Kirloskar Pneumatic Co Ltd, Pune V. Addl CIT, Pune

ITA 2416/PUN/2012

• Counselvise Citation: 241624514 RSA 2012
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 1997-1998
• Appeal Filed On: 05-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P S NAIKSHRI S P WALIMBE
• Keywords: Opportunity of being heard; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 2416 /PN/20 1 2 ASSESSMENT YEAR : 1997 - 98 KIRLOSKAR PNEUMATIC CO. LTD., HAD APSAR INDUSTRIAL ESTATE, HADAPSAR, PUNE VS. ADDL. CIT, RANGE - 1, PUNE (APPELLANT) (RESPONDENT) PAN NO. AAACK2479C APPELLANT BY: SHRI C.H. NANIWADEKAR RESPONDENT BY: SHRI P.S. NAIK/SHRI S.P. WALIMBE DATE OF HEARING : 2 8 - 0 8 - 2014 DAT E OF PRONOUNCEMENT : 28 - 08 - 2014 ORDER P ER R.S. PADVEKAR , JM : - IN THIS APPEAL , THE ASSESSEE HAS CHALLENGED T HE IMPUGNED ORDER OF THE LD. CIT(A) - I, PUNE DATED 30 - 03 - 2012 FOR THE A.Y. 1997 - 98. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN THE APPEAL: 1. THE LEARNED CIT(A) - I ERRED ON FACTS AND IN LAW IN ALLOWING RS.27,00,000/ - AS AGAINST ASSESSEES CLAIM OF RS.1,89,00,000/ - TOWARDS PROVISION FOR PENSION SCHEME. 2. THE LEARNED CIT(A) - I FAILED TO APPRECIATE THE DIRECTIONS GIVEN BY THE HON'BLE ITAT, PUNE AN D SCOPE THEREOF. 3. REASONS ASSIGNED ARE WRONG INSUFFICIENT AND CONTRARY TO THE FACTS LAW. 2. IN THIS CASE T HIS IS THE SECOND ROUND OF APPEAL BEFORE THE TRIBUNAL. IN THE FIRST ROUND OF APPEAL , THE TRIBUNAL HAS RESTORED THE ISSUE ARISING FROM GROUND NO . 1 I.E. ALLOWABILITY OF THE PROVISION MADE TOWARDS PENSION SCHEME FOR EMPLOYEE OF THE COMPANY. IN ITA NO. 485/PN/01 THE RELEVANT OBSERVATIONS AND DIRECTIONS OF THE TRIBUNAL ARE AS UNDER: 2 ITA NO. 2416 /PN/2012, KIRLOSKAR PNEUMATIC CO. LTD., PUNE 2. GROUND NO. 1 IS IN RESPECT OF DISALLOWANCE OF PROVISION FOR PENS ION SCHEME FOR EMPLOYEES OF THE COMPANY, IN SENIOR MANAGEMENT CADRE BY TREATING IT AS CONTINGENT LIABILITY. THE ASSESSEE CLAIMED DEDUCTION OF RS.1,89,00,000/ - BEING THE PROVISION OF PENSION SCHEME RELYING ON THE DECISION IN THE CASE OF CIT VS. NATIONAL IN SURANCE CO. (127 ITR 54 (ANNEX. 38). HOWEVER, THE A.O DISALLOWED THE CLAIM OF THE ASSESSEE THE GROUND THAT THE LIABILITY WAS CONTINGENT IN NATURE AND THAT IN ANY CASE THE LIABILITY DID NOT ACCRUE DURING THE YEAR UNDER CONSIDERATION. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANCE. 3. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS. NATIONAL INSURANCE CO. OF INDIA (1981) 127 ITR 54 (CAL) AND THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. MAHINDRA AND MAHINDRA LTD. (2006) 284 ITR 679. FURTHER THE HON'BLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS. CIT (2000) 245 ITR 428 HAS HELD THAT THE LIABILITY WAS NOT A CONTING ENT LIABILITY. IN THIS VIEW OF THE MATTER, WE ARE OF THE OPINION THAT THIS ISSUE IS REQUIRED TO BE REMITTED BACK TO THE FILE OF THE A.O. FOR ASCERTAINING THE REASONABLENESS OF THE PROVISION MADE BY THE COMPANY FOR MEETING THE INCREMENTAL LIABILITY OF THIS YEAR INCURRED BY IT UNDER PENSION SCHEME; PROPORTIONATE WITH THE ENTITLEMENT EARNED BY THE EMPLOYEES IN QUESTION, SUBJECT TO ANY CEILING IF ANY PRESCRIBED IN THE SAID SCHEME AS APPLICABLE ON THE RELEVANT PERIOD. THE A.O IS DIRECTED TO DECIDE THE ISSUE AFR ESH AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE; IN THE RESULT, GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 3. THE ASSESSING OFFICER PASSED THE ASSESSMENT ORDER GIVING EFFECT TO THE DIRECTIONS OF THE TRIBUNAL DATED 03 - 10 - 2010 AND AL LOWED THE CLAIM OF THE ASSESSEE TO THE EXTENT OF RS.27,00,000/ - OUT OF RS.1.89 CRORES TREATING THE SAME AS REASONABLE AMOUNT FOR MEETING THE INCREMENTAL LIABILITY FOR THE YEAR UNDER CONSIDERATION UNDER THE PENSION SCHEME. 4. THE ASSESSEE IS IN THE MANUF ACTURING OF AIR AND GAS COMPRESSORS OF VARIOUS TYPES, REFRIGERATION COMPRESSORS, PNEUMATIC TOOLS, ROCK DRILL 3 ITA NO. 2416 /PN/2012, KIRLOSKAR PNEUMATIC CO. LTD., PUNE RODS, AIR CONDITIONING UNITS, ETC. THE ASSESSEE HAS FORMULATED THE PENSION SCHEME FOR THE EMPLOYEES IN THE SENIOR MANAGEMENT CADRE AND MADE THE PR OVISION TO THE EXTENT OF RS.1.89 CRORES AND TREATING THE SAID PROVISION AS A LIABILITY CLAIMED THE DEDUCTION. IT IS STATED BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE DECIDED TO MAKE PAYMENT FOR RETIREMENT BENEFITS IN ORDER TO RETAIN THEIR LOYALTY AND CONTINUED SERVICES. IT IS FURTHER STATED THAT ONCE THE PENSION SCHEME WAS INTRODUCED, THE ASSESSEE COMPANY INCURRED A DEFINITE AND ASCERTAINABLE LIABILITY DURING THE YEAR THOUGH THE LIABILITY IS TO BE DISCHARGED AT A FUTURE DATE. IT WAS CLAIMED BEFORE TH E ASSESSING OFFICER THAT THE SAID PROVISION HAS BEEN MADE ON THE BASIS OF VALUATION BY AN ACTUARY AND THE ASSESSEE FURNISHED THE CERTIFICATE HOW THE VALUATION IS DONE AND WHAT ARE THE NORMS. AS PER THE ASSESSEE ACTUARY VALUE OF ACCRUED LIABILITY UNDER NON - CONTRIBUTORY STAFF PENSION SCHEME AS ALSO OTHER BENEFITS DURING THE PENSION PERIOD, AS ON 31 - 03 - 1997 WAS TO THE TUNE OF RS.1.89 CRORES. AS NOTED BY THE ASSESSING OFFICER THE ACTUARY RECOMMENDED THAT THE COMPANY SHOULD CHARGE MINIMUM AMOUNT OF RS.27,00,00 0/ - TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 - 03 - 1997. THE ASSESSING OFFICER HAS OBSERVED THAT A S PER LIST FURNISHED BY THE ASSESSEE, PROPOSED PENSION TO BE PAID IN F.Y. 1998 - 99 WAS TO THE TUNE OF RS.1,12,500/ - AND THE TOTAL PENSION PROPOSED TO BE PAID PER MONTH WAS TO THE TUNE OF RS.1,17,500/ - PLUS REIMBURSEMENT OF EXPENSES LIKE MEDICAL, TELEPHONE RENT, CLUB FEES AND MAINTENANCE AND RUNNING EXPENSES OF CAR. THE ASSESSEE ALSO SUBMITTED THAT LIST OF PAYMENT OF PENSION UNDER STAFF PENSION SCHEME MADE FROM 1997 - 98 TO 2000 - 01 WHICH WAS TO THE TUNE OF RS.7,98,500/ - . THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. MAHINDRA & MAHINDRA LTD. 284 ITR 679 (BOM). 4 ITA NO. 2416 /PN/2012, KIRLOSKAR PNEUMATIC CO. LTD., PUNE 5. THE ASSESSING OFFICER HAS O BSERVED THAT THE LIST OF EMPLOYEES AND AMOUNT OF PENSION UNDER THE STAFF PENSION SCHEME, IT IS CLEAR THAT THE PENSION PROPOSED TO BE PAID IN F.Y. 1998 - 99 WAS TO THE TUNE OF RS.1,12,500/ - AND THE TOTAL PENSION PROPOSED TO BE PAID IN F.Y. 1998 - 99 WAS OF THE VALUE OF RS.1,17,500/ - ONLY. IN SUM AND SUBSTANCE THE ASSESSING OFFICER ONLY CONSIDERED HOW MUCH PENSION THE ASSESSEE HAS PAID IN THE F.Y. 1998 - 99 TO 2000 - 01. THE ASSESSING OFFICER AGAIN RESTRICTED THE ALLOWABLE AMOUNT AT RS.27,00,000/ - AS REASONABLE ONE OUT OF TOTAL PROVISION OF RS.1.89 CRORES AND MADE THE ADDITION OF RS.1.62 CRORES TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A) BUT WITHOUT SUCCESSES AS THE STAND OF THE ASSESSING OFFICER WAS CONFIRMED. T HE REASONS GIVEN BY THE LD. CIT(A) ARE AS UNDER: 4. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE LAW AS ARE APPARENT FROM RECORDS. IT IS CLEAR THAT THE HON'BLE ITAT ACCEPTED TH CLAIM OF THE APPELLANT THAT THE PROVISION FOR PENSION IS NOT A C ONTINGENT LIABILITY. HOWEVER, THE HON'BLE ITAT DIRECTED TO ASCERTAIN THE QUANTUM OF CLAIM UNDER DIFFERENT PARAMETERS TO THE ASSESSING OFFICER. THE ASSESSING OFFICER CALLED FOR DETAILS AND FOUND THAT THE SAID ACTUARY ITSELF HAS HELD THAT THE MINIMUM AMOUNT WHICH CAN BE PROVIDED SHOULD BE RS.27,00,000. THEREFORE, HE ALLOWED THE SAME. THE AUTHORISED REPRESENTATIVE IS INCORRECT IN SAYING THAT THE ASSESSING OFFICER HAS NOT FOLLOWED THE DIRECTIONS OF THE ITAT AND HAS EXAMINED THE ISSUE AFRESH. THE ASSESSING OFFIC ER HAS NOT DENIED THE CLAIM BY TREATING THE PROVISION FOR PENSION AS CONTINGENT. HE HAS EXAMINED THE MATERIALS AVAILABLE BEFORE HIM TO HOLD THAT RS.27,00,000 IS THE CORRECT PROVISION FOR THE AFORESAID LIABILITY. DURING APPEAL ALSO, THE AUTHORISED REPRESENT ATIVE FAILED TO SUBMIT THE DETAILED WORKING MADE FOR COMPUTATION OF CLAIM OF RS. 1.89 CRORES AND THEREFORE, IT HAS TO BE HELD THAT THE APPELLANT HAS FAILED TO SUBSTANTIATE ITS CLAIM. THE FINDING OF THE ASSESSING OFFICER TO ALLOWING THE PROVISIONS OF RS.27,0 0,000 LOOKS CORRECT IN THE FACTS OF THIS CASE. HENCE GROUND NO. 1 IS DISMISSED . NOW, THE ASSESSEE IS IN APPEAL BEFORE US. 5 ITA NO. 2416 /PN/2012, KIRLOSKAR PNEUMATIC CO. LTD., PUNE 6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. WE FIND THAT ON PRINCIPLE S THE TRIBUNAL HAS ACCEPT ED IN THE FIRST FOUND OF APPEAL , THAT THE PROVISION FOR PENSION SCHEME IS NOT A CONTINGENT LIABILITY. HOWEVER, THE ISSUE WAS RESTORED TO THE ASSESSING OFFICER TO DETERMINE THE QUANTUM. THE ASSESSING OFFICER IS MORE INFLUENCE WITH THE OBSERVATION OF THE A CTUARY THAT IN THE A .Y. 1997 - 98 THE CHARGE TO P & L A/C. SHOULD BE TO THE EXTENT OF RS.27,00,000/ - . THE ASSESSING OFFICER ALSO TOOK THE NOTE OF THE FACT THAT AS PER LIST OF EMPLOYEES AND PENSION UNDER THE STAFF PENSION SCHEME FURNISHED BY THE ASSESSEE , TH E PROPOSED PENSION TO BE PAID IN THE F.Y. 1998 - 99 WAS TO THE TUNE OF RS.1,12,500/ - AND THE TOTAL PENSION PROPOSED TO BE PAID PER MONTH TO THE TUNE OF RS.1,17,500/ - PLUS REIMBURSEMENT OF EXPENSES LIKE MEDICAL, TELEPHONE RENT, CLUB FEES AND MAINTENANCE AND R UNNING EXPENSES OF CAR. IN OUR OPINION BOTH THE AUTHORITIES BELOW HAVE NOT PROPERLY APPRECIATED THE VALUATION OF ACTUARY AND THE PENSION SCHEME MERELY BECAUSE THE ASSESSEE HAS PAID THE SMALL AMOUNT OF PENSION IN THE NEXT YEAR THAT DOES NOT MEAN THAT THE A SSESSEE HAS NO ACTUAL LIABILITY TO THE EXTENT OF RS.1.89 CRORES. PENSION SCHEME IS RELATED TO THE RETIREMENT OF THE EMPLOYEES AND IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT ALL THE EMPLOYEES RETIRED IN THE NEXT YEAR AND THE ASSESSEE WAS NOT REQUIRED TO PAY THE MORE PENSIONS. THE RETIREMENT OR SUPERANNUATION RELATES TO THE DATE OF BIRTH OF THE EACH EMPLOYEE AND THERE IS NO ONE DATE FIXED BY THE COMPANY O N WHICH ALL THE EMPLOYEE S WOULD RETIRE. RETIREMENT IN THE INDUSTRIAL SECTOR IS A GRADUAL AND CONT INUOUS PROCESS . T HE WORKING OF THE ACTUARY IS BASED CONSIDERING THE FACT THAT IF ALL THE EMPLOYEES RETIRE ON 1 ST APRIL, 1997 THEN WHAT WOULD BE THE LIABILITY OF THE ASSESSEE TO PAY THE TOTAL PENSION TO ALL THE EMPLOYEES. WE FIND THAT THE LD. CIT(A) ALSO GONE WITH THE VIEW TAKEN BY THE ASSESSING OFFICER THAT ONLY TO THE EXTENT OF RS.27,00,000/ - OUT OF THE TOTAL PROVISION OF RS.1.89 CRORES SHOULD BE ALLOWED AS REASONABLE AMOUNT. WE FIND THAT THE 6 ITA NO. 2416 /PN/2012, KIRLOSKAR PNEUMATIC CO. LTD., PUNE ASSESSEE HAS CHARGED RS.27,00,000/ - TO THE PROFIT AND LOSS AC COUNT REDUCING THE SAME FROM THE DE FERRED REVENUE EXPENDITURE ACCOUNT FROM THE BALANCE SHEET BUT IN THE COMPUTATION THE ASSESSEE HAS CLAIMED THE ENTIRE PROVISION TO THE EXTENT OF RS.1.89 CRORES AS DEDUCTION . IN OUR OPINION AS THE LIABILITY IS NOT CONTINGE NT ONE THEN THE SAME HAS TO BE ALLOWED AT ENTIRETY. IT IS ALSO SEEN THAT IN THE SUBSEQUENT YEAR THE ASSESSEE HAS CHARGED RS.27,00,000/ - TO THE PROFIT AND LOSS ACCOUNT BUT WHILE FILING THE RETURN OF INCOME THE SAID AMOUNT IS ADDED BACK. IN OUR OPINION THE ENTIRE PROVISION IS ALLOWABLE IN THE A.Y. 1997 - 98. WE, ACCORDINGLY, ALLOW THE GROUNDS TAKEN BY THE ASSESSEE. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 28 - 0 8 - 201 4 SD/ - SD/ - ( G . S . PAN NU ) ( R.S. PADVE KAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 28 TH AUGUST, 2014 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - I, PUNE 4 THE CIT - I , PUNE 5 THE DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE C OPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE