ACIT Corporate, Cochin V. M/s.Muthoot Finance Ltd, Ernakulam

ITA 175/COCH/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3881 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2016
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 08-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 11-03-2015
• Court: TRIBUNAL
• Department Lawyers: A DHANARAJ
• Keywords: Deemed to accrue or arise in india; Permanent establishment; Bad and doubtful debts

Judgement Text

ITA NOS.89 & 175/COCH/2015 1 , IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN . . , ., ! ! ! ! BEFORE S/SHRI B. P. JAIN, AM & GEORGE GEORGE K., JM ' ' ' ' ./ I.TA NO.89/COCH/2015 ( #$ % /ASSESSMENT YEAR : 2010-11) MUTHOOT FINANCE LTD., MUTHOOT CHAMBERS, BANERJI ROAD, KOCHI-682 018. VS DDL. COMMISSIONER OF INCOME TAX, RANGE-1, KOCHI. ( &' &' &' &' /ASSESSEE APPELLANT) ( ( (( ( ) ) ) ) &' &'&' &' /REVENUE -RESPONDENT) ' ' ' ' ./ I.TA NO.175/COCH/2015 ( #$ % /ASSESSMENT YEAR : 2010-11) THE ASSISTANT COMMISSIONER OF INCOME-TAX, CORPORATE, CIRCLE-2(1), KOCHI. VS MUTHOOT FINANCE LTD., MUTHOOT CHAMBERS, BANERJI ROAD, KOCHI-682 018. ( &' &' &' &' /REVENUE APPELLANT) ( () () () () &' &'&' &' /ASSESSEE -RESPONDENT) & . . ' ./PAN NO. AABCT 0343B &' * + /ASSESSEE BY SHRI R. SREENIVASAN, FCA ( ) &' * + /REVENUE BY SHRI A. DHANARAJ, SR.DR ,- * ./ / DATE OF HEARING 08/09/2016 0 % * ./ /DATE OF PRONOUNCEMENT 26/09/2016 ITA NOS.89 & 175/COCH/2015 2 1 1 1 1 /ORDER PER B.P. JAIN, AM: THESE TWO APPEALS FILED BY THE ASSESSEE AND BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, KOCHI DATED 15-11-2014 FOR THE ASSESSMENT YEAR 2010-11. 2. WE SHALL TAKE UP FIRST THE ASSESSEES APPEAL IN I.T.A. NO. 89/COCH/2015. THE FOLLOWING GROUNDS HAVE BEEN RAISED:- I) THE OFFICERS BELOW ARE NOT JUSTIFIED IN DENYING AND CONFIRMING DISALLOWANCE OF RS.1,02,29,239/- UNDER THE HEAD BRA NDING EXPENSES PAID TO A COMPANY ESTABLISHED IN THE UNITED KINGDOM AND HAV ING NO PERMANENT ESTABLISHMENT IN INDIA, AND ARE IN THE NATURE OF RE IMBURSEMENT OF EXPENSES. II) THE OFFICERS BELOW FAILED TO APPRECIATE THE F ACT THAT THESE PAYMENTS HAVE BEEN INCURRED FOR SERVICES EXCLUSIVELY RENDERE D OUTSIDE INDIA AND THEY DO NOT HAVE ANY BUSINESS PARTNERS OR NON RESID ENTS IN INDIA. III) FURTHER THESE EXPENDITURE HAS BEEN PA ID DURING THE PREVIOUS YEAR. IV) THE OFFICERS BELOW WERE ALSO NOT JUSTIFIED IN CONFIRMING THAT AN AMOUNT OF RS.36,72,000/- BEING THE AMOUNT PAID TO M/S. MUT HOOT GLOBAL MONEY TRANSFERS PVT. LTD. FOR BRANDING EXPENSES FOR THE R EASON THAT THIS IS ONLY A PROVISION, AND FOR FURTHER REASON THAT TDS HAS NOT BEEN DEDUCTED. V) THE OFFICERS BELOW WERE NOT JUSTIFIED IN CONFIR MING THE ADDITION OF RS.70,51,200/- BEING PROPORTIONATE F.M. RADIO LICEN SE FEE INCURRED BY THE APPELLANT PRIOR TO DEMERGER OF THE UNIT FROM THE AP PELLANT COMPANY. ITA NOS.89 & 175/COCH/2015 3 VI) THE OFFICERS BELOW WERE NOT JUSTIFIED IN CONFIR MING ADDITION OF RS.61,88,642/- BEING ADVANCE MADE ON PLEDGE OF STOL EN GOLD, ESPECIALLY WHEN THE RBI GUIDELINE SUPPORTS THE CLAIM OF THE AP PELLANT. VII) BEING BANKING COMPANY, MONEY AND GOLD PLEDGED ARE STOCK IN TRADE OF THE ASSESSEE AND HAVING WRITTEN OFF IN THE BOOKS SHOULD HAVE BEEN ALLOWED AS EXPENDITURE. 3. THE BRIEF FACTS OF THE CASE ARE THAT BY ORDER DATE D 21/03/2013 AND SERVED ON THE ASSESSEE ON 22/03/2013, THE ADDITIONAL COMMI SSIONER OF INCOME TAX, RANGE-1, KOCHI HAS COMPLETED THE ASSESSMENT OF THE ASSESSEE COMPANY FOR THE ASSESSMENT YEAR 2010-11 DETERMINING A TOTAL INCOME OF RS.358,04,12,239/- AS AGAINST RETURNED INCOME OF RS.3,50,34,09,530/-. I N THE FIRST APPEAL FILED, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS GRANTED PA RTIAL RELIEF. THE ISSUES AGITATED IN THE PRESENT APPEAL ARE DISCUSSED BELOW: - 4. DISALLOWANCE OUT OF BRANDED EXPENSES CLAIMED: THE ASSESSEE COMPANY HAS INCURRED AN AMOUNT OF RS.1 ,02,29,239/- AS BRANDING EXPENSES PAID TO OVERSEAS ENTRIES. THE ASSESSEE CO MPANY HAS ALSO BEEN CARRYING ON MONEY TRANSFER BUSINESS. IN ORDER TO M ARKET THE MONEY TRANSFER BUSINESS IN UNITED KINGDOM, EXPENSES UNDER THIS HEA D HAS BEEN INCURRED. THIS IS PURELY INCURRED FOR SERVICES RENDERED OUTSIDE THE T AXABLE TERRITORY OF INDIA. THE RECIPIENT COMPANY IS AN OVERSEAS COMPANY AND THEY D O NOT HAVE ANY PERMANENT OR TEMPORARY ESTABLISHMENT IN INDIA. CON SEQUENTLY, THE PROVISION OF ITA NOS.89 & 175/COCH/2015 4 TAX DEDUCTION AT SOURCE ARE NOT APPLICABLE IN VIEW OF THE BOARD CIRCULAR IN THIS REGARD. IN FACT, INCOME IF ANY EARNED BY THESE COMP ANIES ARE TAXABLE IN UNITED KINGDOM. ACCORDING TO THE OFFICER THE RECIPIENT EN TITY IS A NON-RESIDENT ONE AND AS PER THE PROVISIONS OF THE INCOME TAX ACT WITH SP ECIFIC REFERENCE TO SECTION 9(1)(I) CERTAIN INCOME SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA DIRECTLY OR INDIRECTLY THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA OR THROUGH OR FROM ANY PROPERTY IN INDIA OR THROUGH OR FROM ANY ASSET OR SOURCE OF INCOME IN INDIA. ACCORDING TO THE OFFICER, IN THE CASE OF A BUSINESS OF WHICH ALL THE OPERATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUSINES S DEEMED UNDER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA, THE INCOME OF THE BUSINES S DEEMED UNDER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA . SHE IS OF THE OPINION THAT THE ABOVE DESCRIPTION CLEARLY STATES THAT INCOME OF THE BUSINESS RELATABLE TO SUCH PART OF THE INCOME AS REASONABLY ATTRIBUTABLE TO TH E OPERATIONS CARRIED OUT IN INDIA. IT IS HER CASE THAT THERE IS BUSINESS CONNE CTION. SHE FURTHER OPINES THAT CIRCULAR QUOTED BY THE ASSESSEE IS NO LONGER IN EXI STENCE AND HAS INVOKED THE PROVISIONS OF SECTION 40(A)(IA) FOR FAILURE TO COMP LY WITH SECTION 195. THE OFFICER ALSO DID NOT APPRECIATE THE FACT THAT THE RECIPIENT COMPANY DID NOT HAVE ANY INCOME ACCRUING OR ARISING IN INDIA. AS S TATED EARLIER THEY DO NOT HAVE ANY ESTABLISHMENT IN INDIA AND THEY HAVE BEEN REGIS TERED UNDER THE LAWS OF UNITED KINGDOM AND ALSO ASSESSABLE TO TAX THERE. T HEREFORE THE VARIOUS ITA NOS.89 & 175/COCH/2015 5 PROVISIONS, CASE LAWS AS NARRATED BY THE OFFICER IN THE ORDER ARE NOT AT ALL APPLICABLE. 5. SHE HAS ALSO SAID THAT OUT OF THE BRANDING EXP ENSES, AN AMOUNT OF RS. 36,72,000/- PAYABLE TO M/S. MUTHOOT GLOBAL MONEY TR ANSFERS P LTD. IS ONLY A PROVISION WHICH HAS BEEN PAID SUBSEQUENTLY. ACCORD ING TO HER THE PROVISION CREATED IN THE BOOKS ARE NOT AN ALLOWABLE EXPENSES SINCE THE LIABILITY HAS NOT CRYSTALLIZED IN THE F.Y. 2009-10. BEING A COMPANY FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING THE CLAIM HAS BEEN RIGHTLY MAD E IN TUNE WITH THE ACCOUNTING STANDARD PRESCRIBED AND RIGHTLY ALLOWABL E. 6. YET ANOTHER DISALLOWANCE MADE AND CONFIRMED I S OF F.M. RADIO LICENCE FEE WRITTEN OFF. DURING THE YEAR, THE ASSESSEE HAD WRIT TEN OFF AN AMOUNT OF RS. 70,51,200/- BEING F.M. RADIO LICENSE FEE AMORTIZED IN THE EARLIER YEAR. THIS AMOUNT IS FOR A PERIOD OF 9 MONTHS DURING WHICH TIM E THE ASSESSEE COMPANY HAD EXPLOITED THE F.M. RADIO LICENSE. THE RADIO BUS INESS CARRIED ON BY THE ASSESSEE COMPANY WAS DEMERGED UNDER A SCHEME OF ARR ANGEMENT APPROVED BY THE KERALA HIGH COURT. THIS BUSINESS WAS TAKEN OVER BY ANOTHER COMPANY M/S. MUTHOOT BROADCASTING P. LTD. AS A GOING CONCER N. ACCORDING TO THE OFFICER, THE LICENCE FEE OF THE RADIO BUSINESS HAS TO BE CLA IMED BY THE OTHER COMPANY M/S. MUTHOOT BROADCASTING P. LTD. FOLLOWING THE DEM ERGER. ACCORDINGLY THE ITA NOS.89 & 175/COCH/2015 6 AMOUNT OF RS.70,51,200/- HAS BEEN TREATED AS NOT RE LATABLE TO THE INCOME EARNED BY THE ASSESSEE COMPANY AND DISALLOWED. 7. AS POINTED OUT BY THE OFFICER, AT PAGE 5 PARA 5 OF THE ORDER INCOME FROM F.M. RADIO FOR 9 MONTHS DURING THE YEAR HAVE BEEN I NCLUDED BY THE ASSESSEE COMPANY. IF THAT BE SO THERE IS NO REASON TO HOLD THAT THE LICENSE FEE IS NOT ALLOWABLE AS NOT RELATABLE TO INCOME EARNED BY THE COMPANY. 8. BAD DEBTS WRITTEN OFF: THE NEXT ISSUE PERTAINS TO DISALLOWANCE OF A SUM OF RS. 61,88,642/- REPRESENTING GOLD LOANS WHICH HAVE BECO ME FULLY BAD DURING THE FINANCIAL YEAR 2009-10. THESE LOANS WERE ADVANCED AGAINST THE SECURITY OF STOLEN GOLD PLEDGED BY THIEVES BY CHEATING THE COMP ANY AND LATER SEIZED BY THE POLICE AS PROPERTY OF CRIME DURING THE YEAR. TH E COMPANY WILL NOT GET INSURANCE COVER ON THESE LOANS, SO ALSO REPAYMENT/R ECOVERY FROM THE BORROWERS IS ALSO NOT POSSIBLE IN THESE CASES. THERE IS NO L IKELIHOOD OF RECOVERING THE GOLD SEIZED BY THE POLICE. EVEN IF THE ULTIMATE OWNERS OF THE GOLD ARE FOUND, THIS WILL HAVE TO BE RETURNED AS MOST OF THEM WOULD HAVE FILE D CRIMINAL CASES AGAINST THE THEFT. THEREFORE, THIS LOSS IS INCIDENTAL EXPENDIT URE TO THE BUSINESS ACTIVITIES AND DO NOT GET COVERED BY INSURANCE CLAIM. MONEY OR MON EYS WORTH AS FAR AS FINANCING COMPANY IS CONCERNED, IS STOCK IN TRADE A ND LOSS OF STOCK IN TRADE DUE TO THEFT HAS BEEN RIGHTLY CLAIMED AS REVENUE EXPEND ITURE. ITA NOS.89 & 175/COCH/2015 7 9. THE ABOVE ISSUES ALONG WITH OTHER ISSUES HAVE BEEN CARRIED IN APPEAL BY THE ASSESSEE BEFORE THE LD. CIT(A) AND THE LD. CIT(A)-I I, KOCHI BY HER ORDER DATED 15/.11/2014 GRANTED PARTIAL RELIEF TO THE ASSESSEE AND HENCE THE ASSESSEE IS IN APPEAL BEFORE US. 10. THE LD. REPRESENTATIVE ON BEHALF OF THE ASSESS EE CONTENDED THAT AS FAR AS THE DISALLOWANCE OF BRANDING EXPENSES IS CONCERNED, IT WAS STATED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF FOREIGN CURRENCIES AND ALSO INWARD AND OUTWARD MONEY TRANSFER BUSINESS . AS A LARGE NUMBER OF INDIANS ARE LIVING IN UNITED KINGDOM, THE COMPANY H AS ENGAGED M/S. MUTHOOT GLOBAL TRANSFERS PVT. LTD., UK FOR THE WIDE PUBLICI TY FOR MUTHOOT BRAND AND TO CREATE AWARENESS AMONG THEM THE FOREX AND MONEY TRA NSFER SERVICES PROVIDED BY THEM THROUGH A LARGE NETWORK OF BRANCHES AND FRA NCHISE ALL OVER INDIA. THE COMPANY HAS REIMBURSED TO M/S. MUTHOOT GLOBAL TRANS FERS PVT. LTD., UK TOWARDS EXPENSES INCURRED BY THEM FOR THE ABOVE MENTIONED A CTIVITIES, AS PER INVOICE ISSUED BY THEM. DETAILS OF MARKETING ACTIVITIES PE RFORMED BY MUTHOOT GLOBAL TRANSFERS, UK ARE ABOUT THE PRODUCTS AND SERVICES OF MUTHOOT EXCHANGE COMPANY PVT. LTD., INDIA. MONEY TRANSFER SERVICES AVAILABLE TO INDIA THROUGH MUTHOOT EXCHANGE BRANCHES BOTH INWARD AND OUTWARD REMITTANC ES. FOREIGN EXCHANGE SERVICES. PAYMENT OF EDUCATIONAL EXPENSES/FEE FROM IN DIA TO UK ITA NOS.89 & 175/COCH/2015 8 TARGETED CUSTOMERS . NRIS RESIDING IN THE UNITED KINGDOM IMMIGRANT INDIAN WORKERS IN THE UK. FOREIGNERS AND INDIANS TRAVELLING TO INDIA AND UK DIFFERENT MODES OF MARKETING DONE DLRING THE F.Y. 2 010-11 DIRECT MARKETING TO THE CUSTOMERS OF MUTHOOT GLOBAL TRANSFERS DISTRIBUTED THE BROCHURES EXPLAINING THE PRODUCTS A ND SERVICES OF MUTHOOT EXCHANGE INDIA. SPONSORED VARIOUS ASSOCIATION PROGRAMS ORGANIZED BY INDIAN COMMITTEES IN THE UK AND GAVE WIDE PUBLICITY ABOUT MONEY TRANSFER AND FOREX SERVICES PROVIDED BY MUTHOOT EXC HANGE. MUTHOOT GLOBAL STAFF ATTENDED THE EVENTS AND EXPLAI NED THE PRODUCTS AND SERVICES OF MUTHOOT EXCHANGE INDIA. 11. BY OUR ORDER OF EVEN DATE IN THE CASE OF ANO THER GROUP COMPANY MUTHOOT EXCHANGE (P) LTD., KOCHI IN I.T.A. NO. 91/COCH/2015 , WE HAVE HELD THAT THE SAID COMPANY IS NOT LIABLE TO DEDUCT TAX ON THE PAYMENT MADE UNDER THE HEAD BRANDING EXPENSES. FOLLOWING THE FINDINGS IN THE S AID ORDER IN THE CASE OF THAT ASSESSEE AND ALSO IN OUR CONSIDERED VIEW THE SAME P RINCIPLES APPLY. ACCORDINGLY, WE HEREBY DELETE THE DISALLOWANCE OF R S.1,02,29,239/-. FURTHER WE ALSO HOLD THAT THERE IS NO JURISDICTION IN DISALLOW ING RS.36,72,000/- BEING THE PROVISIONS MADE IN THE ACCOUNTS ESPECIALLY WHEN THE ASSESSEE HAS BEEN CONSISTENTLY ADOPTING MERCANTILE SYSTEM OF ACCOUNTI NG. ITA NOS.89 & 175/COCH/2015 9 12. THE NEXT ISSUE PERTAINS TO ADDITION OF RS.70 .51 LAKHS BEING THE F.M. RADIO LICENSE FEE PAID BY THE ASSESSEE. BY A SCHEME OF D EMERGER THE F.M. RADIO LICENSE NEITHER TO BE EXPLOITED BY THE ASSESSEE WAS TRANSFERRED TO ANOTHER COMPANY BY NAME OF M/S. MUTHOOT BROADCASTING (P) LT D. FOR A PERIOD OF 9 MONTHS, DURING THIS FINANCIAL YEAR THE ASSESSEE HAS EXPLOITED THE LICENSE AND HAS INCLUDED THE INCOME THEREOF. THIS HAS BEEN MENTION ED BY THE ASSESSING OFFICER AT PAGE 5, PARA 5 OF ASSESSMENT ORDER. THE REASON STATED BY THE ASSESSEE FOR DEMERGER WAS THAT THE ASSESSEE COMPANY APPROACHED S EBI FOR PUBLIC ISSUE AND AS PER THEIR REQUIREMENT THIS RADIO BUSINESS WAS TO BE DEMERGED FROM THE COMPANY. UP TO A PERIOD OF 9 MONTHS, SINCE THE LIC ENSE HAS BEEN EXPLOITED AND INCOME THEREOF TAKEN INTO ACCOUNT, WE ARE OF THE CO NSIDERED VIEW THAT ONCE INCOME OF A PARTICULAR BUSINESS CARRIED ON BY THE A SSESSEE IS TAKEN INTO ACCOUNT THE EXPENSES ATTRIBUTABLE TO EARN SUCH INCOME SHOUL D ALSO BE TAKEN INTO ACCOUNT. THE FACT BEING SO, WE HEREBY DELETE THE A DDITION MADE OF RS.70,51,200/-. 13. THE LAST ISSUE IN ASSESSEES APPEAL IS WITH RE GARD TO DISALLOWANCE OF RS.61,88,642/- REPRESENTING GOLD LOAN WHICH HAS BEC OME BAD DURING THE YEAR. THIS LOAN WAS STATED TO HAVE BEEN ADVANCED AGAINST STOLEN GOLD PLEDGED BY THIEVES AND LATER SEIZED BY POLICE AS PROPERTY OF C RIME DURING THE YEAR. THE LD. REPRESENTATIVE DREW OUR ATTENTION TO THE GUIDELINES ISSUED BY RBI WHO IS THE APEX BODY FOR GOVERNING THE FUNCTIONS OF NON-BANKIN G FINANCE COMPANY. THE ITA NOS.89 & 175/COCH/2015 10 PAPER BOOK FILED CONTAINS COPY OF GUIDELINES FROM P AGE 8 TO 23. HE DREW OUR ATTENTION TO PAGE 10 WHICH DEFINES LOSS ASSETS THAT IS AN ASSET WHICH IS AN ADVANCE AFFECTED BY A POTENTIAL THREAT OF NON-RECOV ERY DUE TO EITHER EROSION IN THE VALUE OF SECURITY OR NON AVAILABILITY OF SECURI TY OR DUE TO FRAUDULENT ACT OR OMISSION ON THE PART OF THE BORROWER. AGAIN AT PAG E 14 THE PROVISION REQUIREMENT IS GIVEN, WHEREAS UNDER LOSS ASSETS IT IS PRESCRIBED THAT THE ENTIRE ASSETS SHALL BE WRITTEN OFF. AS STATED BY THE ASSE SSEE MONEY OR MONEYS WORTH IS STOCK IN TRADE AS FAR AS THE ASSESSEE COMPANY IS CO NCERNED, ANY LOSS OR DIMINUTION IN ITS VALUE HAS TO BE WRITTEN OFF AND C LAIMED AS LOSS. 14. HAVING REGARD TO THIS PRINCIPAL AND RESPECTFU LLY FOLLOWING THE GUIDELINES OF RBI, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSE E COMPANY IS ENTITLED TO CLAIM THE LOSS OF RS.61.88 LAKHS IN THIS REGARD. T HUS ALL THE GROUNDS OF THE ASSESSEE ARE ALLOWED. ACCORDINGLY, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 15. WE NOW COME TO THE APPEAL FILED BY THE REVENUE IN I.T.A. NO. 175/COCH/2015. 16. THE REVENUE HAS FILED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX(APP EALS)-II, KOCHI, IN APPEAL NO. I.T.A. 18/R-1/EKM/CIT(A)-II/2013-14 DATED 15/11 /2014, IS OPPOSED TO LAW, WEIGHT OF EVIDENCE, FACTS AND CIRCUMSTANCES OF THE CASE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN THE LIGHT OF GROUNDS RAISED THE ASSESSEE IS ENTITLED TO CLAIM DE DUCTION OF A SUM OF ITA NOS.89 & 175/COCH/2015 11 RS.2,62,16,683/- UNDER THE HEAD STAFF WELFARE EXPE NSES CONSISTING OF CONTRIBUTION MADE TO AND ALSO INTEREST PAID ON ACCO UNT NAME STAFF WELFARE SCHEME? 3. THE LEARNED COMMISSIONER OF INCOME TAX(A) OUGHT TO HAVE HELD THAT ANY SUM RECEIVED BY THE ASSESSEE COMPANY FROM HIS EMPLO YEES AS CONTRIBUTION TO ANY OTHER FUND FOR WELFARE OF SUCH EMPLOYEES S HALL BE INCOME IN THE HANDS OF THE ASSESSEE COMPANY AS PER PROVISIONS OF SECTION 36(1)(VA). 4. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE, TH E CIT(A) WAS RIGHT IN DELETING THE AMOUNT REALIZED FROM THE BORROWERS ACC OUNT ON SALE OF GOLD ORNAMENTS IN PUBLIC AUCTION? THE LEARNED COMMISSION ER OF INCOME TAX(A) SHOULD HAVE AT LEAST SUSTAINED THE INTEREST ON LOAN COLLECTED THROUGH THE SALE OF GOLD ORNAMENTS. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT T HE TIME OF HEARING, IT IS REQUESTED THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER REST ORED. 17. GROUND NOS. 1 & 5 ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATION. GROUND NOS. 2 AND 3 RELATE TO DISALL OWANCE OF STAFF WELFARE EXPENDITURE RELATING TO STAFF WELFARE SCHEME. AT TH E OUTSET THE LD. REPRESENTATIVE APPEARING ON BEHALF OF THE ASSESSEE COMPANY BROUGHT TO OUR NOTICE THAT THIS TRIBUNAL HAS CONSIDERED THE SAME I SSUE IN ASSESSEES OWN CASE FOR AY 2004-05 AND 2006-07. COPY OF THE ORDER FOR 2006 -07 HAS ALSO BEEN FILED. WE EXTRACT BELOW THE RELEVANT FINDINGS OF THE ITAT. 13. ACCORDING TO THE AO, THE SAID STAFF WELFA RE SCHEME WOULD FALL IN THE CATEGORY OF ANY OTHER FUND FOR THE WELFARE OF EMPL OYEES AS SPECIFIED IN SEC. 2(24)(X) OF THE ACT. THE LD CIT(A) HAS TAKEN THE VI EW THAT THE IMPUGNED EXPENDITURE IS ALLOWABLE UNDER THE PROVISIONS OF SE C.40A(9) OF THE ACT. IT IS PERTINENT TO NOTE THAT ONE OF THE CONDITIONS PRESC RIBED IN SEC.40A(9) IS THAT THE ITA NOS.89 & 175/COCH/2015 12 CONTRIBUTIONS SHOULD HAVE BEEN MADE TO A FUND, TRUS T, COMPANY ETC., WHICH MEANS THE CONTRIBUTIONS SHOULD NOT HAVE BEEN USED B Y THE ASSESSEE ITSELF. IN THE INSTANT CASE, THE ASSESSEE HAS USED THE AMOUNTS SO ACCUMULATED BY IT FOR ITS OWN BUSINESS PURPOSE. HENCE THE PROVISIONS OF SEC.40A( 9) SHALL NOT APPLY TO THE INSTANT CASE. 14. WE HAVE ALREADY STATED THAT THE CONTRIBUTION S TO THE STAFF WELFARE SCHEME, IN EFFECT, HAVE BEEN MADE BY EACH OF THE EMPLOYEES OF THE ASSESSEE COMPANY. THE STAFF WELFARE SCHEME IS A COLLECTIVE NAME GIV EN BY THE ASSESSEE IN RESPECT OF SUCH CONTRIBUTIONS, WHICH MEANS THAT THE ASSESSE E SHOULD BE IN A POSITION TO FURNISH THE NAME WISE BREAK UP DETAILS OF THE OUTSTA NDING BALANCE. IN OUR VIEW, THE COLLECTIVE NAME STAFF WELFARE SCHEME IS AKIN T O THE COLLECTIVE NAME SUNDRY CREDITORS. ACCORDINGLY THE STAFF WELFARE SCHEME CAN ONLY BE TAKEN AS A LIABILITY (CREDITORS) ACCOUNT, I.E., THE AMOUNT PAYABLE TO EA CH OF THE EMPLOYEES WHO HAVE CONTRIBUTED TO THE SAID SCHEME. INSTEAD OF KEEPING THE ACCOUNT IN EACH OF THE EMPLOYEE NAME, THE ASSESSEE HAS AGGREGATED THEM AND SHOWN AS UNDER A COLLECTIVE NAME. THE LD CIT(A) HAS NOTED THAT THE ASSESSEE PAYS THE ACCUMULATED AMOUNT OUTSTANDING IN THE NAME OF THE RETIRING EMPL OYEES ALONG WITH THE INTEREST ACCRUED THERE ON AT THE TIME OF RETIREMENT . IT IS ALSO SUBMITTED THAT THE ASSESSEE IS DEDUCTING TDS FROM SUCH INTEREST PAYMEN TS. IT IS ONLY POSSIBLE TO IDENTIFY THE ACCUMULATED BALANCE IN THE NAME OF EAC H OF THE EMPLOYEE AND PAY THE SAME ONLY IF THE SUB-LEDGER OF THE STAFF WELFAR E SCHEME IS AVAILABLE. HENCE, IN OUR VIEW, THE STAFF WELFARE SCHEME A/C CAN ONL Y BE TAKEN AS A CREDITOR ACCOUNT AND NOT AS WELFARE SCHEME ACCOUNT AS DEFINE D IN SEC. 2(24)(X) OF THE ACT. ACCORDINGLY, WE AGREE WITH THE FINAL DECISION REACH ED BY THE LD CIT(A) ON THIS ISSUE. ITA NOS.89 & 175/COCH/2015 13 CONSISTENT WITH THE VIEW TAKEN IN ASSESSMENT YEAR 2 004-05, WE AGREE WITH THE DECISION REACHED BY LD CIT(A) ON THIS ISSUE. ACCORDINGLY WE UPHOLD THE RELIEF GRANTED BY LD CIT(A) ON THIS ISSUE. 18. CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDI NATE BENCH IN A.Y. 2004-05 AND 2006-07, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. THUS GROUND NOS. 2 & 3 OF THE REVENU E ARE DISMISSED. 19. GROUND NO. 4 OF THE REVENUES APPEAL RELATES TO DECISION OF THE AMOUNT REALIZED FROM BORROWINGS ON SALE OF GOLD IN PUBLIC AUCTION. THE LD. AR CONTENDED THAT THE LD. CIT(A) SHOULD HAVE AT LEAST SUSTAINED THE INTEREST ON LOAN COLLECTED ON SALE OF ORNAMENTS. AS REJOINDER, THE LD. DR SUBMITTED THAT IN THE ASSESSMENT MADE THE ASSESSING OFFICER HAS TAKEN THE ENTIRE SALE PROCEEDS ON AUCTION OF GOLD ORNAMENTS AS INCOME OF THE ASSES SEE. ACCORDING TO HIM, SINCE THE AUCTIONED GOLD WERE VERY OLD IT DID NOT F ETCH THE MARKET VALUE OR AT LEAST THE VALUE TO THE EXTENT OF GOLD LOAN ADVANCED . THE ASSESSEE HAS ALREADY OFFERED THE INTEREST ON SUCH LOANS YEAR AFTER YEAR ON MERCANTILE BASIS AND THEY WERE NOT ABLE TO REALIZE ANY PORTION OF INTEREST. A CCORDING TO HIM THERE IS NO SURPLUS REALIZED ON AUCTION OVER AND ABOVE WHAT WAS ADVANCED ON THE PLEDGE OF GOLD. IN FACT THE AUCTION HAS RESULTED IN A LOS S TO THE ASSESSEE. IT WAS THE STAND OF THE DEPARTMENT THAT THE ENTIRE SALE PROCEE DS IS ASSESSABLE AND NOW THEY HAVE COME DOWN TO THE POINT OF SUSTAINING INTE REST PORTION. ITA NOS.89 & 175/COCH/2015 14 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS IN T HIS REGARD. IT IS COMMON KNOWLEDGE THAT IN ANY AUCTION THE VALUE WHICH WOULD BE REALIZED WOULD BE MUCH LESS THAN THE MARKET VALUE. THE REVENUE HAS N OT MADE A CASE THAT THE ASSESSEE HAS REALIZED INTEREST/ARREARS OF INTEREST ON THE AUCTION. THE LD. CIT(A) IN PARA 10.3 AT PAGE 18 OF HER APPELLATE ORDER HAS COM E TO THE FINDING THAT THE GOLD LOANS AND STAGNANT ADVANCES WHICH WERE NOT REC OVERABLE FOR LONG, THE GOLD WAS PUT TO AUCTION TO RECOVER THE VALUE OF LOA N. SINCE THE SALE PROCEEDS OF SUCH GOLD ORNAMENTS WOULD BASICALLY GO TO REDUCE THE PRINCIPAL AMOUNT OF LOAN AND ANY INTEREST REALIZABLE ON THAT. SUCH AMO UNT WOULD BE BASICALLY REPAYMENT OF LOAN AND HENCE THE SAME CANNOT BE TREA TED AS INCOME OF THE ASSESSEE. IN VIEW OF THIS , WE UPHOLD THE FINDING S OF THE LD. CIT(A) ON THIS ISSUE ALSO. THUS ALL THE GROUNDS OF THE REVENUE ARE DISM ISSED. 21. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 26-09-2016. SD/- SD/- ( . ) (GEORGE GEORGE K.) ( . . ) (B. P. JAIN) /JUDICIAL MEMBER /ACCOUNTANT MEMBER & /PLACE: /COCHIN 2 /DATED: 26 TH SEPTEMBER, 2016 GJ/ ITA NOS.89 & 175/COCH/2015 15 1 * (.3 43%. /COPY TO: 1. &' /MUTHOOT FINANCE LTD., MUTHOOT CHAMBERS,BANERJI ROA D, KOCHI-682 018. 2. () &' /THE ADDL. COMMISSIONER OF INCOME-TAX, RANGE-1, KOC HI. 3. () &' /THE ASSISTANT COMMISSIONER OF INCOME-TAX, CORPORAT E, CIRCLE-2(1), KOCH I. 4. ,5 . ( )/THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCHI . 5. ,5 . /THE COMMISSIONER OF INCOME-TAX, KOCHI. 6. 367 (. , /THE DR/ITAT, COCHIN BENCH. 7. 79 :- /GUARD FILE. 1, /BY ORDER ; /ASSISTANT REGISTRAR - .