conferred under clause (b) of section 40A(7) by the provisions of section 43B(b). 7. The Hon'ble Delhi High Court in the case of CIT Vs. Bechtel India (P) Ltd., (supra) held as under:- "6. Further, we are in agreement with the Tribunal that Section 40(7)(b) of the Act will have an 'overriding effect over Section 43B of the Act. In the first place section 40A(1) is an unequivocal non-obstante clause and since Section 40A(7)(b) specifically permits a deduction of a sum constituting the provision towards an approved gratuity fund, the said provision will take precedence over a comparatively general provision like Section.43B. Secondly, Section 40A(7)(a) which disallows deduction of any provision of gratuity to employees on their retirement is itself made subject to Section 40A(7)(b) which allows such deduction as long as it is made towards an approved gratuity fund. There is no dispute that in the instant case the provision made is towards contribution to an approved gratuity fund. Therefore, the claim by the assessee for deduction on this score was clearly justified. We are accordingly of the opinion that no substantial question of law arises in this regard as well." I.T.A. No.1270/CHNY/2018 Assessment Year : 2009 – 2010 - 9 - 8. Respectfully following the said decisions, we uphold the order of the Commissioner of Income Tax (Appeals) in deleting the disallowance made for approved gratuity funds." (Emphasis Supplied) 10. In view of the above, respectfully following the abovesaid judgement of the Hon’ble Madras High Court and the decision of the Co- ordinate Bench of the Tribunal, we allow the present appeal and delete the addition of INR 4,22,526/- made by the Assessing Officer under Section 40A(7) read with Section 43B of the Act. 11. In result present appeal is allowed. 12. Order pronounced in the court on 02.06.2022 at Chennai. Sd/- Sd/- (जीमंजूनाथा) (G. MANJUNATHA) लेखासद /ACCOUNTANT MEMBER (रा#लचौधरी) (RAHUL CHAUDHARY) ाियकसद एवं /JUDICIAL MEMBER चे ई/Chennai, िदनांक/Dated, the 2 nd June, 2022 IA, Sr. PS आदेशकी)ितिलिपअ-ेिषत/Copy to: 1. अपीलाथ(/Appellant 2. )*थ(/Respondent 3. आयकरआयु/ (अपील)/CIT(A) 4. आयकरआयु//CIT 5. िवभागीय)ितिनिध/DR 6. गाड&फाईल/GF