M/s Astek Electric Company Private Limited , Bangalore V. Deputy Commissioner of Income Tax Circle-1(1)(1), Bangalore

ITA 225/BANG/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 4257 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 02-02-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 29-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA
• Assessee Lawyers: H R SURESH
• Keywords: Question of law
• Section: 43B; 40A(3); 43; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.225/BANG/2018 ASSESSMENT YEAR : 2012-13 ASTEK ELECTRIC CO. PVT. LTD., #128, 6 TH MAIN ROAD, P & T COLONY, SANJAY NAGAR, BENGALURU-560 094. PAN AABCA 1914 H VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-1(1)(1), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI H.R SURESH, C.A RESPONDENT BY : SHRI PRIYADARSHI MISHRA, ADDL. CIT (DR) DATE OF HEARING : 02-02-2021 DATE OF PRONOUNCEMENT : 12-02-2021 O R D E R PER BEENA PILLAI, JUDICIAL MEMBER: PRESENT APPEAL HAS BEEN FILED BY ASSESSEE A GAINST ORDER DATED 17/11/2017 PASSED BY LD.CIT(A) FOR ASSESSMENT YEAR 2012-13 ON FOLLOWING GROUNDS OF APPEAL: 1. THE COMMISSIONER OF INCOME TAX (APPEALS)-3, BAN GALORE, HAS ERRED IN CONFIRMING THE DISALLOWANCE TO THE ADMITTED INCOME MADE BY THE ASSESSING AUTHORITY BY NOT DELETING SUCH DISALLOWAN CE IN TOTAL. 2. THE ASSG. AUTHORITY HAS ERRED IN DISALLOWING THE PREMIUM AMOUNT OF RS. 1,97,592 PAID TO LIC OF INDIA TO COVER THE PAYM ENT OF GRATUITY LIABILITY TO ITS EMPLOYEES ON DEATH OR RETIREMENT ON THE PRET EXT THAT THE GROUP GRATUITY SCHEME FRAMED BY LIC OF INDIA IS NOT AN 'A PPROVED GRATUITY FUND'. PAGE 2 OF 8 ITA NO.225/BANG/2018 3. THE ASSG. AUTHORITY OUGHT TO HAVE CONSIDER THE O BLIGATION OF APPELLANT AS AN EMPLOYER TO PAY THE GRATUITY ON DEATH OR RETI REMENT TO ITS EMPLOYEES. 4. THE ASSG. AUTHORITY HAS ERRED IN DISALLOWING THE PREMIUM PAID BY THE APPELLANT TO L.I.0 OF INDIA, WHICH IS A GOVERNMENT OF INDIA CORPORATION UNDER GROUP GRATUITY SCHEME AS PER THE MASTER POLIC Y ISSUED BY THE L.I.0 OF INDIA TO COVER THE RISK OF THE EMPLOYER FO R PAYMENT OF GRATUITY TO ITS EMPL3OYEES ON DEATH OR RETIREMENT. 5. THE ASSG. AUTHORITY IS UNDER MISCONCEPTION THAT THE PREMIUM PAID TO L.I.C OF INDIA UNDER MASTER POLICY IS NOT APPROVED BY THE COMMISSIONER OF INCOME TAX. 6. THE ASSG. AUTHORITY OUGHT TO HAVE CONSIDER THE F ACT THAT THE APPELLANT HAS NOT CREATED ITS OWN TRUST TO MEET THE PAYMENT O F GRATUITY TO ITS EMPLOYEES ON RETIREMENT OR DEATH AND THEREFORE THE APPELLANT IS UNDER NO OBLIGATION TO GET THE APPROVAL FROM THE COMMISSIONE R OF INCOME TAX AS THE PREMIUM IS ONLY PAID TO L.I.0 UNDER THE MASTER POLICY ISSUED BY L.I.C. 7. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT ADDITIONS AND DIS ALLOWANCES MADE BY THE ASSG. AUTHORITY AND SUSTAINED BY THE COMMISSION ER OF INCOME TAX (APPEALS)-3, MAY KINDLY BE DELETED AND THE APPEAL B E ALLOWED. BRIEF FACTS OF THE CASE ARE AS UNDER : 2. THE ASSESSEE IS A MANUFACTURING COMPANY AND HAS EMPLOYED NUMBER OF EMPLOYEES TO CARRY ON ITS BUSINE SS. AS AN EMPLOYER ASSESSEE HAS STATUTORY REQUIREMENT TO PAY TO ITS EMPLOYEES GRATUITY ON RETIREMENT OR DEATH AS PER PR OVISIONS OF PAYMENT OF GRATUITY ACT 1972. IN ORDER TO MITIGATE THE FUTURE RISK OF GRATUITY LIABILITY, ASSESSEE TOOK MASTER POLICY NO.GGCA/547503 FROM LIC OF INDIA IN TERMS OF POLICY AND ASSESSEE HAS BEEN PAYING PREMIUM AS DEMANDED BY LIC OF INDIA. ACCORDINGLY, ASSESSEE PAID SUM OF RS.1 LAKH TOWARD S PREMIUM AND MADE PROVISION OF RS.16,585/-AS PER DEMAND NOTI CE RECEIVED FROM LIC OF INDIA DURING THE YEAR UNDER CO NSIDERATION. ASSESSEE CLAIMED SUM OF RS.1,16,585/- AS EXPENSES B Y DEBITING IT INTO P&L ACCOUNT. PAGE 3 OF 8 ITA NO.225/BANG/2018 3. THE LD.AO DISALLOWED THE SAID EXPENSES BY OBSERV ING THAT, ASSESSEE HAS NOT CREATED ANY APPROVED GRATUITY FUND BY FORMING A TRUST ON ITS OWN BUT MERELY PAYING THE AMOUNT TO LIC OF INDIA AS PREMIUM, WHICH IS TREATED AS EXPENSES TO THE ASS ESSEE. THE LD. AO OBSERVED AS UNDER: 3.3. THE ASSESSEE'S SUBMISSIONS WERE EXAMINED CARE FULLY. AS PER THE PROVISION OF THE INCOME TAX ACT, 1961, THE CONTRIBU TION TO THE GRATUITY FUND IS ALLOWED AS A DEDUCTION ONLY IF SUCH CONTRIB UTION IS MADE TO AN 'APPROVED GRATUITY FUND. AS PER THE PROVISIONS OF T HE ACT 'APPROVED GRATUITY FUND' MEANS A GRATUITY FUND WHICH HAS BEEN AND CONTINUES TO BE APPROVED BY THE CHIEF COMMISSIONER OR COMMISSION ER OF INCOME TAX IN ACCORDANCE WITH THE RULES CONTAINED IN PART C OF THE FOURTH SCHEDULE OF THE INCOME TAX ACT 1961. IF THE CONTRIBUTION IS NOT MADE TO AN APPROVED FUND, THEN CLAIM OF DEDUCTION FOR CONTRIBU TION TO SUCH FUND, IS TO BE DISALLOWED U/S 40A(7) OF THE ACT. IN THE CASE OF THE ASSESSEE, IT IS SEEN THAT THE CONTRIBUTION IS NOT MADE TO AN APPROV ED FUND AS PROVIDED IN THE ACT. FURTHER, THE ASSESSEE HAS FAILED TO SUB MIT ANY PROOF OF HAVING FLIED ANY APPLICATION OR HAVING OBTAINED THE APPROV AL OF THE APPROPRIATE AUTHORITY FOR SUCH GRATUITY FUND. THE RATIO IN THE DECISION OF THE HON'BE SUPREME COURT IN THE CASE OF CIT VS TEXTOOL CO LTD (CITED SUPRA), RELIED UPON BY THE ASSESSEE, CANNOT HE MADE APPLICABLE TO THE ASSESEE'S CASE, AS IN THE CASE OF THE ASSESSEE, NO VALID APPLICATIO N HAS BEEN FILED BEFORE THE APPROPRIATE AUTHORITY AS REQUIRED UNDER THE PRO VISIONS OF PARTC OF THE FOURTH SCHEDULE OF THE INCOME TAX ACT 1961. HEN CE, THE RATIO IN THE DECISION RELIED UPON BY THE ASSESSEE IS NOT APPLICA BLE TO THE ASSESSEE'S CASE AND THE ASSESSEE'S CONTENTION IS NOT ACCEPTABL E. 3.4 FOR THE DETAILS REASONS DISCUSSED ABOVE, THE CO NTENTION OF THE ASSESSEE THAT THE CONTRIBUTION IS MADE TO A RECOGNI ZED PROVIDENT FUND IS NOT ACCEPTED. UNDER THE CIRCUMSTANCES, THE CLAIM OF PAYMENT MADE TO UNRECOGNIZED GRATUITY FUND AMOUNTING TO RS. 1,97,59 2/- IS DISALLOWED U/S 40A(7) OF THE ACT AND ADDED BACK TO THE TAXABLE INCOME. 4. AGGRIEVED BY THE ORDER OF THE LD.AO, ASSESSEE PR EFERRED APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) WAS OF T HE OPINION THAT, THE CLAIM IS NOT AN ALLOWABLE EXPENDITURE UND ER SECTION 36(1)(V) OF THE ACT, SINCE THE SCOPE OF SECTION 40 A(7) RELATES TO PROVISIONS AND NOT THE CASE OF ACTUAL PAYMENT, BY O BSERVING AS UNDER: PAGE 4 OF 8 ITA NO.225/BANG/2018 4.4 A PERUSAL OF THE ABOVE SHOWS THAT WHEN THE GRA TUITY BECOMES PAYABLE TO ANY EMPLOYEE ON HIS DEATH, RETIREMENT OR CESSATION OF SERVICE, THE LIC OF INDIA WILL PAY THE BENEFITS TO THE APPEL LANT COMPANY OUT OF THE ACCUMULATED BALANCE. THUS THE AMOUNT PAID BY LIC OF INDIA COMES BACK TO THE APPELLANT ITSELF, AS IT IS THE 'GRANTEE' ELIGIB LE TO RECEIVE ALL PAYMENTS, WHICH IT IS FURTHER REQUIRED TO DISBURSE TO THE EMP LOYEES OR THEIR FAMILIES. SINCE THE FUNDS ARE NOT COMING TO AN APPROVED GRATU ITY FUND FROM LIC OF INDIA, THE APPELLANT HAS COMPLETE CONTROL OVER THE FUNDS RECEIVED BY IT FROM LIC AND DISCRETION OF ITS USE. THUS THE BASIC REQUI REMENT OF SECTION 36(1)(V) OF THE ACT, AS NOTED BY HON'BLE SUPREME COURT IN TH E CASE OF TEXTOOL (SUPRA), THAT THE ASSESSEE SHOULD NOT HAVE ANY CONT ROL OVER THE FUNDS, IS NOT SATISFIED. CONSIDERING ABOVE, THE DECISION REND ERED BY SC IN THE CASE OF TEXTOOL (SZIPRA)GOES AGAINST THE APPELLANT, AS T HE APPELLANT RETAINS THE CONTROL OVER THE FUNDS WHEN THE SAME ARE RECEIVED B ACK FROM LIC OF INDIA. 43 THE APPELLANT HAS ALSO RELIED UPON THE DECISION OF KERALA HIGH COURT IN CASE OF COMMONWEALTH TRUST LIMITED (SUPRA). HOWEVER , A PERUSAL OF THE SAID DECISION SHOWS THAT THE ISSUE INVOLVED AND THE SUBSTANTIAL QUESTION OF LAW WAS ENTIRELY DIFFERENT AND THE ISSUE OF CONT RIBUTION TOWARDS LIC OF INDIA OR NON-APPROVED GRATUITY FUND WAS NEVER THERE . SO, THE RATIO OF THIS DECISION CANNOT BE APPLIED TO THE CASE UNDER CONSID ERATION. THE ARGUMENT OF THE APPELLANT THAT THE AMOUNT IS ALLOWABLE UNDER SECTION 43B OF THE ACT IS ALSO MISPLACED AS THE PROVISIONS OF SECTION 43B OF THE ACT COME INTO PLAY ONLY IF SOME DEDUCTION IS ALLOWABLE UNDER THE ACT, HOWEVER ACTUAL PAYMENT IS NOT MADE. IN SUCH CASES THE PROVISION OF SECTION 43B OF THE ACT RESTRICTS THE ALLOWABILITY OF SUCH DEDUCTION AND THE SAME CAN BE CLAIMED ONLY ON ACTUAL BASIS. SINCE IN THE CASE UNDER CONSIDERATION THE DEDUCTION ITSELF IS NOT ALLOWABLE AS PER SECTION 36(I)(V) OF THE ACT, S O THE QUESTION OF INVOKING SECTION 43B OF THE ACT FOR ALLOWING THE SAME WOULD NOT ARISE. FURTHER, ALTHOUGH THE AO HAS DISALLOWED AMOUNT AS PER SECTIO N 40A(7) OF THE ACT, HOWEVER, AS NOTED ABOVE, THE AMOUNT IS NOT ALLOWABL E AS PER PROVISIONS OF SECTION 36(L)(V) OF THE ACT SINCE THE SCOPE OF SECT ION 40A(7) RELATES TO PROVISIONS AND NOT TO THE CASES OF ACTUAL PAYMENT. 4.6 CONSIDERING ABOVE, SINCE THE APPELLANT NOT COMP LIED WITH THE REQUIREMENT OF SECTION 36(1)(V) OF THE ACT, DEDUCTI ON OF RS.1,97,592 CANNOT BE ALLOWED TO IT. SO THE GROUNDS OF APPEAL 2 TO 4 O F THE APPELLANT ARE DISMISSED. 5. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), ASSESSE E IS IN APPEAL BEFORE US NOW. 6. BEFORE US, THE LD.AR SUBMITTED THAT, ASSESSEE MA DE PAYMENT OF RS.1 LAKH TO LIC, THE RECEIPT OF WHICH I S PLACED AT PAGE 9 OF PAPER BOOK, TOWARDS THE PREMIUM, WHICH I S ELIGIBLE FOR PAGE 5 OF 8 ITA NO.225/BANG/2018 DEDUCTION UNDER SECTION 37 OF THE ACT. HE SUBMITTED THAT, THE ASSESSEE CLAIMED EXPENSES ON THE BASIS OF ACTUAL P AYMENT MADE TO LIC AS PER THE DEMAND FOR THE YEAR AND AS PER TH E POLICY TAKEN. THEREFORE THE AMOUNT WHICH IS PAID DURING TH E YEAR UNDER CONSIDERATION HAS TO BE ALLOWED ON ACTUAL AS EXPEND ITURE. IN SUPPORT, HE PLACED RELIANCE ON DECISION OF HONBLE KERALA HIGH COURT IN CASE OF NORTANS MARINE SERVICE PVT.LTD. VS ACIT REPORTED IN (2018) 97 TAXMANN.COM 212 . HE ALSO PLACED RELIANCE ON THE DECISION OF HONBLE CHENNAI TRIBUNAL IN CASE OF ACIT VS VERSION TATA SERVICES INDIA PVT.LTD. REPORTED IN (2017) 82 TAXMANN.COM 50 . 7. ON THE CONTRARY, LD.SR.DR SUBMITTED THAT THE ASS ESSEE CLAIMED SUM OF RS.1,97,592/- AS PROVISION FOR GRATU ITY WHICH HAS NOT BEEN INCURRED BY ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND THEREFORE IS NOT AN ALLOWABLE EXP ENDITURE. HE PLACED RELIANCE ON THE OBSERVATIONS OF LD.AO/CIT(A) . 8. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SID ES IN LIGHT OF RECORDS PLACED BEFORE US. 9. WE NOTE THAT ASSESSEE PAID TO LIC SUM OF RS.1 LAKH AS PREMIUM TO COVER THE OBLIGATION TOWARDS THE GRATUIT Y PAYMENT TO EMPLOYEES. THE BALANCE RS.16,585/- IS ONLY A PROVIS ION. AT THE TIME OF ARGUMENTS, THE LD.AR SUBMITTED THAT, AT TH E MOST, THE DISALLOWANCE COULD BE MADE ONLY TO THE EXTENT OF RS .16,585/-. IN THE PAPER BOOK, ORDER PASSED BY LD.CIT(A) FOR ASSES SMENT YEAR 2015-16 HAS BEEN PLACED, WHEREIN, THE CONTRIBUTION TO LIC PREMIUM WAS DELETED BY HOLDING THAT SECTION 40A(3) CANNOT BE PAGE 6 OF 8 ITA NO.225/BANG/2018 INVOKED IN RESPECT OF ACTUAL PAYMENTS MADE BY ASSES SEE TO LIC. WE ALSO PERUSED THE DECISIONS RELIED BY THE LD.AR O F COORDINATE BENCHES OF THIS TRIBUNAL, WHEREIN IT IS HELD THAT, PAYMENT MADE TO GET GRATUITY FUND MAINTAINED WITH LIFE INSURANCE CORPORATION CREATED EXCLUSIVELY FOR THE BENEFIT OF ITS EMPLOYEE S HAD TO BE ALLOWED AS DEDUCTION. 10. ADMITTEDLY, DURING THE YEAR UNDER CONSIDERATION , ASSESSEE PAID SUM OF RS.1 LAKH TO LIC. WE AGREE WITH THE SU BMISSIONS OF THE LD.AR THAT, THE DISALLOWANCE COULD BE AT THE MO ST RESTRICTED TO RS.16,585/- WHICH IS SHOWN AS PROVISION DURING T HE YEAR. 11. CONSIDERING THE VARIOUS DECISIONS OF THIS TRIBUNAL AND ORDER PASSED BY THE LD.CIT(A) IN THE SUBSEQUENT YEAR ACCE PTING THE PAYMENT AS AN ALLOWABLE EXPENDITURE ACTUALLY MADE T O LIC, WE HOLD THAT ASSESSEE IS TO BE GRANTED RELIEF TO THE E XTENT OF RS.1 LAKH BEING ACTUALLY MADE TO LIC. ACCORDINGLY THE GROUND RAISED BY ASSESSEE STANDS PA RTLY ALLOWED. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS PARTL Y ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY, 2021 SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 12 TH FEBRUARY, 2021. /VMS/ PAGE 7 OF 8 ITA NO.225/BANG/2018 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE