ACIT, CHENNAI V. M/s. Sanmar Speciality Chemicals Ltd., CHENNAI

ITA 1411/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1165 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2013
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 25-02-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 29-06-2012
• Court: TRIBUNAL
• Department Lawyers: S DAS GUPTA SR
• Assessee Lawyers: R VIJAYARAGHAVAN
• Section: 43B; 10B; 28; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NO. 1411/MDS/2012 (ASSESSMENT YEAR : 2008-09) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(1), CHENNAI - 600 034. (APPELLANT) V. M/S SANMAR SPECIALITY CHEMICALS LTD., NO.9, CATHEDRAL ROAD, CHENNAI - 600 086. PAN : AABCS 0201 P (RESPONDENT) APPELLANT BY :SHRI S. DASGUPTA, SR.AR RESPONDENT BY :SHRI R. VIJAYARAGHAVAN, AD VOCATE DATE OF HEARING : 25.02.2013 DATE OF PRONOUNCEMENT : 07.03.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, DIRECTED AGA INST AN ORDER DATED 29 TH MARCH, 2012 OF COMMISSIONER OF INCOME TAX (APPEALS )-V, CHENNAI, IT HAS RAISED TWO EFFECTIVE GROUNDS. FIRS T IS ON THE DIRECTION OF THE CIT(APPEALS) TO RECOMPUTE THE DEDUCTION SOUG HT BY THE ASSESSEE UNDER SECTION 10B OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') BY REDUCING FREIGHT AND CLEARING CHARGES AS A LSO BUSINESS I.T.A. NO. 1411/MDS/12 2 DEVELOPMENT FEE, BOTH FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER. LEARNED D.R. SUBMITTED THAT THE DECISION OF SPECIAL BENCH IN THE CASE OF CIT V. SAKSOFT LTD. [313 ITR (AT) 353] HAD NOT BEEN ACCEPTED BY THE DEPARTMENT AND AN APPEAL HAD BEEN PREFERRED BEFORE HON'BLE JURISDICTIONAL HIGH COURT. 2. WE FIND THAT THIS GROUND HAS BEEN RAISED BY THE REVENUE ONLY FOR KEEPING THE ISSUE ALIVE. SPECIAL BENCH IN THE CASE OF SAKSOFT LTD. (SUPRA) CLEARLY HELD THAT WHAT WAS EXCLUDED FROM EX PORT TURNOVER HAD TO BE EXCLUDED FROM TOTAL TURNOVER ALSO WHILE COMPU TING DEDUCTION UNDER SECTION 10B OF THE ACT. NOTHING WAS SHOWN BE FORE US BY THE LEARNED D.R. TO TAKE A DIFFERENT VIEW. THIS GROUND OF THE REVENUE STANDS DISMISSED. 3. THE OTHER GROUND RAISED BY THE REVENUE, IS WITH REGARD TO DIRECTION OF THE CIT(APPEALS) TO ALLOW THE ASSESSEE ITS CLAIM FOR PROVISION FOR GRATUITY. 4. FACTS APROPOS ARE THAT ASSESSEE, ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF SPECIALITY CHEMICALS AND BIOTECHNOLOGY PRODUCTS, HAD IN ITS SCHEDULE TO BALANCE SHEET SHOW N A SUM OF ` 31,24,172/- AS PROVISION FOR GRATUITY. EXPLANATION WAS SOUGHT IN THIS I.T.A. NO. 1411/MDS/12 3 REGARD BY THE ASSESSING OFFICER. REPLY OF THE ASSE SSEE WAS THAT THE PROVISION WAS MADE FOR A CONTRIBUTION FOR A GRATUIT Y FUND WITH LIC OF INDIA. AS PER THE ASSESSEE, SUCH GRATUITY FUND WIT H LIC WAS APPROVED BY CIT AND THE CLAIM WAS IN ACCORDANCE WIT H SECTION 40A(7)(B) OF THE ACT. HOWEVER, THE ASSESSING OFFIC ER WAS NOT IMPRESSED. ACCORDING TO HIM, GRATUITY PAYMENTS WER E COVERED BY SECTION 43B(B) OF THE ACT AND ONLY PAYMENTS MADE DU RING THE RELEVANT PREVIOUS YEAR COULD BE ALLOWED. AS PER AS SESSING OFFICER, ASSESSEE HAD ONLY MADE A PROVISION FOR GRATUITY AND THEREFORE, IT COULD NOT TAKE REFUGE UNDER SECTION 40A(7)(B) OF TH E ACT. IN THIS VIEW OF THE MATTER, HE DISALLOWED THE CLAIM. 5. ASSESSEE WAS SUCCESSFUL IN ITS APPEAL BEFORE CIT (APPEALS). ACCORDING TO CIT(APPEALS), SECTION 40A(7)(B) OVERRO DE THE PROVISIONS OF SECTION 43B. SECTION 40A(7)(B) PROVIDED THAT NO DEDUCTION COULD BE ALLOWED FOR PROVISION FOR GRATUITY, EXCEPT WHERE SUCH PROVISION WAS MADE TOWARDS AN APPROVED GRATUITY FUND OR FOR MAKIN G PAYMENTS TOWARDS GRATUITY DEBT WHICH HAD BECOME PAYABLE. AS PER LD. CIT(APPEALS), SECTION 40A(7)(B) WAS A SPECIAL PROVI SION WHICH PREVAILED OVER SECTION 43B. TAKING THIS VIEW, HE A LLOWED THE CLAIM OF THE ASSESSEE. I.T.A. NO. 1411/MDS/12 4 6. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT THERE WAS NOTHING ON R ECORD TO SHOW THAT ASSESSEE HAD EFFECTED PAYMENTS TO LIC DURING T HE RELEVANT PREVIOUS YEAR OR BEFORE THE DUE DATE FOR FILING THE RETURN. IT WAS ONLY A PROVISION MADE IN ITS ACCOUNT. ASSESSEE HAD TO SAT ISFY BOTH SECTION 40A(7) AS WELL AS SECTION 43B, IF THE PAYMENTS WERE TO BE ALLOWED. ASSESSEE CANNOT TAKE REFUGE UNDER SECTION 40A(7) AN D MAKE CLAIM FOR A GRATUITY PROVISION WHICH WAS NEVER PAID. 7. PER CONTRA, LEARNED A.R. STRONGLY SUPPORTED THE ORDER OF CIT(APPEALS). 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 ` 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 CLA IM WAS MADE AS PER SECTION 40A(7)(A) OF THE ACT. SECTION 40A(7)(A ) READS AS UNDER:- 40A(7)(A) SUBJECT TO THE PROVISIONS OF CLAUSE (B), NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY PROVISION (WHETH ER CALLED AS SUCH OR BY ANY OTHER NAME) MADE BY THE ASSESSEE FOR THE I.T.A. NO. 1411/MDS/12 5 PAYMENT OF GRATUITY TO HIS EMPLOYEES ON THEIR RETIR EMENT OR ON TERMINATION OF THEIR EMPLOYMENT FOR ANY REASON. (B) NOTHING IN CLAUSE (A) SHALL APPLY IN RELATION TO ANY PROVISION MADE BY THE ASSESSEE FOR THE PURPOSE OF PAYMENT OF A SUM BY WAY OF ANY CONTRIBUTION TOWARDS AN APPROVED GRATUIT Y FUND, OR FOR THE PURPOSE OF PAYMENT OF ANY GRATUITY, THAT HA S BECOME PAYABLE DURING THE PREVIOUS YEAR. EXPLANATION FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT WHERE ANY PROVISION MADE BY THE ASSESSEE FOR T HE PAYMENT OF GRATUITY TO HIS EMPLOYEES ON THEIR RETIREMENT OR TERMINATION OF THEIR EMPLOYMENT FOR ANY REASON HAS BEEN ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE ASSESSEE F OR ANY ASSESSMENT YEAR, ANY SUM PAID OUT OF SUCH PROVISION BY WAY OF CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND OR B Y WAY OF GRATUITY TO ANY EMPLOYEE SHALL NOT BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOU S YEAR IN WHICH THE SUM IS SO PAID. SECTION 43B READS AS UNDER:- 43B. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTH ER 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, DUT Y, 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) OF SUB-SECTION (1) OF SECTION 36 [OR] I.T.A. NO. 1411/MDS/12 6 (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 WITH 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 LIEU OF ANY LEAVE AT THE CREDIT OF HIS EMPLOYEE, SHALL BE ALLOWED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSES SEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY H IM) ONLY 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 SHALL 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 FURN ISHING 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 SUCH PAYM ENT IS FURNISHED BY THE ASSESSEE ALONG WITH SUCH RETURN. 9. THE QUESTION BEFORE US IS WHETHER SECTION 40A(7) OVERRIDES SECTION 43B OF THE ACT. A SIMILAR ISSUE, WHERE PAY MENTS WERE EFFECTED BY AN ASSESSEE FOR SETTING UP OR FORMATION OR CONTRIBUTION TO A FUND, AND CLAIMED UNDER SECTION 40A(9) AND THE EF FECT OF SUB- CLAUSE (C) TO SECTION 43B ON SUCH CLAIM, HAD COME U P BEFORE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. SHA SUN CHEMICALS AND I.T.A. NO. 1411/MDS/12 7 DRUGS LTD. IN TC(A) NO.1415 OF 2007 AND TC(A) NO.48 OF 2008 DATED 25.4.2011. THERE THE PAYMENTS CLAIMED WERE WITH RE GARD TO BONUS OR EXGRATIA MADE TO TRUSTEES OF A WORKERS UNION TRUST . THE QUESTION WAS WHETHER IT WAS HIT BY SECTION 40(A)(9) OF THE A CT EVEN THOUGH THE PAYMENTS WERE EFFECTED WITHIN THE TIME SPECIFIED UN DER SECTION 43B(C) OF THE ACT. THEIR LORDSHIP HELD THAT SECTIO N 40(A)(9) WAS A OVERRIDING SECTION TO SECTION 43B OF THE ACT. AS P ER SECTION 40(A)(9), ONLY PAYMENTS TO RECOGNIZED APPROVED FUND OR APPROV ED GRATUITY FUND WERE EXEMPT FROM DISALLOWANCE. THEIR LORDSHIP FURT HER NOTED THAT SECTION 43B(C) INTRODUCED LATER TO SECTION 40(A)(9) AND DID NOT MAKE THE LATTER SECTION INOPERATIVE. FIRST IT WAS TO BE SEEN WHETHER DEDUCTION CAN BE ALLOWED UNDER SECTION 40(A)(9) SIN CE IT STARTS WITH A NON OBSTANTE CLAUSE AND THEREAFTER, IT HAS TO BE SE EN WHETHER SUCH CLAIM SATISFIED THE CONDITION SPECIFIED UNDER SECTI ON 43B OF THE ACT. 10. ON AN ANALOGY, WITH LAW LAID DOWN BY HON'BLE JU RISDICTIONAL HIGH COURT, IN OUR OPINION, WHAT IS TO BE SEEN HERE ALSO IS WHETHER THE PAYMENTS CLAIMED SATISFIED SECTION 40(A)(7)(A) OF T HE AND THEREAFTER IT HAS TO BE SEEN WHETHER IT SATISFIED SECTION 43B OF THE ACT AND PROVISO THEREUNDER. IN OTHER WORDS, A PROVISION MADE FOR A N APPROVED GRATUITY FUND IS DEFINITELY ALLOWABLE UNDER SECTION 40(A)(7) OF THE I.T.A. NO. 1411/MDS/12 8 ACT. NEVERTHELESS, ONE MORE CONDITION WHICH IS TO BE SATISFIED IS THAT ACTUAL PAYMENT HAS BEEN EFFECTED EITHER WITHIN THE RELEVANT PREVIOUS YEAR OR WITHIN THE DUE DATE FOR FURNISHING THE RETU RN OF INCOME, AS MENTIONED IN PROVISO TO SECTION 43B OF THE ACT. IN OUR OPINION, THESE ASPECTS HAVE NOT BEEN VERIFIED BY ANY OF THE AUTHOR ITIES BELOW. WE, THEREFORE, SET ASIDE THEIR ORDERS ON THIS ISSUE, AN D REMIT IT BACK TO THE FILE OF ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. RELEVANT GROUND TAKEN BY THE REVENUE IS ALLOW ED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 7 TH OF MARCH, 2013, AT CHENNAI. SD/- SD/- (S.S. GODARA) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 7 TH MARCH, 2013. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-V, CHENNAI-34/ CIT, CHENNAI-III, CHENNAI-34/D.R./GUARD FILE