DCIT, CHENNAI V. Tamilnadu Maritime Board, CHENNAI

ITA 1831/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8445 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 16-06-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: G BASKAR
• Keywords: Depreciation; Business expenditure
• Section: 37; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , . !' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.1831/MDS./2016 / ASSESSMENT YEAR : 2008-09 DEPUTY COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE-2, CHENNAI 600 034. VS. M/S.TAMILNADU MARITIME BOARD , NO.171, SOUTH KESAVAPERUMAL PURAM, OFF. GREEN WAYS ROAD, R.A.PURAM, CHENNAI 600 028. [PAN AAATT 9514 E ] ( #$ / APPELLANT) ( %&#$ /RESPONDENT) / APPELLANT BY : MR.SHIVA SRINIVAS, JCIT, D.R /RESPONDENT BY : MR.G.BASKAR,ADVOCATE / DATE OF HEARING : 06 - 0 9 - 201 6 !' / DATE OF PRONOUNCEMENT : 23 - 0 9 - 2016 ' / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-1, CHENNAI DATED 11.03.2016 PERTAINING TO ASSESSMENT YEAR 2008-09. ITA NO. 1831/MDS./2016 :- 2 -: 2. THE FIRST GROUND IN THIS APPEAL IS THAT THE LD. CIT(A) ERRED IN HOLDING THAT THE CONTRIBUTION MADE TOWARDS SUPERANN UATION FUND HAS TO BE TREATED AS BUSINESS EXPENDITURE AND TO BE ALL OWED U/S.37 OF THE ACT. 3. THE FACTS OF THE ISSUE ARE THAT DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE SUPER ANNUATION FUND WAS NOT REGISTERED AND THE CONTRIBUTION MADE BY THE EMPLOYER IS ABOVE 27% OF THE EMPLOYEES SALARY. ACCORDING TO AO , AS PER SEC.36(1(IV) OF THE ACT, THE EMPLOYERS CONTRIBUTION TOWARDS RECOGNIZED PROVIDENT FUNDS OR APPROVED SUPERANNUATION IS ALLOW ED AS DEDUCTION SUBJECT TO THE LIMITS LAID DOWN FOR THE PURPOSE OF THE RECOGNIZING THE PROVIDENT OR APPROVING SUPERANNUATION FUND. HENCE, AO DISALLOWED THE CONTRIBUTION TO SUPERANNUATION FUND TO THE TUNE OF ` 2,37,23,572/-. AGGRIEVED, THE ASSESSEE CARRIED THE APPEAL BEFORE T HE LD.CIT(A). 4. ON APPEAL, LD.CIT(A) OBSERVED THAT THIS BOARD F ORMED DIFFERENT FUNDS FOR THE WELFARE OF THE EMPLOYEES AN D THE EMPLOYER AS WELL AS THE EMPLOYEES SHALL CONTRIBUTE TO THE RESPE CTIVE PROVIDENT FUND, PENSION FUND AND GRATUITY FUND AS PER THE RES PECTIVE RULES AND ACCORDINGLY THE CONTRIBUTIONS MADE. FURTHER, LD.CIT (A) OBSERVED THAT THE FUNDS CREATED ARE NECESSARILY KEPT SEPARATELY S O THAT THE CONTRIBUTIONS MADE FOR THE WELFARE OF THE EMPLOYEES WERE NOT UTILIZED FOR ANY OTHER PURPOSE FOR WHICH THE FUNDS HAD BEEN CREATED AND ITA NO. 1831/MDS./2016 :- 3 -: MAINTAINED. LD.CIT(A) PLACING RELIANCE ON THE DECIS ION OF HONBLE SUPREME COURT DECISION IN THE CASE OF K.RAVINDRANAT HAN NAIR VS. CIT 247 ITR 178(SC), DIRECTED THE AO TO ALLOW THE CLAIM OF THE ASSESSEE U/S 37 OF THE ACT . AGGRIEVED BY THE ORDER OF LD.CIT(A), NOW THE REV ENUE IS IN APPEAL BEFORE US. 5. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE O PINION THAT SIMILAR ISSUE IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2010-11 CAME FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ITA NO.862/MDS./2015 VIDE ORDER DATED 21.08.2015 WHEREIN HELD AS UNDER:- 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON REC ORD. ADMITTEDLY, BY VIRTURE OF OPERATION OF SEC.20 OF TA MILNADU MARTITIME BOARD ACT, THE EMPLOYEES OF THE FORMER T AMILNADU PORT DEPARTMENT WERE ALLOTTED TO TAMILNADU MARITIME BOARD ON THE BASIS OF THE SAME SERVICE CONDITIONS, RIGHTS AND PRIVILEGES. THEREFORE THE ASSESSEE IS LIABLE TO PAY CONTRIBUTION TO THE SUPERANNUATION FUND OF THE RESPECTIVE EMPLOY EES. NO DOUBT, THE APPROVAL OF THE SUPERANNUATION FUND WAS GRANTED BY THE CIT WITH EFFECT FROM 18.5.2011. THE QUESTION ARISES FOR CONSIDERATION IS WHEN THE EMPLOYEES OF THE ASSESSEE WERE ALLOTTED BY GOVERNMENT OF TAMILNADU PORT DEPARTMENT ON THE S AME TERMS AND CONDITIONS, RIGHTS AND PRIVILEGES, WHETHER THE CONTRIBUTION MADE BY THE ASSESSEE IS ALLOWABLE U)S 37 OF THE ACT OR NOT. AN IDENTICAL ISSUE WAS CONSIDERED BY THE MADRAS HIGH C OURT IN CIT VS KATTABOMMAN TRANSPORT CORPORATION LTD(SUPRA). IN TH E CASE BEFORE THE MADRAS HIGH COURT, KATTABOMMAN TRANSPORT CORPOR ATION PAID TO THE GOVERNMENT IN ORDER TO ENABLE THE GOVERNMENT TO CREDIT THE AMOUNT SO PAID TO THE PROVIDENT FUND ACCOUNT OF THE GOVERNMENT EMPLOYEES WHO WERE AT THE POINT OF TIME WORKING IN THE TRANSPORT ITA NO. 1831/MDS./2016 :- 4 -: CORPORATION. THE GOVERNMENT, AFTER RECEIPT OF THE A MOUNT FROM THE TRANSPORT CORPORATION, CREDITED TO THE PROVIDENT FU ND ACCOUNT OF THE CONCERNED EMPLOYEES. IN THOSE CIRCUMSTANCES, TH E MADRAS HIGH COURT FOUND THAT THE PAYMENT IS NOT IN ANY WAY AFFECTED BY SEC. 36 OF THE ACT. THE PAYMENT SO MADE IS DEDUCTIB LE UNDER SEC. 37 OF THE ACT, BEING PART OF THE BUSINESS EXPENDITU RE. IN THIS CASE ALSO, BY VIRTUE OF OPERATION OF SECTION 20 OF TAMIL NADU MARITIME BOARD ACT, THE ERSTWHILE GOVERNMENT EMPLOYEES OF TA MILNADU PORT DEPARTMENT BECAME THE EMPLOYEES OF TAMILNADU MARITI ME BOARD. THE GOVERNMENT CLARIFIED IN THE LETTER DATED 21.11. 1996 THAT THE EMPLOYEES SO ALLOTTED TO THE TAMILNADU MARITIME BOA RD WILL HAVE THE SAME TENURE, REMUNERATION, RIGHTS AND PRIVILEGE S. IN VIEW OF THE STATUTORY PROVISION, THIS TRIBUNAL IS OF THE CO NSIDERED OPINION THAT IF THE CLAIM COULD NOT BE ALLOWED U/S 36 OF TH E ACT, THE SAME HAS TO BE ALLOWED U/S 37 OF THE ACT. IN OTHER WORDS , THE PAYMENT MADE BY THE ASSESSEE TO THE EXTENT OF 3,69,63,658/- HAS TO BE TREATED AS BUSINESS EXPENDITURE IN THE HANDS OF THE ASSESSEE IN VIEW OF THE JUDGMENT OF THE MADRAS HIGH COURT IN KA TTABOMMAN TRANSPORT CORPORATION LTD. (SUPRA). IN VIEW OF THE ABOVE DISCUSSION, WE ARE UNABLE TO UPHOLD THE ORDERS OF T HE LOWER AUTHORITIES. THE ASSESSING OFFICER IS DIRECTED TO A LLOW THE CLAIM OF THE ASSESSEE U/S 37 OF THE ACT. IN VIEW OF THE ABOVE BINDING DECISION OF THE TRIBUN AL IN ASSESSEE'S OWN CASE, WE ARE INCLINED TO DECIDE THE CASE IN FAVOUR OF THE ASSESSEE, THIS GROUND OF THE REVENUE STANDS DISMISSED. 6. THE NEXT GROUND IN THIS APPEAL IS THAT THE LD.C IT(A) ERRED IN HIS FAILURE TO DISALLOW THE EXCESS CLAIM OF DEPRECI ATION THAT CORRESPONDS ITA NO. 1831/MDS./2016 :- 5 -: TO THE FIXED ASSETS THE COST OF WHICH IS BORNE BY T HE STATE GOVERNMENT THROUGH CAPITAL GRANTS. 6.1 THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE I S FORMED ON 18.03.1997 TO PROVIDE ADMINISTRATION, MANAGEMENT AN D CONTROL OF MINOR PORTS IN THE STATE OF TAMILNADU. THE GOVERNME NT HAD BEEN PROVIDING NECESSARY ASSISTANCE BY WAY OF LOANS GRAN TS ETC. THE ASSETS OF THE ASSESSEE WERE DEVASTATED BY TSUNAMI ON 26.12 .2004. IN ORDER TO REHABILITATE, THE GOVERNMENT OF TAMILNADU HAD PR OVIDED CAPITAL GRANTS AMOUNTING TO RS. 59.35 CRORES UNDER TSUNAMI EMERGENCY ASSISTANCE PROGRAMN (TEAP). THE G.O PASSED ON 18.0 7.2005 HAD CLEARLY CATEGORISED THAT THE MONEY PROVIDED AS ASSI STANCE TO BE CAPITAL GRANTS. HOWEVER, IN THE FINAL ACCOUNTS OF THE ASSESSEE, BOTH THE LOANS AND GRANTS, WERE GROUPED TOGETHER AND THE COMPOSITE VALUE WAS EXHIBITED IN THE CORRESPONDING SCHEDULE OF THE BALANCE SHEET. THE STATE UNIT OF C & AG WHICH AUDITED THE ACCOUNTS OF THE ASSESSEE BEING A STATE PSU, DIRECTED THE ASSESSEE TO CATEGORIZE LO ANS AND GRANTS SEPARATELY SINCE BOTH ARE DIFFERENT IN NATURE. ACCO RDINGLY IN THE ANNUAL REPORT FOR F.Y. 2011-12, AS SUGGESTED BY THE AG, TH E LOAN AND GRANT WERE SHOWN SEPARATELY IN THE REVISED ANNUAL ACCOUNT S. A SUM OF RS.59,35,29,237/- WAS THEREFORE SEGREGATED AND SHOW N SEPARATELY AS GRANTS. ON EXAMINATION OF THE ACCOUNTS, CONSEQUENT TO THE MODIFICATION UNDERTAKEN, IT WAS SEEN THAT THE CLAIM OF DEPRECIATION HAD ITA NO. 1831/MDS./2016 :- 6 -: TO BE APPROPRIATELY REDUCED APPLYING EXPLANATION 10 TO SEC 143(1). A PROPOSAL IN THIS REGARD FOR ENHANCEMENT OF INCOME D ISALLOWING THE EXCESS CLAIM OF DEPRECIATION THAT CORRESPONDS TO TH E ASSETS FUNDED BY GRANTS, WAS SUBMITTED ON 04.11.2015 BY THE ASSESSIN G OFFICER. AS PER THE DECISION OF KERALA HIGH COURT IN THE CASE OF PO PULAR AUTOMOBILES VS CIT 187 ITR 86, THE CIT(A) IS DUTY BOUND TO EXER CISE HIS POWER OF ENHANCEMENT ON A MOTION BY ASSESSING OFFICER. ON AP PEAL, THE LD. CIT(A) DID NOT TAKE COGNIZANCE OF THE ENHANCEMENT P ROPOSAL SUBMITTED BY AO . AS THE AO MADE SUCH A REQUEST TO CIT(A) TO MAKE ENHANCEMENT, AND LD.CIT(A) NOT EVEN MENTIONED ABOUT SUCH REQUEST IN HIS ORDER, HENCE THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 7. BEFORE US, LD.D.R SUBMITTED THAT THE EXCESS DEP RECIATION ALLOWANCE THAT CORRESPONDS TO THE ASSETS, THE COST OF WHICH IS SUBSIDIZED BY THE STATE GOVERNMENT THROUGH CAPITAL GRANTS REQUIRES TO BE DISALLOWED. 8. ON THE OTHER HAND, LD.A.R ARGUED IN SUPPORT OF THE ORDER OF LD.CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. FIRSTLY, THIS ISSUE HAS NOT EMANATED FROM T HE ORDER OF LD.CIT(A). FURTHER, AS HELD BY THE TRIBUNAL, IN THE CASE OF M/S.A.R.HOUSING PVT. LTD. IN ITA NO.623/MDS./15, WE ARE OF THE ITA NO. 1831/MDS./2016 :- 7 -: OPINION THAT THE AO CANNOT INFLUENCE THE DECISION M AKING PROCESS OF LD.CIT(A) WHILE DECIDING THE APPEAL IN TERM OF SEC. 251(1)(A) OF THE ACT SO AS TO ENHANCE THE ASSESSMENT . THE LD.CIT(A) IS HIGHER AUTHORITY, INDEPENDENT TO TAKE DECISION IN ACCORDANCE WITH LAW AND HE HAS THE POWER TO CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSE SSMENT . IN THAT PROCESS, THE AO CANNOT SEEK THE LD.CIT(A) TO ENHANC E THE ASSESSMENT AS HELD BY THE ABOVE ORDER OF THE TRIBUNAL. ACCORD INGLY, WE ARE OF THE OPINION THAT LD.CIT(A) WAS JUSTIFIED IN NOT ENHANCI NG THE ASSESSMENT IN TERMS OF THE REQUEST OF THE AO. THIS GROUND OF R EVENUE STANDS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 23 RD SEPTEMBER, 2016, AT CHENNAI. SD/ - SD/ - ( . ) ( G.PAVAN KUMAR ) / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 23 RD SEPTEMBER, 2016 K S SUNDARAM &'(()*( +* / COPY TO: ( 1 . / APPELLANT 3. ( ,(- . / CIT(A) 5. */0 (1 / DR 2. / RESPONDENT 4. ( , / CIT 6. 02(3 / GF