DCIT, Ernakulam V. Smt.P.p.Alphonsa, Kottayam

ITA 191/COCH/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73903 (ITAT-COCHIN)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 27-01-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 15-04-2013
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: R KRISHNA IYER
• Section: 43B; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKARAN, AM I.T.A. NO. 191/ COCH/2013 ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1, ERNAKULAM. VS. SMT. P.P. ALPHONSA, PAYYAPPALLIL, THIRUVATHUKKAL, KOTTAYAM-686001. [PAN:AEFPP 3792R] (REVENUE-APPELLANT) (ASSESSEE-RESPONDENT ) REVENUE BY SMT. LATHA V. KUMAR, JR. DR ASSESSEE BY SHRI R. KRISHNA IYER, CA DATE OF HEARING 27/01/2014 DATE OF PRONOUNCEMENT 14/03/2014 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 11.01.2013 PASSED BY LD CIT(A)-IV, KOCHI AND IT RELATES TO THE ASSESS MENT YEAR 2009-10. 2. THE REVENUE IS ASSAILING THE DECISION OF LD CIT( A) IN GRANTING RELIEF IN RESPECT OF FOLLOWING ISSUES:- (A) DISALLOWANCE OF ADVERTISEMENT EXPENSES. (B) DISALLOWANCE OF INTEREST EXPENDITURE. (C) DISALLOWANCE OF BONUS CLAIM BY INVOKING SEC. 4 3B OF THE ACT. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE IS THE PROPRIETARY OF M/S THE JOSCO FASHION JEWELERS, BLUEBELL TRADERS AN D PARTNER OF JOS GOLD AND NEW JOSCO JEWELERS. SHE IS ALSO A DIRECTOR OF JOSCO FASHION JEWELLERS PVT LTD. THE AO COMPLETED THE ASSESSMENT OF THE YEAR UNDER CONSIDERATION IN THE H ANDS OF THE ASSESSEE BY MAKING VARIOUS TYPES OF ADDITIONS. IN THE APPEAL FILED BY THE ASS ESSEE BEFORE LD CIT(A), SHE COULD GET RELIEF IN RESPECT OF THE ADDITIONS LISTED IN THE PR ECEDING PARAGRAPH. I.T.A. NO. 191/COCH/2013 2 AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE US. 3. THE FIST ISSUE RELATES TO THE DISALLOWANCE O F ADVERTISEMENT EXPENSES. THE AO NOTICED THAT MOST OF THE PAYMENTS WERE MADE DURING FESTIVAL OR OTHER CELEBRATIONS, WHEREIN THE ASSESSEE HAD SPONSORED CERTAIN PROGRAMS. THE AO EX PRESSED THE VIEW THAT THE NAMES OF LARGE DONORS ARE USUALLY DISPLAYED DURING THE FUNCT IONS AS A TOKEN OF ACKNOWLEDGEMENT AND TO ENCOURAGE OTHER PERSONS TO EMULATE THE DONORS. HENCE, THE AO TOOK THE VIEW THAT ADVERTISEMENT EXPENSES ARE IN THE NATURE OF DONATIO NS. THE ASSESSEE CLAIMED THAT SHE HAD DEDUCTED TDS U/S 194C OF THE ACT ON CERTAIN PAYMENT S. THE AO TOOK THE VIEW THAT THE DEDUCTION OF TAX AT SOURCE WILL NOT MAKE ANY DIFFER ENCE AND ACCORDINGLY DISALLOWED A SUM OF RS.13,11,768/- RELATING TO ADVERTISEMENT CLAIM. 3.1 BEFORE LD CIT(A), THE ASSESSEE SUBMITTED TH AT THE PURPOSE OF INCURRING EXPENSES DURING FESTIVAL OCCASIONS IS ONLY TO POPULARIZE THE BUSINESS OF THE ASSESSEE. HENCE HUGE BANNERS ARE DISPLAYED AT THE VENUE OF FESTIVALS AND OTHER CELEBRATIONS, BY WHICH THE ASSESSEE GETS THE BENEFIT OF ADVERTISEMENT. CONVINC ED WITH THE EXPLANATIONS OF THE ASSESSEE, THE LD CIT(A) ALLOWED 75% OF THE CLAIM BY TREATING 25% OF EXPENDITURE AS ATTRIBUTABLE TO DONATION. 3.2 THE LD D.R PLACED RELIANCE ON THE ASSESSMENT O RDER AND SUBMITTED THAT THE PURPOSE OF PAYMENT IS DONATION ONLY AND THE CLAIM OF ADVERTISE MENT MAY BE INCIDENTAL. ACCORDINGLY, THE LD D.R CONTENDED THAT THE LD CIT(A) SHOULD HAVE CONFIRMED DISALLOWANCE OF 75% OF THE EXPENDITURE IN THE PLACE OF 25%. ON THE CONTRARY, THE LD A.R SUBMITTED THAT THE ASSESSEE WOULD GET HUGE ADVERTISEMENT MILEAGE DUE TO LARGE G ATHERING OF PEOPLE DURING FESTIVAL AND OTHER CELEBRATIONS AND HENCE THE ASSESSEE HAS CONTR IBUTED MONEY TO REAP THE ADVERTISEMENT BENEFITS ONLY. 3.3 WE HAVE HEARD RIVAL CONTENTIONS AND PERU SED THE RECORD. IT IS THE COMMON PRACTICE OF MANY BUSINESSMEN TO CONTRIBUTE FUNDS DU RING FESTIVAL AND OTHER OCCASIONS EITHER AS ADVERTISEMENT IN THE SOUVENIRS OR IN THE FORM OF SPONSORS OF SOME PROGRAM. IN CASE OF SPONSORSHIP, THE NAME OF THE SPONSOR IS PROMINENTLY DISPLAYED AND ALSO ANNOUNCED TO THE GATHERINGS. IN OUR DAY TO DAY LIFE, WE SEE THAT MAN Y TV PROGRAMS ARE SPONSORED BY THE COMMERCIAL ESTABLISHMENTS. THOUGH THERE MAY SOME EL EMENT OF PHILANTHROPIC ATTITUDE IN I.T.A. NO. 191/COCH/2013 3 MAKING SUCH TYPE OF CONTRIBUTIONS, IN OUR VIEW, THE PREDOMINANT OBJECT OF A BUSINESSMAN WOULD BE TO REAP THE ADVERTISEMENT BENEFITS WHICH W OULD BE OBTAINED DUE TO HUGE GATHERINGS DURING SUCH OCCASIONS. WE NOTICE THAT T HE LD CIT(A) HAS CONSIDERED 25% OF THE EXPENDITURE AS RELATING TO PHILANTHROPIC PURPOSES A ND THE BALANCE 75% AS RELATING TO ADVERTISEMENT. IN VIEW OF THE FOREGOING DISCUSSION S, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS REASONABLE IN MAKING THE ABOVE SAID ESTIMATE AN D ACCORDINGLY, WE CONFIRM HIS ORDER ON THIS ISSUE. 4. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF INTEREST EXPENDITURE. THE AO NOTICED THAT THE ASSESSEE HAD AVAILED HOME LOAN FROM HDFC A ND CLAIMED INTEREST RELATING TO THAT LOAN AS EXPENDITURE. THE AO TOOK THE VIEW THAT THE ASSESSEE HAS AVAILED HDFC HOME LOAN FOR FINANCING ACQUISITION OF FLAT FOR THE ASSESSEE AND HENCE FOR NON-BUSINESS PURPOSES. ACCORDINGLY, THE AO DISALLOWED INTEREST EXPENDITURE CLAIM OF RS.12,21,884/- RELATING TO HDFC HOME LOAN. 4.1 BEFORE LD CIT(A), THE ASSESSEE SUBMITTED THA T A LOAN OF RS.2.40 CRORES WAS AVAILED BY PLEDGING A PROPERTY BELONGING TO ANOTHER PERSON NAMED MRS. HIMA DANNI AND THE SAID LOAN WAS USED FOR BUSINESS PURPOSES ONLY. THE ASSE SSEE ALSO FURNISHED A CERTIFICATE OBTAINED FROM THE BANK. ACCORDINGLY, THE LD CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. 4.2 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. WE AGREE WITH THE CONTENTIONS OF LD A.R THAT THE NOMENCLATURE OF THE LOAN IS NOT THE DECISIVE FACTOR TO ALLOW THE INTEREST CLAIM. IT IS THE USER OF THE LOAN THAT IS REQUIRED TO BE EXAMINED. IF THE LOAN AVAILED, BY WHATEVER NAME IT IS CALLED, IS USED FULLY FOR THE P URPOSE OF BUSINESS, THEN THERE SHOULD NOT BE ANY PROBLEM IN ALLOWING THE INTEREST PAID THEREO N AS DEDUCTION. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS STATED THAT THE HDFC HOME LOA N WAS AVAILED TO FINANCE THE FLAT BELONGING TO THE ASSESSEE. HOWEVER, ACCORDING TO T HE ASSESSEE, SHE HAS USED THE FUNDS OBTAINED THROUGH THE SAID LOAN FOR BUSINESS PURPOSE S. THOUGH THE LD CIT(A) HAS CONSIDERED THE CERTIFICATE GIVEN BY THE HDFC BANK, YET WE NOTICE THAT THE SAID CERTIFICATE ONLY FURNISHES THE DETAILS OF LOAN, THE SECURITY AN D EMI DETAILS. IN OUR VIEW, THE CERTIFICATE GIVEN BY THE BANK DOES NOT BRING OUT THE USAGE OF F UNDS. HENCE, WHAT IS REQUIRED TO BE EXAMINED IS THE USAGE OF FUNDS. IF THE LOAN FUNDS HAVE BEEN UTILIZED FOR BUSINESS PURPOSES, THEN THE INTEREST RELATING TO THE ABOVE S AID LOAN IS ALLOWABLE AS DEDUCTION. ON I.T.A. NO. 191/COCH/2013 4 THE CONTRARY, IF THOSE LOAN FUNDS HAVE BEEN USED FO R PERSONAL PURPOSES OR FOR PURCHASING FLAT, THEN THE INTEREST RELATING THERETO IS NOT ALLOWABLE AS DEDUCTION. HOWEVER, THE DETAILS OF USER OF FUNDS HAVE NOT BEEN EXAMINED BY BOTH THE TA X AUTHORITIES, THOUGH THE ASSESSEE CLAIMS THAT IT WAS USED FOR BUSINESS PURPOSES ONLY. ACCORDINGLY, IN OUR VIEW, THE DETAILS OF USAGE OF LOAN FUNDS REQUIRE EXAMINATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE A ND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THI S ISSUE AFRESH IN THE LIGHT OF DISCUSSIONS MADE SUPRA AND TAKE APPROPRIATE DECISION IN ACCORDA NCE WITH THE LAW. 5. THE LAST ISSUE RELATE TO THE DISALLOWANCE OF BONUS EXPENDITURE. THE AO NOTICED THAT THE ASSESSEE HAS MADE PROVISION FOR BONUS EXPENDIT URE AND CLAIMED THE SAME AS DEDUCTION. THE AO FURTHER NOTICED THAT A SUM OF RS .88,50,000/-, OUT OF THE BONUS PROVISION, WAS PAID AFTER THE EXPIRY OF DUE DATE FO R FILING RETURN OF INCOME. HENCE, BY INVOKING THE PROVISIONS OF SEC. 43B OF THE ACT, THE AO DISALLOWED THE PAYMENT SO MADE BEYOND THE DUE DATE FOR FILING RETURN OF INCOME. 5.1 BEFORE LD CIT(A), THE ASSESSEE SUBMITTED TH AT THE BONUS EXPENSES PROVIDED FOR AT THE YEAREND RELATES TO THE INCENTIVE BONUS PAID T O ALL THE STAFFS ON THE BASIS OF TOTAL SALES. THE ASSESSEE CONTENDED THAT THE INCENTIVE BONUS IS NOT HIT BY THE PROVISIONS OF SEC.43B OF THE ACT, SINCE IT IS NOT IN THE NATURE OF BONUS COV ERED BY SEC. 36(1)(II) OF THE ACT. ACCORDINGLY, IT WAS CONTENDED THAT THE INCENTIVE BO NUS IS NOT HIT BY THE PROVISIONS OF SEC. 43B OF THE ACT. THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING CASE LAW:- (A) DCIT VS. SRI SHANMUGAVEL MILLS LTD (202 TAXMA N 640) (MAD) (B) CIT VS. SIVANANDHA MILLS LTD (156 ITR 629) (M AD) (C) METALLISING EQUIPMENT CO. (P) LTD VS. ACIT (7 0 TTJ (JD) 365) (D) CIT VS. IISCO UJJAIN PIPE & FOUNDRY CO. LTD (1 96 ITR 707) (CAL) THE LD CIT(A) WAS CONVINCED WITH THE EXPLANATIONS O F THE ASSESSEE AND ACCORDINGLY DELETED THE DISALLOWANCE. 5.2 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. ACCORDING TO THE ASSESSEE IMPUGNED BONUS PAYMENT IS IN THE NATURE OF INCENTI VE BONUS AND HENCE IT IS NOT COVERED BY SEC. 36(1)(II), IN WHICH CASE THE DISALLOWANCE O F THE SAME ON ACCOUNT OF NON-PAYMENT IS NOT CALLED FOR U/S 43B OF THE ACT. THE PROVISIONS OF SEC. 36(1)(II) READS AS UNDER:- I.T.A. NO. 191/COCH/2013 5 ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDERED, WHERE SUCH SUM WOULD NOT HAVE BEEN PAYABLE TO HIM AS PROF ITS OR DIVIDEND IF IT HAD NOT BEEN PAID AS BONUS OR COMMISSION. A PLAIN READING OF THE ABOVE SAID PROVISION SHOWS T HAT THE PAYMENT MADE AS BONUS OR COMMISSION FOR SERVICES IS COVERED BY THIS PROVISIO N, THE ONLY EXCEPTION IS THAT SUCH SUM WOULD NOT HAVE BEEN PAYABLE AS PROFITS OR DIVIDEND, IF IT HAD NOT BEEN PAID AS BONUS OR COMMISSION. 5.3 WE SHALL NOT EXAMINE THE APPLICABILITY OF V ARIOUS CASE LAW RELIED UPON BY THE ASSESSEE. IN THE CASE OF SRI SHANMUGAVEL MILLS LTD (SUPRA), THE HONBLE MADRAS HIGH COURT CONSIDERED THE QUESTION OF APPLICABILITY OF SEC. 43 B OF THE ACT TO EXPENSES CLAIMED AS LABOUR WELFARE EXPENSES IN THE FORM OF INCENTIVE. THE HONBLE COURT NOTICED THAT THE WORKERS WERE POORLY PAID AND NO INCREMENTS WERE ALL OWED. THE ASSESSEE THEREIN PAID MINIMUM BONUS OF 8.33%. FURTHER IT WAS NOTICED THA T INCENTIVE OF 20% WAS PAID IN LIEU OF INCREMENTS. HENCE, THE HIGH COURT TOOK THE VIEW THA T THE INCENTIVE SO PAID FORMS PART OF SALARY OR WAGE. ACCORDINGLY THE HIGH COURT HELD TH AT THE PROVISIONS OF SEC. 43B DO NOT APPLY TO THE SAID PAYMENT. WE NOTICE THAT THIS DEC ISION HAS BEEN RENDERED ON THE BASIS OF PECULIAR FACTS PREVAILING IN THAT CASE, WHICH CANNO T BE TAKEN SUPPORT OF BY THE ASSESSEE. 5.4 THE BONUS PAYMENT WAS COVERED UNDER SEC. 43B OF THE ACT W.E.F. 1.4.1989. THE DECISION RENDERED BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF SIVANANDHA MILLS LTD (SUPRA); THE DECISION RENDERED BY THE TRIBUNAL IN T HE CASE OF METALLISING EQUIPMENT CO. (P) LTD (SUPRA) AND THE DECISION RENDERED BY HONBLE CA LCUTTA HIGH COURT IN THE CASE OF IISCO UJJAIN PIPE & FOUNDRY CO. LTD (SUPRA) RELATE TO AN ASSESSMENT YEAR PRIOR TO 1.4.1989. HENCE, THE APPLICABILITY OF SEC. 43B OF THE ACT TO THE INCENTIVE BONUS COULD NOT HAVE BEEN CONSIDERED IN THOSE CASES. ACCORDINGLY, WE ARE OF THE VIEW THE DECISION HAS BEEN RENDERED IN THE ABOVE SAID CASES ON A DIFFERENT CONTEXT AND HENCE THEY CANNOT BE TAKEN SUPPORT OF BY THE ASSESSEE. 