BS & B Safety Systems (Indai) Limited, CHENNAI V. ACIT, CHENNAI

ITA 1666/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7810 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 24-11-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 06-06-2016
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Keywords: Retrospective amendment; Question of law
• Section: 43B; 143(3)

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU R L REDDY , JUDICIAL MEMBER ./ I T.A. NO. 1666/MDS/2016 / ASSESSMENT YEAR :2005 - 06 M/S. BS & B SAFETY SYSTEMS (INDIA) LIMITED, 9, CATHEDRAL ROAD, CHENNAI 600 08 6 . [PAN:A A A C B1438Q ] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX , CO M PANY CIRCLE 1 ( 2 ) , 121, MAHATMA GANDHI HIGH ROAD, CHENNAI 600 034 . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI SAROJ KUMAR PARIDA , ADVOCATE / RESPONDENT BY : SHRI SUPRIYO PAL , JCI T / DATE OF HEARING : 29 . 11 .201 6 / DATE OF P RONOUNCEMENT : 28 .02 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONE R OF INCOME TAX (APPEALS) 1, CHENNAI, DATED 01.04.2016 RELEVANT TO THE ASSESSMENT YEAR 2005 - 06. THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE IN RESPECT OF PROVISION FOR GRATU ITY UNDER SECTION 43B OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. I.T.A. NO . 1666 /M/ 16 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF RUPTURE DISC. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005 - 06 ON 26. 10.2005 ADMITTING A TOTAL INCOME OF .5,44,01,360/ - . THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 28.11.200 7 AFTER MAKING DISALLOWANCE OF .30,98,254/ - UNDER SECTION 43B OF THE ACT FOR NON - PAYMENT OF PROVISION MADE TOWARDS APPROVED GRATUITY FUND DETERMINING THE TOTAL INCOME AT .5,76,83,142/ - . AGAINST THE DISALLOWANCE, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A), WHO ALLOWED RELIEF TO THE ASSESSEE. AGAINST WHICH, THE DEPARTMENT CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL VIDE ITS ORDER DATED 30.08.2013 IN I.T.A. NO. 1243/MDS/2013 FOR THE ASSESSMENT YEAR 2005 - 06 DIRECTED THE ASSESSING OFFICER TO CONSIDER THE ISSUE AS PER THE PROVISIONS OF SECTION 40(7) R.W.S. 43B OF THE ACT. IN PURSUANCE TO THE ABOVE DIRECTION OF THE TRIBUNAL, THE ASSESSEE MADE SUBMISSIONS BEFORE THE ASSESSING OFFICER TO IMPRESS THE FACT THAT THE PROVISION TO WARDS APPROVED GRATUITY FUND IS ELIGIBLE FOR DEDUCTION. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND CASE LAW RELIED ON, THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE AND HELD THAT THE PROVISION MADE BY THE ASSESSEE COMPANY WAS NOT PAID DURING THE RELEVANT YEAR AND THEREFORE, THE CASE LAW RELIED ON WAS NOT APPLICABLE TO THE ASSESSEE. SINCE THE ASSESSEE COMPANY HAS NOT I.T.A. NO . 1666 /M/ 16 3 QUANTIFIED THE ACTUARIAL DETERMINATION OF GRATUITY AND HAS NOT PAID THE SAME DURING THE RELEVANT YEAR, THE AS SESSING OFFICER HAS HELD THAT THE ASSESSEE IS NOT ELIGIBLE TO CLAIM THE DEDUCTION AND THEREFORE THE SAME WAS DISALLOWED DURING THE COURSE OF SECOND ROUND OF LITIGATION. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERIN G THE SUBMISSIONS OF THE ASSESSEE AND BASED ON THE DIRECTIONS GIVEN BY THE TRIBUNAL VIDE ITS ORDER DATED 30.08.2013, THE LD. CIT(A) UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUN AL. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08 IN I.T.A. NO. 359/MDS/2015 DATED 31.07.2015 AND PRAYED TH AT THE SAME SHOULD BE FOLLOWED. BY FILING COPY OF THE ORDER OF THE TRIBUNAL IN THE CASE OF ACIT V. M/S. TYCO SANMAR LTD. IN I.T.A. NO. 1551/MDS/2014 DATED 12.12.2014 FOR THE ASSESSMENT YEAR 2007 - 08, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT ON S IMILAR FACTS IN AN IDENTICAL ISSUE, BY FOLLOWING VARIOUS DECISIONS, THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, WHICH MAY ALSO BE FOLLOWED WHILE DECIDING THE PRESENT APPEAL. I.T.A. NO . 1666 /M/ 16 4 5. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT THE ORDER OF THE LD. CIT(A) PASSED FOR THE ASSESSMENT YEAR 2005 - 06 IN THE FIRST ROUND OF LITIGATION HAS NO LEGS TO STAND SINCE THE TRIBUNAL, IN THE FIRST ROUND OF LITIGATION, SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMITTED BACK TO THE ASSESSING OFFICER TO VERIFY AS TO WHETHER THE PROVISION MADE BY ASSESSEE HAS BEEN PAID OR NOT. SINCE THE PROVISION MADE BY THE ASSESSEE WAS NOT ACTUALLY PAID, MERE PROVISION MADE CANNOT BE SUSTAINED UNDER LAW AND THEREFORE PLEADED THAT THE APPEAL FILED BY THE ASSESSEE SHOULD BE DISMI SSED. 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THE FIRST ROUND OF LITIGATION, AGAINST THE DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2005 - 06, THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE AND AGAINST WHICH THE DEPARTMENT PREFERRED AN APPEAL BEFORE THE TRIBUNAL. SINCE THE ASSESSEE HAS NOT FILED QUANTIFICATION EITHER BEFORE THE ASSESSING OFFICER OR LD. CIT(A) OR EVEN BEFORE THE TRIBUNAL AND UNA BLE TO STATE THAT THE PROVISION MADE FOR THE PURPOSE OF GRATUITY HAS BEEN PAID OR NOT, T HE TRIBUNAL VIDE ITS ORDER DATED 30.08.2013 IN I.T.A. NO. 1243/MDS/2013 FOR THE ASSESSMENT YEAR 2005 - 06 SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECTED THE ASSESSING OFFICER TO VERIFY AS TO WHETHER THE ASSESSEE HAS CONSIDER THE ISSUE AS PER THE PROVISIONS OF SECTION 40(7) R.W.S. 43B OF THE ACT . IN VIEW OF THE ABOVE DIRECTIONS OF THE TRIBUNAL VIDE ORDER I.T.A. NO . 1666 /M/ 16 5 DATED 30.08.2013, AFTER VERIFICATION OF THE DETAILS FILED BY THE A SSESSEE, THE ASSESSING OFFICER HAS FOUND THAT THE ASSESSEE HAS NOT ACTUALLY PAID THE PROVISION MADE FOR THE PURPOSE OF GRATUITY AND THEREFORE, THE DISALLOWANCE MADE IN THE FIRST ROUND OF LITIGATION WAS CONFIRMED. ON APPEAL IN SECOND ROUND OF LITIGATION , TH E LD. CIT(A) SUSTAINED THE DISALLOWANCE BY CONFIRM ING THE ORDER OF THE ASSESSING OFFICER. 6.1 IT IS AN ADMITTED FACT THAT, FOR THE ASSESSMENT YEAR 2005 - 06, THE ORDER OF THE LD. CIT(A) PASSED IN THE FIRST ROUND OF LITIGATION HAS NO LOCUS STANDI SINCE THE TRIBUNAL HAS SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMITTED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION AS TO WHETHER THE ASSESSEE HAS ACTUALLY PAID THE PROVISIONS MADE FOR THE PURPOSE OF GRATUITY, WHICH WAS FOLLOWED IN THE SU BSEQUENT ASSESSMENT YEAR 2007 - 08 BY THE LD. CIT(A) AND AGAINST THE APPEAL OF THE DEPARTMENT, THE TRIBUNAL VIDE ITS ORDER DATED 31.07.2015 IN I.T.A. NO. 359/MDS/2015 DISMISSED THE APPEAL FILED BY THE ASSESSEE. THEREFORE, THE RELIANCE PLACED BY THE ASSESSEE IN ASSESSEE S OWN CASE HAS NO APPLICATION. 6.2 WITH REGARD TO THE CASE LAW RELIED ON IN THE CASE OF ACIT V. TYCO SANMAR LTD. (SUPRA), WE FIND FORCE IN THE ARGUMENTS ADVANCED BY THE LD. COUNSEL FOR THE ASSESSEE AND WE HAVE PERUSED THE SAME. WE FIND THAT T HE ISSUE RAISED IN THAT APPEAL ALSO IN SIMILAR SET OF FACTS AS THAT OF THE PRESENT APPEAL OF THE ASSESSEE. WHILE DECIDING THE APPEAL AGAINST THE REVENUE, BY I.T.A. NO . 1666 /M/ 16 6 FOLLOWING THE DECISIONS IN THE CASE OF CIT V. COMMON WEALTH TRUST (P) LTD. & ANR. 269 ITR 290 (KER) AND CIT V. BECHTEL INDIA (P) LTD. 2 DTR (DEL) 145, THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V. TYCO SANMAR LTD. HAS OBSERVED AND HELD AS UNDER: 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHORITIES AND THE DECISIONS RELIED ON. THE ASS ESSEE DURING THE RELEVANT ASSESSMENT YEAR 2007 - 08 CREATED PROVISION OF .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 REAS ON 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 A PROVISION THE SAME IS NOT ALLOWABLE IN VIEW OF THE SPECIFIC PROVISIONS OF SECTION 43B OF THE AC T. THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE FOLLOWING THE ORDERS 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 TH AT 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 T HAT THE PROVISION 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 SECTIO N 43B OF THE ACT. SIMILAR VIEW WAS ALSO TAKEN BY THE THIRD MEMBER OF JAIPUR BENCH OF THIS TRIBUNAL IN THE 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 A C T, 1975, WITH RETROSPECTIVE EFFECT FROM APRIL 1, 1973, AND SECTION 43B WAS INTRODUCED BY THE FINANCE ACT, 1983, WITH EFFECT FROM APRIL 1, 1984. S E CTION 4 0A SAYS T HAT THE PROVISIONS OF THIS SECTION SHALL HAVE EFFECT NOTWITHSTAND I NG A N YTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISION OF THE ACT RE LAT I N G TO T H E COMPUTATION OF INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BU SINE S S O R P ROFESS I ON' . SIMILARLY, SECTION 43B OPENS W I TH A NON OBSTANTE C L A US E. S ECTI ON 40A(7) PROVIDES THAT IN CASES COVERED B Y THE PROVISIONS OF C LAUS E (A) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF A N Y PROVISION WHETHER CA LL E D A S SUCH OR BY ANY OTHER NAME MADE BY THE ASSESSEE FOR THE PAYMENT OF G RATUITY OF HIS EMPLOYEES ON THEIR RETIREMENT OR ON I.T.A. NO . 1666 /M/ 16 7 T ERMINATION OF THEIR EMPLOYM E NT FOR ANY REASON . HOWEVER, CLAUSE (B) OF SECTION 40A(7) CLEARLY PROVIDES THAT TO ANY PROVISION MADE BY THE ASSESSEE FOR T HE PURPOSE OF PAYM E N T O F A SUM BY WAY OF ANY CONTR IBUTION TOWARDS A N APPROVED GRATUITY FU ND , O R F OR THE PURPOSE OF PAYMENT OF ANY GRATUITY, TH AT HAS BECOME PAYABLE DU R ING T H E PRE VIOUS Y EAR CLAUSE (A) WILL NOT APPLY. THI S M EANS EXCEPTION HAS BEEN CARVED O UT I N RE SP E CT OF PAYM E NT OF SUMS BY WA Y OF ANY CONTR IBUTIO N T OWARDS AN AP P R O V E D G RATUITY FUND . THUS THE LEG I SLA TURE W ANTED TO GIVE A SPE C IA L T REATME N T T O P ROVISION MADE BY AN ASSESSEE FOR T HE P URPOSE OF PAYM E NT BY WAY O F A NY CO NTRI B UTION TOWARDS AN APPROV E D GRAT UI TY FUND. THIS HA S TO BE TR EA T E D AS A SP EC IAL PROVISION. THE MARGINAL NOTE TO SE C TION 43B CLEARLY SAYS 'CE RT A I N DE DUCTIONS TO B E ONLY ON ACTUAL PAYMENT' . I T DEALS WITH VARIOUS ITEMS. SECTION 43B(B) DEALS GENERALLY WITH ANY SUM PAYABLE BY THE ASSESSEE AS AN EMP L OYER BY WAY OF CONTR IB UTION TO ANY PROVI DENT FUND A T SUPERANNUATION FUND OR GRATUITY FUND OR ANY O T HER 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 C LAIM FOR DEDUCTION BASED ON A PROVISION MADE FOR PAYMENT TOWARDS AN 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 SE C TION 43B IS IN POSITIVE TERMS, THE EFFECT OF BOTH THESE PROVISIONS I S THAT IN ORDER TO CLAIM DEDUCTION IN RESPECT OF PAYMENT TO A GRATUITY FUND THE R E MUST BE ACTUAL PAYMENT AND THAT DEDUCTION CANNOT BE ALLOWED ON THE BASIS O F ANY PROVISION. THE ONLY EXCEPTION TO THE ABOVE RULE IS WITH REGARD TO THE P R OVISION FOR PAYMENT TO AN APPROVED GRATUITY FUND. IT CANNOT BE INTERPRETED THAT THE LATER PRO VISION IN SECTION 43B BY INTRODUCING THE NON OBSTANTE CLAUSE WOULD ABROGATE THE SPECIAL PROVISION WITH REGARD TO THE PROVISION MADE FO R PAYMENT TO AN APPROVED GRATUITY FUND CONTAINED IN SECTION 4 0 A(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 PROV I SIONS 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 S. 40A(7)(B) OF THE ACT WILL HAVE AN OVERRIDING EFFECT OVER S.43B OF THE ACT. IN THE FIRST PLACE SECTION 40A(1) IS AN UNEQUIVOCAL NON - OBSTANTE CLAUSE AND SINCE S. 40A(7)(B) SPECIFICALLY PERMITS A DEDUCTION OF A SU M CONSTITUTING THE PROVISION TOWARDS AN APPROVED GRATUITY FUND, THE SAID PROVISION WILL TAKE PRECEDENCE OVER A COMPARATIVELY GENERAL I.T.A. NO . 1666 /M/ 16 8 PROVISION LIKE S. 43B. SECONDLY, S. 40A(7)(A) WHICH DISALLOWS DEDUCTION OF ANY PROVISION OF GRATUITY TO EMPLOYEES ON THEIR RETIREMENT IS ITSELF MADE SUBJECT TO S. 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 AR I SES I N THIS REGARD AS WELL. 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. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCHES OF THE TRIBUNAL, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION TO THE ASSESSEE. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . O RDER PRONOUNCED ON THE 27 TH FEBRUARY , 201 7 AT CHENNAI. SD/ - SD/ - (A. MOHAN ALANKAMONY ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 27 . 0 2 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.