CHEROKEE INDIA PRIVATE LTD, MUMBAI V. MUMBAI DCIT-CIRCLE 1(2)(1), MUMBAI

ITA 2889/MUM/2022

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Cherokee India Private Limited appealed against the order of the Commissioner of Income Tax (Appeals), which confirmed the disallowance of INR 9,71,939 made by the Assessing Officer under Section 40A(7) of the Income Tax Act, 1961. The disallowance was related to a provision for gratuity for contract labor, which the Appellant argued was a deductible expense under Section 37 as it was incurred wholly and exclusively for the purpose of business. The Appellant also sought to admit additional evidence that was not previously considered by the lower authorities. The Tribunal found merit in admitting the additional evidence and remanded the case for a fresh assessment.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 113458 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-01-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 14-11-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Additional evidence; Valuation report
• Section: 37; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI SHRI B.R. BASKARAN, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 2889/MUM/2022 (Assessment Year: 2018-19) Cherokee India Private Limited, 94/95, SDF-III, SEEPZ-SEZ, Andheri (East), Mumbai - 400096 [PAN: AABCC5420G] Deputy Commissioner of Income Tax, Circle 1(2)(1), Mumbai, Aayakar Bhavan, Mumbai - 400020 .................. Vs ................ Appellant Respondent Appearances For the Appellant/Assessee For the Respondent/Department : : Shri Ajay Shah Smt. Shreekala Pradesi Date of conclusion of hearing Date of pronouncement of order : : 09.01.2023 31.01.2023 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant has challenged the order, dated 28.09.2022, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as „the CIT(A)‟] for the Assessment Year 2018-19 whereby the Ld. CIT(A) had dismissed the appeal against the Assessment Order, dated 29.01.2021, passed under Section 143(3) read with Sections 143(3A) & 143(3B) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟). 2. The Appellant has raised following grounds of appeal: “1. The learned CIT(Appeals) erred on facts and in law in ITA. No. 2889//Mum/2022 Assessment Year: 2018-19 2 confirming the disallowance of the gratuity provision for contract labour by stating that since the contract workers are not employees, the provision should not have been made at the first instance. 2. The learned CIT(Appeals) erred on facts and in law in confirming that the AO has not gone beyond his jurisdiction as provided in CASS which limited the question only to whether the said provision for gratuity payable to contract labour is allowable u/s.40A(7) or not. 3. The learned CIT(Appeals) erred on facts and in law in not appreciating that any expenditure (not being capital or personal expenditure) which is incurred for the purpose of the business is allowable u/s.37 irrespective of the fact that the said expenditure is incurred for contract labour. 4. The learned CIT(Appeals) erred on facts and in law in upholding the charging interest u.s,234A even though the original return was filed before the due date.” 3. All the grounds raised in the present appeal by the Appellant pertains to disallowance of INR 9,71,939/- made by the Assessing Officer under Section 40A(7) of the Act in respect of provision for gratuity created by the Appellant in respect of contract labour. 4. The relevant facts in brief are that the Appellant is engaged in the manufacture of Power Control Devices for electronic industry and exports the same to its parent company. The Appellant filed its return of income on 28.11.2018 which was revised on 27.02.2019. The case of the Appellant selected for limited scrutiny assessment under E-Assessment Scheme 2019 in relation to the issue of “Disallowance under Section 40A(7) (Gratuity Provision)”. After taking into consideration the reply submitted by the Appellant, the Assessing Officer vide order, ITA. No. 2889//Mum/2022 Assessment Year: 2018-19 3 dated 29.01.2021, concluded that the contract labour were not employees of the Appellant and therefore, made a disallowance of INR 9,71,939/- by invoking provisions of Section 40A(7) of the Act. 5. Being aggrieved, the Appellant preferred appeal before the CIT(A). The CIT(A) vide order, dated 28.09.2022 dismissed the appeal. The CIT(A) rejected the contention of the Appellant that the provisions of Section 40A(7) have been incorrectly invoked by the Assessing Officer. Further, the CIT(A) also rejected the alternative claim of deduction under Section 37 of the Act by placing reliance on Section 40A(1) of the Act observing that once specific disallowance provided for in respect of a particular item of expense, that the same cannot be sought to be deducted under any provision of the Act. 6. Being aggrieved, the Appellant is in appeal before us against the order of CIT(A) confirming the disallowance of INR 9,71,939/- made by the Assessing Officer. 7. When the appeal was taken up for hearing, the Ld. Authorised Representative for the Appellant invited our attention to the application for admission of additional evidence, dated 02.01.2023. He submitted that before the Assessing Officer as well as CIT(A) it was submitted on behalf of the Appellant that the contract labour were not the employees of the Appellant. Since there was no dispute in relation to this aspect the relevant agreement being Professional Service Agreement dated 01.10.2014 between the Appellant and Sony Enterprises (i.e. the contractor) and the extension thereof executed on ITA. No. 2889//Mum/2022 Assessment Year: 2018-19 4 01.10.2017 were neither asked for by the Assessing Officer nor placed on record by the Appellant. Before the CIT(A) the Appellant had set up alternative claim for deduction under Section 37 of the Act which was rejected without appreciating that the Appellant under contractual obligation to pick up the gratuity cost of the contract labour. Therefore, based upon Actuarial Valuation Report deduction in respect of provision for gratuity of INR 9,71,939/- was claimed by the Appellant. Thus, in the aforesaid facts and circumstances, the Appellant was not able to file the additional evidence being the aforesaid agreements, actuarial valuation report and other documents pertaining to payment of salary to the contract labour. He submitted that the additional evidence goes to the root of the matter and in the interest of justice the same be admitted as the Appellant. He reiterated that the Appellant was not confronted the CIT(A) before rejecting the claim under Section 37 of the Act. He further submitted since the Appellant was contractually bound to make the payments towards gratuity of the contract labour, the Appellant was entitled to claim deduction for the same under Section 37 of the Act as expenses incurred wholly and exclusively for the purpose of business of the Appellant. He further submitted that the authorities below erred in invoking provisions of Section 40A(7) of the Act without appreciating the nature of transaction and deduction claimed by the Appellant. 8. Per contra, the Ld. Departmental Representative submitted that the Appellant had placed these documents for the first time before the Tribunal and neither the Assessing Officer nor the CIT(A) had any opportunity to examine the same. ITA. No. 2889//Mum/2022 Assessment Year: 2018-19 5 Therefore, the additional evidence should not be admitted. Touching upon the merits of the matter, the Ld. Departmental Representative submitted that the Assessing Officer as well as CIT(A) were justified in invoking provisions of Section 40A(7) of the Act as the Appellant had admitted that contract labour were not employees of the Appellant. 9. We have considered the rival submissions and perused the material on record. We find merit in the contention raised by the Ld. Authorised Representative for the Appellant that the admission of additional evidence is necessary for adjudication of the issue raised in the present appeal since the same is relevant for determining the Appellant obligations relating to gratuity payment to the contract labour and thus, go to the root of the matter. Further, the alternative claim of the Appellant for deduction under Section 37 of the Act was admitted and thereafter, rejected by the CIT(A) on merits without confronting the Appellant. The additional evidence now filed before us was also pivotal to the adjudication of the alternative claim. Accordingly, keeping in view the facts and circumstances of the case we hold that the Appellant had reasonable cause for not filing the additional evidence before the authorities below. Thus, in the interest of justice we admit the additional evidence filed by the Appellant along with the application for admission of additional evidence dated 02.01.2023. However, keeping in view the submission of the Ld. Departmental Representative that the Revenue be permitted to examine the agreements/documents, we remand the issue back to the file of Assessing Officer for de-novo adjudication after taking into consideration the additional evidence and after providing the Appellant a reasonable ITA. No. 2889//Mum/2022 Assessment Year: 2018-19 6 opportunity of being heard. Since the alternative claim of the Appellant for deduction under Section 37 of the Act admitted and was adjudicated on merits by the CIT(A), the Assessing Officer is also directed to adjudicate upon the same. In terms of the aforesaid directions, the present appeal stands disposed off. 10. In terms of paragraph 9 above, the present appeal is allowed for statistical purposes. Order pronounced on 31.01.2023. Sd/- Sd/- (B.R. Baskaran) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 31.01.2023 Alindra, PS ITA. No. 2889//Mum/2022 Assessment Year: 2018-19 7 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदिकरण, म ुंबई / ITAT, Mumbai