5.5 ON THE CONTRARY, WE FIND THAT THE DECISION R ELIED UPON BY THE REVENUE, VIZ., CIT VS. KISAN SAHKARI CHINI MILLS LTD (2006)(284 ITR 0418)( ALL) IS DIRECTLY ON THE POINT BEFORE US. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE R ELEVANT OBSERVATIONS MADE BY HONBLE ALLAHABAD HIGH COURT:- .WE FIND THAT ADMITTEDLY, A SUM OF RS.13,98,899 W HICH REPRESENTED UNPAID PRODUCTION I.T.A. NO. 191/COCH/2013 6 INCENTIVE BONUS WAS IN RESPECT OF SERVICES RENDERED BY THE EMPLOYEE. IT IS A PRODUCTION LINKED INCENTIVE BONUS. IN CLAUSE (II) OF SUB-SECTI ON (1) OF SEC. 36 OF THE ACT ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERV ICES RENDERED IS ALLOWABLE AND IN VIEW OF THE PROVISIONS CONTAINED IN CLAUSE (C) OF S EC. 43B OF THE ACT WHICH HAS BEEN INTRODUCED BY THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987 WITH EFFECT FROM APRIL 1, 1989, IT CAN ONLY BE ALLOWED DEDUCTION ON ACTUAL PAYMENT IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR. AS THE AMOUNT HAS NOT BEEN PAID O VER DURING THE ASSESSMENT YEAR IN QUESTION, I.E., 1990-91, THE DEDUCTION COULD NOT HA VE BEEN ALLOWED. THUS THE TRIBUNAL WAS NOT CORRECT IN DELETING THE DISALLOWANCE OF RS. 13,98,889. 5.6 IN THE INSTANT CASE, THE ASSESSEES CLAIM IS THAT THE IMPUGNED PAYMENT IS IN THE NATURE OF INCENTIVE BONUS. WE NOTICE THAT THE SAID CLAIM WAS MADE BEFORE LD CIT(A) FOR THE FIRST TIME, SINCE NOTHING IS AVAILABLE ON RECORD TO SHOW THAT SIMILAR CLAIM WAS MADE BEFORE THE ASSESSING OFFICER. BE THAT AS IT MAY, WE NOTIC E THAT THE HONBLE ALLAHABAD HAS TAKEN THE VIEW THAT THE PRODUCTION LINKED INCENTIVE BONUS IS ALSO COVERED U/S 36(1)(II) OF THE ACT AND CONSEQUENTLY COVERED BY SEC. 43B OF THE ACT. RESPE CTFULLY FOLLOWING THE SAID DECISION, WE HOLD THAT THE INCENTIVE BONUS PAID BY THE ASSESSEE IS ALSO COVERED U/S 36(1)(II) OF THE ACT AND ACCORDINGLY IT WOULD BE HIT BY THE PROVISIONS O F SEC. 43B OF THE ACT. IN THE INSTANT CASE, IT IS AN ADMITTED FACT THAT THE AMOUNT DISALLOWED B Y THE AO WAS NOT PAID BEFORE THE EXPIRY OF THE DUE DATE PRESCRIBED FOR FILING OF RETURN. HENC E, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING DISALLOWANCE OF RS. 88.50 LAKHS. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND RESTORE THE ADDITION MADE BY THE AO. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENU E IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 14-03-2014. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER AC COUNTANT MEMBER PLACE: KOCHI DATED: 14TH MARCH, 2014 I.T.A. NO. 191/COCH/2013 7 GJ COPY TO: 1. O.ABDUL RAZAK, EMIRATES RESIDENCE, KODINHI P.O., CHEMMAD, MALAPPURAM DISTRICT. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CI RCLE-1, ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-IV, KOTTA YAM. 4. THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN