Growel Formulations Pvt.Ltd., Hyd, Hyderabad V. ACIT, Cirlce-2(3), Hyd, Hyderabad

ITA 220/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5937 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 31-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 26-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Business expenditure; Question of law; Revised return
• Section: 143(3)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 220/HYD/2016 ASSESSMENT YEAR: 2009-10 M/S GROWEL FORMULATIONS PVT., HYDERABAD PAN AAACG 7485L VS. ACIT, CIRCLE -2(3) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.A. SAI PRASAD (AR) REVENUE BY : SHRI K.J. RAO (DR) DATE OF HEARING : 30-11-2016 DATE OF PRONOUNCEMENT : 21-12-2016 ORDER PER P. MADHAVI DEVI, J.M.: IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE OR DER OF THE CIT(A)- 2, HYDERABAD, DATED 16-11-2015, CONFIRMING THE DISA LLOWANCE MADE BY THE A.O U/S 40A(7) OF THE INCOME TAX ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF (I) FEE D SUPPLEMENTS FOR POULTRY & VETERINARY; AND (II) WATER QUALITY MANAGE MENT PRODUCTS, FILED ITS RETURN OF INCOME FOR THE A.Y. 2009-2010 ELECTRONICA LLY ON 30-09-2011, DECLARING THE TOTAL INCOME OF RS. 66,66,761/-. AGAI N ON 11-03-2010, THE ASSESSEE FILED A REVISED RETURN OF INCOME DECLARING THE SAME INCOME. 3. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE ASSESSEE WAS ASKED TO FILE THE DETAILS OF THE GRAT UITY AMOUNT DEBITED AND ITS EXPLANATION AS TO WHY THE AMOUNT OF RS. 15,626/ - SHOULD NOT BE ADDED ITA NO.220/HYD/2016 M/S GROWEL FORMULATIONS, HYDERABAD PAGE 2 OF 7 TO THE RETURNED INCOME AS THIS AMOUNT WAS PAID TOWA RDS AN UNAPPROVED GRATUITY FUND. THE ASSESSEE, VIDE HIS LETTER 11-10 -2010, SUBMITTED THAT THIS AMOUNT WAS PAID TO LIC GROUP GRATUITY FUND AND THE ASSESSEE HAS SOUGHT APPROVAL FROM THE RELEVANT AUTHORITY FOR THE SAME. AS THE ASSESSEE DID NOT PRODUCE EVIDENCE REGARDING THE APP ROVAL OF THE SAID GRATUITY FUND BY DESIGNATED INCOME TAX AUTHORITY BE FORE HIM, THE A.O. DISALLOWED THE SAME BY INVOKING THE PROVISIONS OF U /S 40A(7) OF THE ACT. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ORDER OF THE A.O. AND THE ASSESSEE I S IN SECOND APPEAL BEFORE US. 4. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE ASSESSEE HAS NOT MADE A PROVISION FOR GRATUITY FUND BUT HAS MADE THE PAYMENT TO LIC TOWARDS GROUP GRATUITY SCHEME. IN SUPPORT OF THIS CONTENTION, HE PLACED BEFORE US A COPY OF THE LETTER ADDRESSED BY THE ASS ESSEE TO THE ASST., COMMISSIONER OF INCOME TAX, WHEREIN IT IS STATED TH AT THE COPY OF THE PAYMENT RECEIPT FROM LIC PENSION AND GROUP SCHEMES OFFICE AND COPY OF THE APPLICATION MADE TO THE CIT(A), ON 07-12-2007, FOR APPROVAL OF THE GRATUITY SCHEME, ARE ENCLOSED. IT IS STATED BY THE LD COUNSEL FOR THE ASSESSEE THAT, FOR THE DELAY IN GRANTING THE APPROV AL OF THE GRATUITY SCHEME BY THE CIT CANNOT BE A BASIS FOR DISALLOWANC E OF THE SAID PAYMENT IN THE CASE OF ASSESSEE U/S 40A(7) OF THE ACT. FUR THER, IT IS ALSO STATED THAT THE CONTRIBUTION WAS MADE TO THE GROUP GRATUIT Y FUND ADMINISTERED BY THE LIC, A STATUTORY BODY AND THE PROOF OF THE ESTIMATES AND OF THE PAYMENT WERE ALSO SUBMITTED TO THE A.O AND THEREFOR E IT SHOULD BE ALLOWED AS LEGITIMATE BUSINESS EXPENDITURE. 5. FURTHER, THE LD COUNSEL ALSO PLACED RELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL AT AHMADABAD, IN THE CASE OF DCIT VS BARODA GUJARATH GRAMIN BANK, WHEREIN IT HAS BEEN HE LD THAT THE PROVISIONS OF U/S 40A(7) OF THE ACT WOULD APPLY IN RESPECT OF PROVISION ITA NO.220/HYD/2016 M/S GROWEL FORMULATIONS, HYDERABAD PAGE 3 OF 7 ONLY AND NOT THE ACTUAL EXPENSES CLAIMED UNDER THE HEAD GRATUITY CONTRIBUTION. 6. THE LD DR HOWEVER, SUPPORTED THE ORDERS OF THE A UTHORITIES BELOW: 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON REGARD, WE FIND THAT THE ASSESSEE HAS MADE THE PAYMENT TO L IC GROUP GRATUITY FUND AND HAS ALSO MADE AN APPLICATION TO THE CIT F OR APPROVAL OF THE GRATUITY FUND VIDE ITS LETTER DATED 07-12-2007. WE FIND THAT THE CIT HAS NEITHER REJECTED THE APPLICATION SINCE 2007, NOR H AS GRANTED APPROVAL, IN FACT, IN CASE OF SUCH INORDINATE DELAY AND ALSO IN VIEW OF NON-REJECTION OF THE APPLICATION, IT CAN BE PRESUMED THAT THE APPROV AL HAS BEEN GRANTED. FOR THE DELAY IN CONSIDERATION OF THE ASSESSEES AP PLICATION, THE ASSESSEE CANNOT BE PENALISED. FURTHER, IN SIMILAR CIRCUMSTA NCE, THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. M/S TEXTOOL CO . LTD., VIDE CIVIL APPEAL NO. 447/2003, DATED 09-09-2007, HAS CONSIDER ED THIS ISSUE AND HAS HELD AS UNDER: THIS APPEAL, BY SPECIAL LEAVE IS DIRECTED AGAINST THE JUDGMENT, DATED 4TH FEBRUARY, 2002, RENDERED BY THE HIGH COURT OF JUDIC ATURE AT MADRAS, IN TAX CASE NO. 267 OF 1989. BY THE IMPUGNED JUDGMENT, THE HIGH COURT HAS ANSWERED THE QUESTION OF LAW, REFERRED TO IT BY THE INCOME TAX APPELLATE TRIBUNAL, MADRAS BENCH (FOR SHORT, 'THE TRIBUNAL') UNDER SECTION 256(1) OF THE INCOME TAX ACT, 1961, (FOR SHORT, 'THE ACT') AT THE INSTANCE OF THE REVENUE. THE QUESTION OF LAW, SO REFERRED, WAS AS F OLLOWS: ' ... WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLATE TRIBUNAL IS RIGHT IN ALLOWING THE DEDUCTI ON OF RS.55,84,754/- BEING THE PAYMENT MADE BY THE ASSESS EE COMPANY DIRECTLY TO LIFE INSURANCE CORPORATION TOWARDS GROU P GRATUITY FUND UNDER SECTION 36 (L)(V) OF THE INCOME TAX ACT, 1961 ?' MATERIAL FACTS RELEVANT FOR THE PURPOSE OF THE PRES ENT APPEAL MAY BE STATED THUS: FOR THE ASSESSMENT YEAR, 1983-84, FOR WHICH THE REL EVANT PREVIOUS YEAR ENDED ON 30TH APRIL, 1982, THE .. 2/- ASSESSEE CLAIMED A DEDUCTION OF RS. 92,06,978/- AS CONTRIBUTION/PROVISION TOWARDS THE APPROVED GRATUITY FUND. AS PER THE BREA KUP OF THE SAID ITA NO.220/HYD/2016 M/S GROWEL FORMULATIONS, HYDERABAD PAGE 4 OF 7 AMOUNT, AN AMOUNT OF RS.5,84,754/- WAS PAID AS ANNU AL PREMIUM TO THE LIFE INSURANCE CORPORATION('LIC' FOR SHORT); A SUM OF RS. 50,00,000/- WAS PAID TO THE LIC AS INITIAL CONTRIBUTION IN THE GROU P LIFE ASSURANCE SCHEME FRAMED BY THE LIC FOR THE BENEFIT OF THE EMPLOYEES OF THE ASSESSEE AND THE REMAINING AMOUNT OF RS. 36,22,224/ - WAS SHOWN AS PROVISION FOR INITIAL CONTRIBUTION. IT IS COMMON GROUND THAT ASSE SSEE COMPANY'S GRATUITY FUND, VIZ., THE TEXTOOL COMPANY LTD. EMPLOYEES GROU P GRATUITY FUND WAS APPROVED BY THE COMMISSIONER OF INCOME TAX, COIMBAT ORE, W.E.F. 25TH FEBRUARY, 1983. WHILE COMPLETING ASSESSMENT, THE AS SESSING OFFICER ALLOWED A DEDUCTION OF RS. 36,22,224/UNDER SECTION 40A(7) OF THE ACT. HOWEVER, DEDUCTION FOR THE BALANCE AMOUNT WAS DISAL LOWED ON THE GROUND THAT PAYMENT TOWARDS THE GRATUITY FUND WAS MADE BY THE ASSESSEE DIRECTLY TO THE LIC AND NOT TO AN APPROVED GRATUITY FUND AND, THEREFORE, IT WAS NOT ALLOWABLE UNDER SECTION 36(1)(V) OFTHE ACT. BEING AGGRIEVED, THE ASSESSEE PREFERRED APPEAL TO T HE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OBSERVED THA T THE INITIAL PAYMENT OF RS. 50,00,000/- AND THE ANNUAL PREMIUM O F RS. 5,57,943/- WAS MADE BY THE ASSESSEE DIRECTLY TO THE LIC INSTEA D OF AS ...3/- A CONTRIBUTION TOWARDS THE APPROVED GRATUITY FUND; THE LIC HAD ACCEPTED THE SAID PAYMENT ON BEHALF OF THE GROUP LIFE ASSURA NCE SCHEME FOR THE EXCLUSIVE BENEFIT OF THE EMPLOYEES OF THE ASSESSEE UNDER THE POLICY ISSUED BY IT. UPON PERUSAL OF THE ORIGINAL MASTER POLICY I SSUED BY THE LIC, THE COMMISSIONER RECORDED HIS SATISFACTION THAT THE INI TIAL CONTRIBUTION AS WELL AS ANNUAL PREMIUM HAD BEEN CREDITED BY THE LIC TO T HE GROUP LIFE ASSURANCE SCHEME ON BEHALF OF THE TEXTOOL COMPANY L TD. EMPLOYEES GROUP GRATUITY FUND ONLY, MEANING THEREBY THAT THE INSURANCE POLICY HAD BEEN TAKEN IN THE NAME OF THE APPROVED GRATUITY FUN D ONLY; THIS FUND WAS SHOWN AS THE PAYEE IN THE POLICY; VIDE ITS LETTER D ATED ZOTH NOVEMBER, 1985, ADDRESSED TO THE LA.C., THE ASSESSEE HAD CONF IRMED THAT IN THE SUBSEQUENT ASSESSMENT YEARS, THEY HAD CONTRIBUTED F UNDS TO THE EMPLOYEES GROUP GRATUITY FUND AND THE TRUSTEES IN T URN HAD MADE PAYMENT TO THE LIC IN RESPECT OF THE TEXTOOL CO. LT D.; EMPLOYEES GROUP GRATUITY ASSURANCE SCHEME UNDER THE SAID POLICY AND IT WAS ONLY THE INITIAL PAYMENT AND FIRST ANNUAL PREMIUM HAD BEEN M ADE DIRECTLY TO THE LIC AGAINST THE SAID POLICY. THE COMMISSIONER WAS T HUS, CONVINCED THAT BY MAKING PAYMENT OF THE AMOUNTS IN QUESTION DIRECTLY TO THE LIC, THE ASSESSEE HAD NOT VIOLATED ANY OF THE CONDITIONS STI PULATED IN SECTION 36 (1) (V) OF THE ACT. ACCORDINGLY, THE COMMISSIONER C AME TO THE CONCLUSION THAT SINCE, ON THE FACTS OF THE CASE, THE ..4/- OBJECTIVE OF THE FUND WAS ACHIEVED, A NARROW INTERP RETATION OF THE PROVISION WOULD BE STRAINING THE LANGUAGE OF SECTIO N 36(1)(V) OF THE ACT SO AS TO DENY THE DEDUCTION CLAIMED BY THE ASSESSEE. CONSEQUENTLY, THE COMMISSIONER ALLOWED THE SAOD AMOUNT OF RS. 58,84,7 54/- AS DEDUCTION FOR THE RELEVANT ASSESSMENT YEAR. ITA NO.220/HYD/2016 M/S GROWEL FORMULATIONS, HYDERABAD PAGE 5 OF 7 BEING DISSATISFIED WITH THE VIEW TAKEN BY THE COMMI SSIONER, THE REVENUE TOOK THE MATTER IN FURTHER APPEAL TO THE TRIBUNAL. RELYING ON ITS EARLIER DECISION IN THE CASE OF JANAMBIKAI MILS LTD, THE TR IBUNAL DISMISSED THE APPEAL. AS STATED ABOVE, BY THE IMPUGNED ORDER THE AFORE EX TRACTED QUESTION, REFERRED AT THE INSTANCE OF THE REVENUE, HAS BEEN A NSWERED BY THE HIGH COURT IN FAVOUR OF THE ASSESSEE. WHILE ANSWERING T HE QUESTION, THE HIGH COURT HAS OBSERVED AS FOLLOWS: IN OUR OPINION, THE COMMISSIONER OF INCOME TAX (AP PEALS) AS WELL AS THE TRIBUNAL HAVE CORRECTLY HELD THAT MERELY BECAUSE TH E PAYMENTS WERE MADE DIRECTLY TO THE LIC, THE COMPANY COULD NOT BE DENIED THE BENEFIT UNDER SECTION 36(1)(V) AND THE AMOUNT HAD TO BE CRE DITED IN FAVOUR OF THE ASSESSEE. BOTH THE COMMISSIONER (APPEALS) AS WELL AS THE TRIBUNAL HAVE CORRECTLY READ THE LAW AND HAVE CORRECTLY RELIED UP ON THE AFOREMENTIONED SUPREME COURT JUDGMENT. IN OUR OPINION, SINCE THE FINDING OF FACT IS THAT ALL THE PAYMENTS MADE WERE ONLY TOWARDS THE GROUP G RATUITY FUND, THERE WOULD BE NO QUESTION OF FINDING OTHERWISE. LEARNED COUNSEL APPEARING ON BEHALF OF THE REVENUE HAS SUBMITTED BEFORE US THAT THE PROVISIONS OF SECTION 36(L)(V) OF THE A CT HAVE TO BE CONSTRUED STRICTLY AND FOR CLAIMING DEDUCTION, CONDITIONS LAI D DOWN IN SECTION 36(1)(V) OF THE ACT MUST BE FULFILLED. IT IS URGED THAT SINCE DURING THE RELEVANT PREVIOUS YEAR THE CONTRIBUTION BY THE ASSE SSEE TOWARDS THE GRATUITY FUND WAS NOT IN AN APPROVED GRATUITY FUND THE HIGH COURT WAS NOT JUSTIFIED IN AFFIRMING THE VIEW TAKEN BY THE COMMIS SIONER AS ALSO BY THE TRIBUNAL WHILE ANSWERING THE REFERENCE IN FAVOUR OF THE ASSESSEE. HOWEVER, ON A QUERY BY US AS TO WHETHER THE CONTRIB UTION MADE BY THE ASSESSEE IN THE APPROVED GRATUITY FUND CREDITED BY THE LIC FOR THE EMPLOYEES OF THE ASSESSEE AND ULTIMATELY THE ENTIRE AMOUNT DEPOSITED WITH THE LIC CAME BACK TO THE FUND CREATED BY THE A SSESSEE FOR THE BENEFIT OF ITS EMPLOYEES AND APPROVED BY THE COMMIS SIONER W.E.F. 25TH FEBRUARY, 1983, OR NOT, LEARNED COUNSEL IS NOT IN A POSITION TO MAKE A CATEGORICAL STATEMENT IN THAT BEHALF. HAVING CONSIDERED THE MATTER IN THE LIGHT OF THE BA CKGROUND FACTS, WE ARE OF THE OPINION THAT THERE IS NO MERIT IN THE APPEAL . TRUE THAT A FISCAL STATUTE IS TO BE CONSTRUED STRICTLY AND NOTHING SHO ULD BE ADDED OR SUBTRACTED TO THE LANGUAGE EMPLOYED IN THE SECTION, YET A STRICT CONSTRUCTION OF A PROVISION DOES NOT RULE OUT THE A PPLICATION OF THE PRINCIPLES OF REASONABLE CONSTRUCTION TO GIVE EFFEC T TO THE PURPOSE AND INTENTION OF ANY PARTICULAR PROVISION OF THE ACT. ( SEE: SHRI SAJJAN MILLS LTD. VS. COMMISSIONER OF INCOME TAX, M.P. & ANR. (1985) 156 ITR 585). FROM A BARE READING OF SEETIN 36(I)(V) OF THE ACT, IT IS MANIFEST THAT THE REAL INTENTION BEHIND THE PROVISION IS THAT THE EMPLOYER SHOULD NOT HAVE ANY CONTROL OVER THE FUNDS OF THE IRREVOCABLE TRUST CRE ATED EXCLUSIVELY FOR THE BENEFIT OF THE EMPLOYEES. IN THE INSTANT CASE, IT I S EVIDENT FROM THE FINDINGS RECORDED BY THE COMMISSIONER AND AFFIRMED BY THE TRIBUNAL THAT THE ASSESSEE HAD ABSOLUTELY NO CONTROL OVER THE FUN D CREATED BY THE LIC ITA NO.220/HYD/2016 M/S GROWEL FORMULATIONS, HYDERABAD PAGE 6 OF 7 FOR THE BENEFIT OF THE EMPLOYEES OF THE ASSESSEE AN D FURTHER ALL THE CONTRIBUTION MADE BY THE ASSESSEE IN THE SAID FUND ULTIMATELY CAME BACK TO THE TEXTOOL EMPLOYEES GRATUITY FUND, APPROVED BY THE COMMISSIONER WITH EFFECT FROM THE FOLLOWING PREVIOUS YEAR. THUS, THE CONDITIONS STIPULATED IN SECTION 36(1)(V) OF THE ACT WERE SATI SFIED. HAVING REGARD TO THE FACTS FOUND BY THE COMMISSIONER AND AFFIRMED BY THE TRIBUNAL, NO FAULT CAN BE FOUND WITH THE OPINION EXPRESSED BY TH E HIGH COURT, WARRANTING OUR INTERFERENCE. 8. FURTHER THE CO-ORDINATE BENCH OF THIS TRIBUNAL I N THE CASE OF ANDHRA PRADESH GRAMIN VIKAS BANK FOR THE ASSESSMENT YEAR 2 008-09, IN ITA NOS. 713,714 & 715 HAS FOLLOWED THE ABOVE DECISION OF T HE HONBLE SUPREME COURT AND ALLOWED RELIEF TO THE ASSESSEE THEREIN U NDER SIMILAR CIRCUMSTANCES. THE LD DR HAS NOT BEEN ABLE TO PROD UCE ANY DOCUMENT OR ANY DECISION TO THE CONTRARY. IN VIEW OF THE SAME, THE ASSESSEES APPEAL IS ALLOWED. 9. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DECEMBER, 2016. SD/- SD/- (S. RIFAUR RAHMAN) (P. MA DHAVI DEVI) ACCOUNTANT MEMBER JUD ICIAL MEMBER HYDERABAD, DATED: 21 ST DECEMBER, 2016 KRK COPY TO:- 1) M/S GROWEL FORMULATIONS P. LTD., C/O M/S. CH. P ARTHASARATHY & CO., 1- 1-298/2/B/3, 1 ST FLOOR SOWBHAGYA AVENUE,ST.NO. ASHOK NAGAR, HYDERABAD 500020. 2) ACIT, CIRCLE-2 (3) HYDERABAD. . 3) CIT ( APPEALS)-2, HYDERABAD 4) THE PCIT-2, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., H YDERABAD. 6) GUARD FILE ITA NO.220/HYD/2016 M/S GROWEL FORMULATIONS, HYDERABAD PAGE 7 OF 7 DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 30-11-16 2. DRAFT PLACED BEFORE AUTHOR 05-12-16 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5 APPROVED DRAFT COMES TO THE SR.P.S./PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER