Tamil Nadu State Transport Corporation (Salem) Ltd., Salem V. ACIT, Salem

ITA 1464/CHNY/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7148 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 28-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAMJCIT
• Assessee Lawyers: G BASKAR
• Section: 263; 63; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNALA BENCH, CHEN NAI . , , ! ' BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / I.T.A. NO. 1464/MDS/2014 / ASSESSMENT YEAR : 2009-10 TAMIL NADU STATE TRANSPORT CORPORATION (SALEM) LTD., 12, RAMAKRISHNA ROAD, SALEM 636 007 [PAN: AAACT 7678 J] ( # /APPELLANT) VS THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, SALEM ( $% # /RESPONDENT) / APPELLANT BY : SHRI G.BASKAR, ADVOCATE / RESPONDENT BY : SHRI GURU BHASHYAM,JCIT / DATE OF HEARING : 04-08-2014 ! / DATE OF PRONOUNCEMENT : 22-08-2014 & / O R D E R PER VIKAS AWASTHY, J.M: THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER U/S.263 OF INCOME TAX ACT, 1961 (HEREIN AFTER REFER RED TO AS THE ITA NO. 1464/MDS/2014 2 ACT) BY THE COMMISSIONER OF INCOME TAX, SALEM, DAT ED 28-03-2014 RELEVANT TO THE ASSESSMENT YEAR (AY) 200 9-10. 2. THE ASSESSEE IS A STATE TRANSPORT CORPORATION. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY.2009 -10 ON 28-09-2009 DECLARING LOSS OF ` 38,53,07,482/-. IN SCRUTINY ASSESSMENT, THE ASSESSING OFFICER VIDE ORDER DT.16- 11-2011 MADE ADDITION OF ` 1,34,33,665/- ON ACCOUNT OF DAMAGES FOR REMITTANCE TO PENSION FUND TRUST AND OFFICE EXPENSES OF THE C HAIRMAN AND ASSESSED THE TOTAL INCOME OF THE ASSESSEE AS (-) ` 37,07,38,467/-. ON 18-02-2014, THE CIT, SALEM ISSUED NOTICE U/S.263 TO THE ASSESSEE FOR THE FOLLOWING REASONS: I. PAYMENT OF PENSION FUND TRUST: IN THE ANNUAL REPORT FOR THE F.Y.2008-09, IT IS SEE N FROM SCHEDULE T UNDER A ESTABLISHMENT CHARGES (PAGE-59) THAT THE ASSESSEE HAS DEBITED A SUM OF ` 15,59,87,294/- BEING CONTRIBUTION TO PENSION FUND TRUST. HOWEVER, IN THE INCOME ADJUSTMENT STATEMENT , THE ASSESSEE HAD ADDED BACK A SUM OF ` 5,80,44,992/- BEING DIS-ALLOWANCE U/S.43B ON ACCOUNT OF NON-REMITTANCE. AS PER THE PROVISIONS OF SECTION 36(1)(IV), ONLY S UMS PAID BY THE WAY OF THE CONTRIBUTION TOWARDS RECOGNIZED PROVIDEN T FUND IS TO BE ALLOWED AS DEDUCTION. IN PAGE 80 OF THE ANNUAL REP ORT UNDER SL.NO.16(C), IT IS FOUND THAT THE PAYMENT IS MADE T O THE TAMIL NADU STATE TRANSPORT CORPORATION EMPLOYEES PENSION FUND TRUST, ITA NO. 1464/MDS/2014 3 CHENNAI. IT WAS CLAIMED BY THE ASSESSEE THAT THIS FUND HAVING PAN NO.AAATT7566J WAS GRANTED RECOGNITION BY THE COMMIS SIONER OF INCOME TAX-VII, CHENNAI. THE ASSESSEE THEREFORE CL AIMED THAT THE PAYMENT WAS DEDUCTIBLE. IT CAN BE SEEN FROM THE RE CORDS THAT THE RECOGNITION WAS ACCORDED BY THE CIT-VII, CHENNAI. AS PER THE DEFINITION PROVIDED IN SECTION 2(38), A RECOGNIZED PROVIDENT FUND MEANS A PROVIDENT FUND WHICH HAS BEEN AND CONTINUES TO BE RECOGNIZED BY THE CHIEF COMMISSIONER OR COMMISSIONE R IN ACCORDANCE WITH THE RULES CONTAINED IN PART A OF TH E FOURTH SCHEDULE. AS PER PART-A OF THE FOURTH SCHEDULE, THE EMPLOYER IS REQUIRED TO MAKE AN APPLICATION FOR RECOGNITION TO THE CIT/CCIT HAVING JURISDICTION OVER HIM AND OBTAIN RECOGNITION. IN T HIS CASE THE ASSESSEE WAS LIABLE TO APPLY FOR AND OBTAIN RECOGNI TION FROM THE CIT, SALEM/CCIT, TRICHY. HOWEVER, NO SUCH APPLICATION I S MADE AND THEREBY RECOGNITION NOT OBTAINED AS PROVIDED BY THE LAW. CONSEQUENTLY, THE PROVIDENT FUND TO WHICH THE ASSES SEE COMPANY HAS MADE THE CONTRIBUTION REMAINS UN-RECOGNIZED BY THE COMPETENT AUTHORITIES. THEREBY, THE CONTRIBUTION OF ` 15,59,87,294/- MADE BY THE ASSESSEE TO THE TAMIL NADU STATE TRANSPORT CORP ORATION EMPLOYEES PENSION FUND TRUST, CHENNAI CANNOT BE CLA IMED AS DEDUCTION U/S.36(1)(IV). THUS, THE NON-DISALLOWANCE OF AN AMOUNT OF ` 9,79,42,302 [ ` 15,59,87,294 ` 5,80,44,992] BY THE ASSESSING OFFICER AT THE TIME OF FRAMING THE ASSESSMENT WAS ERRONEOUS. II. REIMBURSEMENT RECEIVABLE TOWARDS FREE PASSES: IN PAGE NO.64 OF THE ANNUAL REPORT UNDER SCHEDULE-X , BEING NOTES TO AND FORMING PART OF THE ACCOUNTS, UNDER 1A, IT IS MENTIONED THAT THE REIMBURSEMENT TOWARDS PASSES ISSUED TO PHYSICALLY H ANDICAPPED, FREEDOM FIGHTERS ETC. IS NOT RECOGNIZED AS INCOME. FURTHER AS PER PAGE ITA NO. 1464/MDS/2014 4 NO.75 UNDER S.NO.12(B), IT IS MENTIONED THAT A SUM OF ` 7,62,92,000/- IS RECEIVABLE; A CLAIM HAVING BEING MADE TO THE STATE GOVERNMENT AS PER A FIXED FORMULA AND WAS UNDER PROCESS. SINCE THE A SSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING, THE ASSESSEE IS LI ABLE TO ADMIT THIS AMOUNT AS INCOME, WHICH IS NOT DONE IN THIS CASE. THEREFORE, THE INCOME TO THIS EXTENT IS UNDERSTATED IN THE ACCOUNT S. THE ASSESSING OFFICER DID NOT CONSIDER THIS AMOUNT WHILE COMPLETI NG THE ASSESSMENT. FOR THE REASONS STATED ABOVE, I AM OF THE VIEW THA T THE ASSESSING OFFICER HAS NOT APPRECIATED / EXAMINED THE FACTS OF THE CASE PROPERLY AND ALSO HAS COMPLETED THE ASSESSMENT IN A MANNER C ONTRARY TO THE PROVISIONS OF LAW. THUS, THERE IS UNDER ASSESSMENT OF INCOME DUE TO ERRORS COMMITTED BY THE ASSESSING OFFICER AND THE O RDER IS BOTH ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. I, THEREFORE PROPOSE TO PASS APPROPRIATE ORDER THEREON U/S.263 A S THE CIRCUMSTANCES OF THE CASE JUSTIFY. YOU ARE HEREBY GIVEN AN OPPORTUNITY TO REPRESENT YOUR CASE AND STATE YOUR OBJECTIONS, I F ANY TO THE PROPOSED ACTION. 3. THE CIT VIDE IMPUGNED ORDER HELD THAT THE ASSESS EE HAS WRONGLY CLAIMED DEDUCTION U/S.36(1)(IV) FOR CONTRIB UTION TOWARDS PENSION FUND TRUST AS THE SAID FUND IS NOT APPROVED BY THE JURISDICTIONAL COMMISSIONER OR THE CHIEF COMMISSION ER OF INCOME TAX. ON REIMBURSEMENTS OF FREE PASSES ISSUED BY AS SESSEE, THE CIT HELD THAT THE CLAIM OF THE ASSESSEE CANNOT BE A CCEPTED AS THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG. THE ASSESSEE IS ADMITTING INCOME FROM REIMBURSEMENT OF FREE PASSES ITA NO. 1464/MDS/2014 5 IN THE YEAR OF RECEIPT AND NOT IN THE YEAR OF MAKIN G CLAIM. THE ASSESSEE CANNOT FOLLOW HYBRID SYSTEM OF ACCOUNTING. 4. SHRI G.BASKAR, APPEARING ON BEHALF OF THE ASSESS EE SUBMITTED THAT THE ASSESSEE HAS ERRED IN INVOKING T HE PROVISIONS OF SECTION 263 IN RESPECT OF CONTRIBUTION TOWARDS THE EMPLOYEES PENSION FUND TRUST, AS WELL AS, REIMBURSEMENT OF FR EE PASSES ISSUED TO PHYSICALLY HANDICAPPED, FREEDOM FIGHTERS, ETC., THE LD.COUNSEL SUBMITTED THAT THE ASSESSEE HAS CONTRIBU TED A SUM OF ` 15,59,87,294/- TOWARDS PENSION FUND TRUST. THE TRU ST NAMELY, TAMIL NADU STATE TRANSPORT CORPORATION EMPLOYEES PE NSION FUND TRUST, CHENNAI IS RECOGNIZED BY THE CIT-VII, CHENNA I. THE SAID FUND HAS BEEN SET UP FOR ALL THE EMPLOYEES OF THE T AMIL NADU STATE TRANSPORT CORPORATION PROVIDING SERVICES IN VARIOUS DISTRICTS OF THE STATE OF TAMIL NADU. THE LD.COUNSEL PLACED ON RECO RD A COPY OF THE TRUST DEED DT.16-12-2000, WHEREIN, ALL THE TWEL VE STATE TRANSPORT CORPORATIONS OPERATING IN DIFFERENT DISTR ICT OF THE STATE ARE SIGNATORIES TO THE TRUST. THE LD.COUNSEL FURTH ER SUBMITTED THAT THERE IS NO NEED TO FORM SEPARATE TRUST IN EVERY DI STRICT AS CONTRIBUTIONS ARE MADE TO COMMON TRUST, DULY RECOGN IZED BY THE CIT. IN ORDER TO SUPPORT HIS CONTENTIONS, THE LD. COUNSEL FOR THE ASSESSEE DRAW SUPPORT FROM THE DECISION OF CO-ORDIN ATE BENCH OF ITA NO. 1464/MDS/2014 6 THE TRIBUNAL IN THE CASE OF STANMORE (ANAMALLAY) ESTATES LTD., VS. ITO REPORTED AS 1 ITD (MAD) 519. ON THE ISSUE OF REIMBURSEMENT OF FREE PASSES, THE LD.COUNSEL SUBMITTED THAT THE ASSESSEE IS ISSUING F REE PASSES TO PHYSICALLY HANDICAPPED, FREEDOM FIGHTERS ETC. THERE AFTER, IT IS FILING CLAIM FOR REIMBURSEMENT BEFORE THE DEPARTMENT OF SO CIAL WELFARE. IN THE YEAR OF RECEIPT OF REIMBURSEMENTS, THE ASSES SEE IS OFFERING THE AMOUNT FOR TAX. THOUGH, THE ASSESSEE IS FOLLOW ING MERCANTILE SYSTEM OF ACCOUNTING, IN THE CASE OF REIMBURSEMENTS OF FREE PASSES, THE ASSESSEE IS NOT SURE AS TO WHETHER ITS ENTIRE CLAIM OR THE PARTIAL CLAIM WOULD BE ACCEPTED BY THE SOCIAL W ELFARE DEPARTMENT. THEREFORE, IN NOTES TO THE ACCOUNTS, T HE ASSESSEE IS SPECIFICALLY MENTIONING ABOUT THE CLAIMS. THE ASSE SSEE HAS BEEN FOLLOWING THIS PRACTICE CONSISTENTLY FOR THE PAST S EVERAL YEARS AND THE DEPARTMENT HAS BEEN ACCEPTING THIS METHOD OF AC COUNTING OF REIMBURSEMENT CLAIMS. THIS IS FOR THE FIRST YEAR T HAT THE REVENUE HAS RAISED OBJECTION ON THE ISSUE. 5. SHRI GURU BHASHYAM, APPEARING ON BEHALF OF THE R EVENUE VEHEMENTLY OPPOSED THE GROUNDS RAISED BY THE ASSESS EE. THE LD.DR SUBMITTED THAT THE ASSESSEE WAS SUPPOSED TO G ET APPROVAL ITA NO. 1464/MDS/2014 7 OF THE FUND FROM THE JURISDICTIONAL COMMISSIONER OR CHIEF COMMISSIONER OF INCOME TAX. THE ASSESSEE IS HAVING ITS HEAD OFFICE AT SALEM AND IS FILING ITS RETURN OF INCOME IN THE JURISDICTIONAL RANGE OF CIT, SALEM. THEREFORE, THE ASSESSEE OUGHT TO HAVE TAKEN APPROVAL OF JURISDICTIONAL COMMISSIONER TO SET UP P ENSION FUND. TO SUPPORT HIS CONTENTIONS, THE LD.DR PLACED RELIANCE ON THE JUDGMENT OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. KATTABOMMAN TRANSPORT CORPORATION LTD., REPORTED AS 268 ITR 507 (MADRAS) AND THE JUDGMENT OF THE HON'BLE PATNA HIGH COURT IN THE CASE OF CIT VS. MICA TRADING CORPORATION OF INDIA REPORTED AS 229 ITR 268 (PATNA). AS REGARDS THE ISSUE OF REIMBURSEMENT OF FREE PASSE S, THE LD.DR VEHEMENTLY SUPPORTED THE FINDINGS OF CIT. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO EXAMINED THE D ECISIONS ON WHICH THE RESPECTIVE SIDES HAVE PLACED RELIANCE AND THE DOCUMENTS PLACED ON RECORD BY THE LD.COUNSEL FOR TH E ASSESSEE IN THE FORM OF PAPER BOOK. THE FIRST ISSUE RAISED IN APPEAL IS WITH REGARD TO CONTRIBUTIONS MADE BY THE ASSESSEE TOWARD S PENSION FUND TRUST. THE ASSESSEE HAS CONTRIBUTED A SUM OF ` 15.60 CRORES (APPROXIMATELY) TOWARDS TAMIL NADU STATE TRA NSPORT ITA NO. 1464/MDS/2014 8 CORPORATION EMPLOYEES PENSION FUND TRUST, CHENNAI. THE CIT IS OF THE OPINION THAT SINCE THE TRUST IS NOT APPROVED BY THE JURISDICTIONAL COMMISSIONER OR CHIEF COMMISSIONER, THE CONTRIBUTIONS MADE BY THE ASSESSEE ARE NOT TOWARDS APPROVED PENSION FUND. A BARE READING OF SECTION 36(1)(IV) MAKES IS AMPLY CLEAR THAT THE SUM SHOULD BE CONTRIBUTED BY THE EMP LOYER TOWARDS A RECOGNIZED PROVIDENT FUND OR APPROVED SUPERANNUAT ION FUNDS SUBJECT TO SUCH LIMITS AS MAY BE PRESCRIBED FOR REC OGNIZING PROVIDENT FUND OR APPROVING THE SUPERANNUATION FUND . THE SECTION DOES NOT LAY DOWN ANY SPECIFIC CONDITION THAT THE F UND SHOULD BE APPROVED BY THE JURISDICTIONAL COMMISSIONER OR CHIE F COMMISSIONER ONLY. IN THE PRESENT CASE, THE ASSESSEE IS CONTRIBUTING I N THE PENSION FUND SCHEME JOINTLY FLOATED BY TWELVE STATE TRANSPORT CORPORATIONS OPERATING IN DIFFERENT DISTRICTS OF TH E STATE OF TAMIL NADU. ALL THE STATE TRANSPORT CORPORATIONS ARE SIG NATORIES TO THE TRUST DEED FOR SETTING UP OF JOINT STATE TRANSPORT EMPLOYEES PENSION FUND SCHEME. IT IS NOT IN DISPUTE THAT TH E SAID FUND HAS BEEN RECOGNIZED BY THE CIT-VII, CHENNAI. ONCE THE ASSESSEE IS CONTRIBUTING TOWARDS RECOGNIZED FUND, THE ASSESSEE IS ENTITLED TO GET THE BENEFIT FOR THE CONTRIBUTIONS MADE TO THE S AID FUND. ITA NO. 1464/MDS/2014 9 7. THE CASE OF THE ASSESSEE IS SUPPORTED BY THE DEC ISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF STANMORE (ANAMALLAY) ESTATES LTD., VS. ITO (SUPRA). IN THE SAID CASE, THE ASSESSEE-COMPANY ALONG WITH OTHER FOUR SISTER COMPA NIES CREATED A JOINT GRATUITY FUND FOR THE EXCLUSIVE BENEFIT OF ITS EMPLOYEES UNDER ON IRREVOCABLE TRUST. THE CIT IN PROCEEDINGS U/S.2 63 RAISED SIMILAR OBJECTION THAT THE ASSESSEE IS NOT CONTRIBUTING TOW ARDS FUND APPROVED BY THE JURISDICTIONAL COMMISSIONER. THE C O-ORDINATE BENCH OF THE TRIBUNAL HELD THAT CONTRIBUTIONS TO AP PROVED GRATUITY FUND BEING A COMMON FUND SET BY THE ASSESSEE-COMPAN Y ALONG WITH SISTER COMPANIES CANNOT BE DIS-ALLOWED ON THE GROUND THAT IT WAS NOT EXCLUSIVE FUND FOR THE ASSESSEES EMPLOYEES . THE REVENUE HAS PLACED RELIANCE ON THE DECISION RENDERE D BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. KATTABOMMAN TRANSPORT CORPORATION LTD., (SUPRA) AND CIT VS. MICA TRADING CORPORATION OF INDIA (SUPRA). WE FIND THAT IN BOTH THE ABOVE SAID CASES, THE FACTS ARE ENTIRELY DIFFERENT FROM THE CA SE IN HAND. THEREFORE, THE RATIO LAID DOWN BY THE HON'BLE HIGH C OURTS IN AFORESAID CASES CANNOT BE APPLIED IN THE PRESENT CA SE. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 1464/MDS/2014 10 8. THE SECOND ISSUE ON WHICH THE ASSESSEE HAS ASSAI LED THE ORDER OF CIT(APPEALS) IS WITH REGARD TO REIMBURSEME NT OF FREE PASSES. THE ASSESSEE IS CREDITING THE AMOUNTS RECE IVED FROM THE GOVERNMENT ON ACCOUNT OF ISSUANCE OF PASSES IN THE YEAR OF RECEIPT. THE OBJECTION RAISED BY THE REVENUE IS TH AT, SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG, THE ASSESSEE SHOULD OFFER TO TAX, REIMBURSEMENT AMOUNT IN THE YEAR OF CLAIM ITSELF. A PERUSAL OF THE RECORDS DOES NOT MA KE IT CLEAR, WHETHER THE ASSESSEE IS ISSUING FREE PASSES AS PER THE SCHEME OF DEPARTMENT OF SOCIAL WELFARE, GOVERNMENT OF TAMIL N ADU OR WELFARE SCHEME FORMULATED BY ITS OWN AND IS THEREAF TER CLAIMING REIMBURSEMENT FROM THE SOCIAL WELFARE DEPARTMENT. THE MOOT POINT WHICH HAS TO BE LOOKED INTO FOR INCLUDING THE INCOME IN TAX NET IS, WHEN DOES THE INCOME CRYSTALISES? IN CASE THE ASSESSEE IS ISSUING FREE PASSES TO PHYSICALLY HANDICAPPED, F REEDOM FIGHTERS ETC., UNDER THE SCHEME OF GOVERNMENT, THE ASSESSEE IS ASSURED TO GET THE REIMBURSEMENT OF THE AMOUNT ON THE ISSUANCE OF PASSES ITSELF. IN CASE THE CLAIM OF THE ASSESSEE IS SUBJE CT TO SCRUTINY BY SOCIAL WELFARE DEPARTMENT, THE INCOME CRYSTALISES A FTER THE CLAIM OF THE ASSESSEE IS APPROVED BY THE COMPETENT AUTHOR ITY. THE ASSESSING OFFICER IS DIRECTED TO LOOK INTO THIS ISS UE AND THEREAFTER, PASS NECESSARY ORDERS IN ACCORDANCE WITH LAW. ITA NO. 1464/MDS/2014 11 9. FOR THE REASONS RECORDED ABOVE, THE APPEAL OF TH E ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 22 ND AUGUST, 2014 AT CHENNAI. SD/- SD/- ( . ) ( ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER (VIKAS AWASTHY) ! / JUDICIAL MEMBER '# /CHENNAI, $% /DATED: 22 ND AUGUST, 2014 TNMM %& '()( /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. *+, /CIT(A) 4. * /CIT 5. (-. / /DR 6. .01 /GF