DCIT, CHENNAI V. Mrs.Rajamani and Smt.L.Suguna, Legal heirs of Late Shri G.Ramasamy, CHENNAI

ITA 179/CHNY/2007

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81236 (ITAT-CHENNAI)
• Duration Of Justice: 7 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-10-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 22-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: A S SRIRAMAN
• Keywords: Business income; Charitable institution
• Section: 80G; 12AA

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHE NNAI. . , . !' !' !' !' , # # # # $ $ $ $ BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO.179/MDS/2007 # ' %' / ASSESSMENT YEAR :2003-04 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE IX, FOURTH FLOOR, KANNAMMAI BUILDING, NO. 611, ANNA SALAI, CHENNAI 600 006. VS. MRS. RAJAMANI & SMT. L. SUGUNA L/RS OF LATE G. RAMASWAMY, 160, LINGHI CHETTY STREET, CHENNAI 600 001. [PAN : AADPR2883D] ( &' &' &' &' /APPELLANT ) ( ()&' ()&' ()&' ()&' / RESPONDENT ) &' * + / APPELLANT BY : SHRI S. DAS GUPTA, JCIT ()&' * + / RESPONDENT BY : SHRI A.S. SRIRAMAN, ADVOCATE * , / DATE OF HEARING : 28.10.2014 -% * , /DATE OF PRONOUNCEMENT : 30.10.2014 . . . . / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IV, CHENNAI, D ATED 17.10.2006 RELEVANT TO THE ASSESSMENT YEAR 2003-04. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S AN INDIVIDUAL AND IS DOING BUSINESS IN THE PROPRIETARY CONCERN OF M/S. S UGUNA INDUSTRIES, WHICH MANUFACTURES MONO-BLOCK PUMPS. FOR THE ASSESSMENT Y EAR UNDER I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 17 77 79 99 9/M/ /M/ /M/ /M/07 0707 07 2 CONSIDERATION, THE ASSESSEE FILED RETURN OF INCOME BY DECLARING TOTAL INCOME OF .1,74,75.677/-. IN THE ASSESSMENT ORDER, THE ASSESS ING OFFICER MADE AN ADDITION OF .16,71,092/- ON ACCOUNT OF CHARITY CONSIDERED AS SA LES AND ALLOWED DEDUCTION OF .8,35,546/- UNDER SECTION 80G OF THE INCOME TAX ACT . THE ASSESSING OFFICER ALSO MADE ANOTHER ADDITION OF .5,40,000/- ON ACCOUNT OF SALES PROMOTION EXPENSES. SO FAR AS ADDI TION WITH REGARD TO .16,71,092/- ON ACCOUNT OF CHARITY IS CONCERNED, TH E ASSESSING OFFICER HAS OBSERVED IN THE ASSESSMENT ORDER THAT THE ASSESSEE IS A MANUFACTURER OF REPUTED PRODUCT HAVING GOOD MARKET AND THEREFORE, W HEN THE DEALERS PICK-UP GOODS FROM THE ASSESSEE, THEY HAVE NO OPTION BUT TO PAY CHARITY AS PER ASSESSEES DESIRE TO CONTINUE THE BUSINESS. THEREFO RE, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE AMOUNT OF CHARITY COLLECTE D SHOULD BE INCLUDED IN THE SALES AND OFFERED TO TAX. 3. ON APPEAL, THE LD. CIT(APPEALS) OBSERVED THAT T HE COLLECTIONS FOR CHARITY ARE MADE IN THE COURSE OF BUSINESS AND KEPT IN A SEPARATE ACCOUNT, WHICH WERE HANDED OVER TO SUGUNA CHARITABLE TRUST A ND BY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT V. BIJLI COTTON MILLS (P) LTD. 116 ITR 60(SC) DELETED THE ADDITION MADE B Y THE ASSESSING OFFICER. 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 17 77 79 99 9/M/ /M/ /M/ /M/07 0707 07 3 5. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A. NOS.1120, 1121 & 1122 /MDS/2012 FOR THE ASSESSMENT YEARS 2000-01, 2001-02 AND 2005-06 VIDE ORDER DATED 08.11.2012, WHEREIN THE TRIBUNAL, WHILE DISMISSING THE GROUNDS RAISED BY THE REVENUE, HAS HELD AS UNDER: 7. COMING TO MERITS OF THE CASE, IT IS NOT DISPUTE D THAT ASSESSEE HAS SEPARATELY SHOWN IN THE INVOICES RAISED BY IT ON IT S CUSTOMERS, WHO WERE DEALERS AND DISTRIBUTORS, THAT 1% WAS FOR CHARITY. SO, TO TAKE A PRESUMPTION THAT THE CUSTOMERS, WHO HAD PURCHASED P UMPS FROM THE ASSESSEE, WOULD NOT HAVE HAD THE INTENTION OF GIVIN G SUCH AMOUNT FOR CHARITY, IN OUR OPINION, IS NOT APPROPRIATE UNLESS EVIDENCE WAS BROUGHT IN SUPPORT. ARGUMENT OF THE REVENUE THAT THE AMOUNTS PAID BY THEM TO THE EXTENT OF 1%, SPECIFICALLY EARMARKED FOR CHARITY IN THE INVOICES RAISED ON THEM WAS PAID BY THEM ONLY AS A PART OF PURCHASE CO NSIDERATION AND NOT AS CHARITY, CANNOT BE ACCEPTED UNLESS IT WAS SUPPOR TED BY CREDIBLE EVIDENCE. SINCE ASSESSEE HAD RAISED INVOICES SEPAR ATELY SHOWING 1% AMOUNT FOR CHARITY, NAMELY, SUGUNA CHARITABLE TRUST , THE PRESUMPTION GOES THAT THE PAYMENTS MADE BY THE CONCERNED DISTRI BUTORS AND DEALERS WERE ALSO ONLY FOR THIS PURPOSE. NO RECORD HAS BEE N PRODUCED BY THE REVENUE TO SHOW THAT THE INTENTION OF THE DISTRIBUT ORS OR DEALERS WAS DIFFERENT. IT IS ALSO NOT DISPUTED THAT THE WHOLE OF THE AMOUNTS WHICH WERE COLLECTED BY THE ASSESSEE, WAS HANDED OVER TO M/S S UGUNA CHARITABLE TRUST. SUBMISSION OF THE LEARNED A.R. THAT M/S SUG UNA CHARITABLE TRUST WAS HAVING REGISTRATION UNDER SECTION 12AA OF THE A CT, HAS NOT BEEN DISPUTED. THIS BEING THE FACT, WE ARE OF THE OPIN ION THAT THERE WAS AN OVERRIDING TITLE ON SUCH AMOUNT WITH SUGUNA CHARITA BLE TRUST AND SUCH COLLECTION MADE FOR SUGUNA CHARITABLE TRUST WAS NEV ER A PART OF THE INCOME OF THE ASSESSEE. WE ARE OF THE OPINION THAT THE ATTEMPT MADE BY THE LEARNED D.R. TO DISTINGUISH THE CASE WITH THAT OF HONBLE APEX COURT IN BIJLI COTTON MILLS (P) LTD.S CASE (SUPRA) IS NOT I N LINE WITH THE SPIRIT OF THE DECISION. THERE THE PAYMENTS MADE WERE FOR DHARMA DA AND HONBLE APEX COURT HELD THAT WHEN SUCH AMOUNTS RIGHT FROM T HE INCEPTION WERE RECEIVED AND HELD UNDER AN OBLIGATION TO SPEND THEM FOR CHARITABLE PURPOSE, THE RESULT WOULD BE THAT THESE WOULD NOT B E TRADING RECEIPTS. WE ALSO FIND THAT HONBLE JURISDICTIONAL HIGH COURT IN A LATER CASE OF VELLORE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 17 77 79 99 9/M/ /M/ /M/ /M/07 0707 07 4 RADHA JAYALAKSHMI FUNDS (P.) LTD. V. CIT (147 ITR 4 80) HAD HELD THAT EVEN COLLECTIONS MADE BY A CHIT COMPANY TOWARDS CHA RITY AT THE TIME OF AUCTION OF CHIT WOULD NOT CONSTITUTE TRADING RECEIP T AND COULD NOT BE ASSESSED FOR TAX AS BUSINESS INCOME. WHEN VIEWED F ROM THIS EXPOSITION OF LAW MADE BY HONBLE APEX COURT AND JURISDICTIONAL H IGH COURT, WE ARE OF THE OPINION THAT THE ADDITIONS COULD NOT HAVE BEEN MADE FOR THE AMOUNTS EARMARKED BY THE ASSESSEE IN ITS INVOICES FOR CHARI TY. SUCH ADDITIONS WERE RIGHTLY DELETED BY THE CIT(APPEALS). WE DO NOT FIN D ANY REASON TO INTERFERE WITH THE ORDERS OF CIT(APPEALS). 6. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF TH E COORDINATE BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2000-0 1, 2001-02 AND 2005- 06, THE GROUND RAISED BY THE REVENUE FOR THE ASSESS MENT YEAR 2003-04 STANDS DISMISSED. 7. IN SO FAR AS DISALLOWANCE IN RESPECT OF SALES P ROMOTION EXPENSES OF .5,40,000/- IS CONCERNED, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS CLAIMED AN EXPENDITURE OF .5,40,000/- UNDER THE HEAD SALES PROMOTION EXPENSES. IN RESPONSE TO THE QUERY RAISE D BY THE ASSESSING OFFICER, THE ASSESSEE HAS SUBMITTED THAT THE ASSESS EE HAS ANNOUNCED A GOLD COIN SCHEME TO ENCOURAGE SALES OF ITS PRODUCTS AND THEREFORE, THE EXPENDITURE IS FOR BUSINESS AND REVENUE IN NATURE A ND THE SAME SHOULD BE ALLOWED. HOWEVER, THE ASSESSING OFFICER NOT ACCEPTE D THE EXPLANATION OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE HAD MADE A PROVISION FOR SALES PROMOTION EXPENSES FOR THE PERIOD 31.03.2003, WHICH WAS REVERSED IN THE FINANCIAL YEAR 2003-04. THEREFORE, THE ASSESSEE WAS NOT CORRECT IN MAKING THE PROVISION AND CLAIMING THE SAME AS EXPENDITURE. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 17 77 79 99 9/M/ /M/ /M/ /M/07 0707 07 5 8. ON APPEAL BEFORE THE LD. CIT(APPEALS), IT WAS S UBMITTED THAT THE GOLD COIN SCHEME WAS ANNOUNCED TO BOOST THE SALES DURING DEEPAVALI FOR ONE YEAR FROM NOVEMBER, 2002 TO OCTOBER, 2003. THE SCHE ME WAS BASED ON THE PROPORTIONATE TURNOVER MADE UPTO MARCH, 2003 AND A PROVISION WAS MADE IN THE ACCOUNTS. HOWEVER, THE SCHEME WAS NOT SUCCESSFU L AS MANY DEALERS DID NOT ACHIEVE THE TARGET. THEREFORE, THE ASSESSEE ALL OWED ADDITIONAL TURNOVER DISCOUNT FOR FEW DEALERS WHO HAD ACHIEVED THE TARGE T AND THE PROVISION MADE WAS REVERSED IN THE ACCOUNTING YEAR 2003-04. I T WAS ALSO SUBMITTED BEFORE THE LD. CIT(APPEALS) THAT THE ASSESSEE WAS F OLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND ACCORDINGLY PROVISION WAS MADE. THE LD. CIT(APPEALS), AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE, OBSERVED THAT THE MERCANTILE SYSTEM OF ACCOUNTING, THE ASSES SEE HAS CORRECTLY MADE PROVISION KEEPING IN VIEW THE BUSINESS EXIGENCIES. ACCORDINGLY, THE LD. CIT(APPEALS) DELETED THE DISALLOWANCE OF .5,40,000/- MADE BY THE ASSESSING OFFICER. 9. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THIS CA SE, THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURING MONO BLOCK PUMPS. THE ASS ESSEE HAS ANNOUNCED GOLD COIN SCHEME TO BOOST SALES. HOWEVER, THE SCHEME WAS NOT SUCCESSFUL AND MANY DEALERS DID NOT ACHIEVE THE TAR GET. THE LD. CIT(APPEALS) GAVE A SPECIFIC FINDING THAT UNDER THO SE CIRCUMSTANCES, THE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 17 77 79 99 9/M/ /M/ /M/ /M/07 0707 07 6 PROVISIONS MADE BY THE ASSESSEE WAS REVERSED IN THE ACCOUNTING YEAR 2003- 04. THE LD. CIT(APPEALS) ALSO GAVE A FINDING THAT T HE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND ACCOR DINGLY PROVISION WAS MADE. AFTER CAREFUL CONSIDERATION OF THE ASSESSMENT ORDER AND THE ORDER PASSED BY THE LD. CIT(APPEALS) AND ALSO THE SUBMISS IONS MADE BY THE LD. COUNSEL FOR THE ASSESSEE, WE FIND THAT THE LD. CIT( APPEALS), BY CONSIDERING ALL THE FACTS, DELETED THE DISALLOWANCE OF .5,40,000/-. THEREFORE, WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD . CIT(APPEALS) ON THIS ISSUE. 10. IN THE RESULT, THE APPEAL OF THE REVENUE STAND S DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 30 TH OF OCTOBER, 2014 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 30.10.2014 VM/- . * (#,/0 10%, /COPY TO: 1. &' / APPELLANT, 2. ()&' / RESPONDENT, 3. 2 ( ) /CIT(A), 4. 2 /CIT, 5. 03! (#,# /DR & 6. !4' 5 /GF.