ACIT 14(3)(2), MUMBAI V. SHRIRAM CHITS MAHARASHTRA LTD, MUMBAI

ITA 1789/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7782 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2017
• Appeal Filed By: Department
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 26-03-2015
• Court: TRIBUNAL
• Department Lawyers: ARJU GORODIA

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, AM & SHRI SANDEEP GOSAIN, JM ./ I.T.A. NO . 178 9 / MUM/ 2015 ( / ASSESSMENT YEAR: 2010 - 11 ) AC IT 14(3 )(2 ) 453 4TH FLOOR AAYKAR BHAWAN, MUMBAI / VS. SHRIRAM CHITS MAHARASHTRA LTD. A418 - 419, BEZZOLA COMPLEX, OPP, SUMANNAGR SIN TROMBAY R. D CHEMBUR (E) MUMBAI ./ ./ PAN/GIR NO. AA CC M 4000 H ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : MS ARJU GORODIA / RESPONDENTBY : NONE / DATE OF HEARING : 08 /0 3 /201 7 / DATE OF PRONOUNCEMENT : 17/03/2017 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 8 , MUMBAI 2 I.T.A. NO. 1789 /MUM/201 5 (A.Y. 2010 - 11 ) SHRIRAM CHITS MAHARASHTRA LTD. DATED 22.12.2014 FOR AY 2010 - 11 ON THE GROUNDS OF APPEAL MENTIONED HEREIN BELOW. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF T HE ASSESSEE ON ACCOUNT OF REVERSAL OF PROVISION FOR GRATUITY AND LEAVE ENCASHMENT, WHILE DISREGARDING THE FACT THAT IT IS SEEN FROM THE TAX AUDIT REPORT THAT THE ASSESSEE HAD LIABILITY TO PAY GRATUITY, LEAVE ENCASHMENT OF RS.19,67,267/ - AND RS.6,81,416/RES PECTIVELY, WHICH WAS NOT PAID DURING THE YEAR BY THE ASSESSEE AND IN THE ABSENCE OF HAVING MADE ANY PAYMENT TOWARDS GRATUITY AND LEAVE ENCASHMENT. 2 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DISALLOWING THE DEDU CTION MADE BY THE AO OF RS.4,72, 17,435/ - BEING DIFFERENCE BETWEEN THE F REMAN COMMISSION RECEIVABLE OF RS. 18,37,13,435/ - AND THE FOREMAN COMMISSION ACTUA LLY RECEIVED OF RS. 13,64,95,000/ - WHILE DISREGARDING THE FACT THAT THE ASSESSEE COMPANY WOULD RECEIV E FOREMAN COMMISSION @ 5 TIMES OF THE AGENCY COMMISSION PAID TO THE AGENTS, WHICH IS DEBITED TO THE P & L A/C AT RS.3,67,42,487/ - 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFOR E OR AT THE TIME OF HEARING OF APPEAL. 3 I.T.A. NO. 1789 /MUM/201 5 (A.Y. 2010 - 11 ) SHRIRAM CHITS MAHARASHTRA LTD. 4. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET - ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF CHIT FUND. THE ASSESSE E FILED ITS RETURN OF INCOME FOR AY 2010 - 11 BY WAY OF E - FILING ON 12.10 .10 DECLARING TOTAL INCOME OF RS. 1,24,16,280 / - . SUBSEQUENTLY, THE CASE OF THE ASSESSE E WAS SELECTED FOR S CRUTINY AND AFTER SERVING STATUTORY NOTICES AND SEEKING REPLY , THE AO PASSED ASSESSMENT ORDER ON 26.03.13 THEREBY MAKING ADDITIONS /DISALLOWANCE ON ACCOUNT OF GRATUITY, LEAVE ENCASHMENT, SERVICE TAX, ETC. 3. AGGRIEVED BY THE ORDER OF THE AO, ASSESSEE FILED THE APPEAL BEFORE CIT(A) AND THE CIT(A) AFTER CONSIDERING TH E CASE OF BOTH THE PARTIES HAD PARTLY ALLOWED THE APPEAL OF THE ASSESS E E . 4 . AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US ON THE GROUNDS MENTIONED HEREIN ABOVE. GROUND NO. 1. 5. LD. DR APPEARING ON BEHALF OF THE REVENUE SUBMITTED THAT LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE ON 4 I.T.A. NO. 1789 /MUM/201 5 (A.Y. 2010 - 11 ) SHRIRAM CHITS MAHARASHTRA LTD. ACCOUNT OF REVERSAL OF PROVISION FOR GRATUITY AND LEAVE ENCASHMENT, WHILE DISREGARDING THE FACT THAT IT IS SEEN FROM THE TAX AUDIT REPORT THA T THE ASSESSEE HAD LIABILITY TO PAY GRATUITY, LEAVE ENCASHMENT OF RS.19,67,267/ - AND RS.6,81,416/RESPECTIVELY, WHICH WAS NOT PAID DURING THE YEAR BY THE ASSESSEE AND IN THE ABSENCE OF HAVING MADE ANY PAYMENT TOWARDS GRATUITY AND LEAVE ENCASHMENT. THE LD. D R RELIED UPON THE ORDER PASSED BY AO. 6. ON THE OTHER HAND LD. AR RELIED UPON THE ORDER PASSED BY LD. CIT(A). 7. WE HAVE HEARD THE COUNSEL OF BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY THE REVE NUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A) . T HE OPERATIVE PORTION IS REPRODUCED BELOW: - I FIND THAT THE APPELLANT HAD A BALANCE OF RS. 19,67,294/ - IN THE GRATUITY ACCOUNT AS ON 01. 04.09. IT GOT THE ACTUARIAL VALUATION DONE AS ON 31.03.10 AS PER WHICH THE APPELLANT HAD TO MAKE A PROVISION FOR GRATUITY OF RS. 24,05,938 RESULTING IN ADDITIONAL 5 I.T.A. NO. 1789 /MUM/201 5 (A.Y. 2010 - 11 ) SHRIRAM CHITS MAHARASHTRA LTD. PROVISION OF RS. 4,38,641/ - TO BE MADE DURING THE YEAR TO ARRIVE AT A TOTAL PROVISION OF RS. 24,05,938/ - . FURTHER THE APPELLANT HAD THE BALANCE OF RS. 6,81,416/ - IN RESPECT OF PROVISION FOR LEAVE ENCASHMENT AS ON 01.04.09. DURING THE YEAR THE TOTAL PROVISION AS WORKED OUT TOWARDS LEAVE ENCASHMENT AS ON 31.03.10 WORKS OUT TO RS . 3,81,466/ - RESULTING IN EXCESS PROVISION OF RS. 2,99,950/ - . I FIND THAT THIS EXCESS PROVISION HAS BEEN RIGHTLY ADDED BACK BY THE ASSESSEE COMPANY TO THE TOTAL INCOME IN THE COMPUTATION OF INCOME. IN VIEW OF THE ABOVE FINDING, THE ADDITION OF RS. 26,48,71 3/ - (RS. 19,67,297 + RS. 6,81,416) MADE BY THE AO IS DELETED. AFTER ANALYZING THE AFOREMENTIONED ORDER PASSED BY LD. CIT(A) AND AFTER HEARING THE ARGUMEN TS OF BOTH THE PARTIES, WE FIND THE CIT(A) HAS TAKEN INTO CONSIDERATION THAT THE ASSESSEE HAD A BALAN CE OF RS. 19,67,294/ - IN THE GRATUITY ACCOUNT AS ON 01.04.09 . THE ASSESSEE HAD TO GET THE ACTUARIAL VALUATION DONE AS ON 31.03.10 THEREFORE, THE ASSESSEE HAD TO MAKE A PROVISION FOR GRATUITY OF RS. 24,05,938 RESULTING IN ADDITIONAL PROVISION OF RS. 4,38,64 1/ - TO BE MADE DURING THE YEAR TO ARRIVE AT A TOTAL 6 I.T.A. NO. 1789 /MUM/201 5 (A.Y. 2010 - 11 ) SHRIRAM CHITS MAHARASHTRA LTD. PROVISION OF RS. 24,05,938/ - . THE LD. CIT(A) HAS ALSO CONSIDERED THAT THE ASSESSEE HAD THE BALANCE OF RS. 6,81,416/ - IN RESPECT OF PROVISION FOR LEAVE ENCASHMENT AS ON 01.04.09 AND IN THIS WAY, DURING THE YEAR, THE TOTAL PROVISION AS WORKED OUT TOWARDS LEAVE ENCASHMENT AS ON 31.03.10 WAS RS. 3,81,466/ - THEREBY RESULTING IN EXCESS PROVISION OF RS. 2,99,950/ - . THE LD. CIT(A) AFTER CONSIDERING THE FACTS OF THE CASE HAD CORRECTLY FIND THAT THE EXCESS PROVISION HAS BEEN RIGHTLY ADDED BACK BY THE ASSESSEE COMPANY TO THE TOTAL INCOME IN THE COMPUTATION OF INCOME, THEREFORE THE ADDITIONS MADE BY AO WERE DELETED. WE HAVE NOTICED THAT THE LD. CIT(A) WHILE DECIDING THIS ISSUE HAD ALSO TAKEN INTO CONSIDERATION THE SUBM ISSION MADE BY ASSESSEE WHICH ARE CONTAINED IN PARA NO. 4 AND ALSO THE FINDINGS OF AO WHICH ARE CONTAINED IN PARA NO. 3 OF CIT(A)S ORDER. APART FROM THE ABOVE, THE LD. DR APPEARING FOR THE APPELLANT HAS NOT PLACED ON RECORD ANY NEW FACTS OR CONTRARY J UDGMENTS OF HIGHER COURT S BEFORE US IN ORDER TO CONTROVERT OR REBUT THE FINDINGS RECORDED BY LEARNED CIT (A), AND THEREFORE, THERE ARE NO REASONS FOR US TO DEVIATE FROM OR INTERFERE INTO THE 7 I.T.A. NO. 1789 /MUM/201 5 (A.Y. 2010 - 11 ) SHRIRAM CHITS MAHARASHTRA LTD. WELL REASONED FINDINGS RECORDED BY THE LD. CIT (A). THEREFORE, AF TER HEARING BOTH THE PARTIES AND ANALYZING THE IMPUGNED ORDER , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECO R DED BY THE LD. CIT (A) ARE JUDICIOUS AND WELL REASONED. ACCORDINGLY, WE UPHOLD THE SAME AND DISMISS THIS GROUND OF APPEAL FILED BY REVENUE. GROUND NO. 2 8 . LD. DR APPEARING ON BEHALF OF THE REVENUE SUBMITTED THAT LD. CIT(A) ERRED IN DISALLOWING THE DEDUCTION MADE BY THE AO OF RS.4,72, 17,435/ - BEING DIFFERENCE BETWEEN THE F REMAN COMMISSION RECEIVABLE OF RS. 18,3 7,13,435/ - AND THE FOREMAN COMMISSION ACTUALLY RECEIVED OF RS. 13,64,95,000/ - WHILE DISREGARDING THE FACT THAT THE ASSESSEE COMPANY WOULD RECEIVE FOREMAN COMMISSION @ 5 TIMES OF THE AGENCY COMMISSION PAID TO THE AGENTS, WHICH IS DEBITED TO THE P & L A/C AT RS.3,67,42,487/ - . THE LD. DR RELI ED UPON THE ORDER PASSED BY AO. 8 I.T.A. NO. 1789 /MUM/201 5 (A.Y. 2010 - 11 ) SHRIRAM CHITS MAHARASHTRA LTD. 9 . ON THE OTHER HAND LD. AR RELIED UPON THE ORDER PASSED BY LD. CIT(A). 10 . WE HAVE HEARD THE COUNSEL OF BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS T HE ORDERS PASSED BY THE REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A). THE OPERATIVE PORTION IS REPRODUCED BELOW: - I FIND THAT THE APPELLANT EARNS A COMMISSION OF 5% ON THE TOTAL CHIT FUND COLLECTION. SUCH, CHIT SCHEMES - ARE - NORMALLY - OF - 30. MONTHS TO 50 MONTHS DURATION. THEREFORE, THE SAID COMMISSION OF 5% IS SPREAD OVER A PERIOD OF MORE THAN 2 TO 5 YEARS. IT IS ALSO SEEN THAT THE ASSESSEE EARNS COMMISSION ON A MONTH TO MONTH BASIS ON THE MONTHLY COLLECTION MADE AND ON THE SUCCESSFUL BIDDING BY THE SUBCRIBERS. HOWEVER, THE AGTNTS ARE PAID A COMMISSION OF 1% OF THE TOTAL CHIT VALUE, IN RESPECT OF EACH SUBSCRIBER ENLISTED BY HIM PROVIDED SUCH SUBSCRIBER PAYS AT LEAST FOUR MONTHS INSTA LMENT, IMMEDIATELY ON RECEIPT OF FOUR SUCH INSTALMENT. THUS THERE IS NO DEFINITE CO - RELATION BETWEEN THE FOREMAN COMMISSION EARNED AND THE AGENCY COMMISSION PAID. THE APPELLANT ALSO MAY HAVE TO MAKE ADDITIONAL EXPENDITURE ON FAILED CHIT COLLECTIONS. THEREF ORE, THE ADDITION MADE BY THE AO IN COMPUTING THE INCOME 9F 9 I.T.A. NO. 1789 /MUM/201 5 (A.Y. 2010 - 11 ) SHRIRAM CHITS MAHARASHTRA LTD. THE APPELLANT BY APPLYING 5 TIMES OF THE PAYMENT OF COMMISSION TO THE AGENTS IS NOT BASED ON ANY OBJECTIVE YARD STICK. IN VIEW OF THE ABOVE, THE ADDITION OF RS.4,72,17,435/ - MADE BY THE AO IS DELE TED. AFTER ANALYZING THE AFOREMENTIONED ORDER PASSED BY LD. CIT(A) AND AFTER HEARING THE ARGUMENTS OF BOTH THE PARTIES, WE FIND THAT THE CIT(A) HAS TAKEN INTO CONSIDERATION THAT THE ASSESSEE EARNED COMMISSION OF 5% ON THE TOTAL CHIT FUND COLLECTION. THE SAID COMMISSION IS SPREAD OVER THE TOTAL PERIOD OF SCHEME AND IN THIS WAY THE ASSESSEE EARNS COMMISSION ON A MONTH TO MONTH BASIS ON THE MONTHLY COLLECTION MADE AND ON THE SUCCESSFUL BIDING BY THE SUBSCRIBERS. AS PER THE FACTS, THE AGENTS ARE PAID A COMMISSION OF 1% OF THE TOTAL CHIT FUND VALUE IN RESPECT OF EACH SUBSCRIBER ENLISTED BY HIM PROVIDED SUCH SUBSCRIBERS PAYS AT LEAST 4 MONTHS INSTALLMENT, IMMEDIATELY ON RECEIPT OF 4 SUCH INSTALLMENT S AND IN THIS WAY THERE IS NO DEFINITE CO - RELATION BETWEEN THE FOREMEN COMMISSION EARNED AND THE AGENCY COMMISSION PAID. AFTER APPRECIATING THE FACTS, THE LD. CIT(A) HAD RIGHTLY DECIDED THAT THE ADDITION MADE BY THE AO IN COMPUTING THE INCOME OF THE ASSESS EE BY APPLYING FIVE TIMES OF 10 I.T.A. NO. 1789 /MUM/201 5 (A.Y. 2010 - 11 ) SHRIRAM CHITS MAHARASHTRA LTD. THE PAYMENT OF THE COMMISSION TO THE AGENTS IS NOT BASED ON ANY OBJECTIVE YARDSTICKS, THEREFORE DELETED THE SAID ADDITIONS. WE HAVE ALSO NOTICED THAT THE LD. CIT(A) WHILE DECIDING THIS ISSUE HAD ALSO TAKEN INTO CONSIDERATION TH E SUBMISSION MADE BY ASSESSEE WHICH ARE CONTAINED IN PARA NO. 4 AND ALSO THE FINDINGS OF AO WHICH ARE CONTAINED IN PARA NO. 3 OF CIT(A)S ORDER. APART FROM THE ABOVE, THE LD. DR APPEARING FOR THE APPELLANT HAS NOT PLACED ON RECORD ANY NEW FACTS OR CONT RARY JUDGMENTS OF HIGHER COURTS BEFORE US IN ORDER TO CONTROVERT OR REBUT THE FINDINGS RECORDED BY LEARNED CIT (A), AND THEREFORE, THERE ARE NO REASONS FOR US TO DEVIATE FROM OR INTERFERE INTO THE WELL REASONED FINDINGS RECORDED BY THE LD. CIT (A). THEREFO RE, AFTER HEARING BOTH THE PARTIES AND ANALYZING THE IMPUGNED ORDER , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECO RDED BY THE LD. CIT (A) ARE JUDICIOUS AND WELL REASONED. ACCORDINGLY, WE UPHOLD THE SAME AND DISMISS THIS GROUND OF APPEAL FILED BY REVENUE. 11 I.T.A. NO. 1789 /MUM/201 5 (A.Y. 2010 - 11 ) SHRIRAM CHITS MAHARASHTRA LTD. GROUND NO. 3 & 4 11 . THESE GROUND S ARE GENERAL IN NATURE AND NEEDS NO SPECIFIC ADJUDICATION. 12 . IN THE NET RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISS ED . ORDER PRONOUNCED IN THE OPEN COURT ON 17TH MARCH , 2017 SD/ - SD/ - ( D. KARUNAKARA RAO ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 17 . 0 3 .201 7 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI