M/s. Tirunelveli A.C.A. Chits (P) Ltd., CHENNAI V. ITO, Tirunelveli

ITA 3030/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7418 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 27-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C. YAMUNA
• Assessee Lawyers: A.S.SRIRAMAN
• Keywords: Business income; Business expenditure; Charitable institution; Diversion of income; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI . . . , ! '#.. $ %!& , ( )* BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ! ./ ITA NOS.3029 & 3030/MDS/2016 + ,+ /ASSESSMENT YEAR: 2012-13 & 2013-14 M/S.TIRUNELVELI A.C.A. CHITS (P) LTD., 135, S.N.HIGH ROAD, TIRUNELVELI-627 001. VS. THE INCOME TAX OFFICER, WARD-5, TIRUNELVELI. [PAN: AAACT 5943 J ] ( -. /APPELLANT) ( /0-. /RESPONDENT) -. 1 2 / APPELLANT BY : MR A.S.SRIRAMAN, ADVOCATE /0-. 1 2 /RESPONDENT BY : MRS. C.YAMUNA, JCIT $ 1 3( /DATE OF HEARING : 31.01.2017 45, 1 3( /DATE OF PRONOUNCEMENT : 23.03.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 17.08.2016 OF COMMISSIONER OF INCOME TAX (APPEALS)- 3, MADURAI, IN ITA NO.0039/2015-16 FOR THE AY 2012-13 AND ORDER DATED 15.09.2016 OF COMMISSIONER OF INCOME TAX (APPEALS)-3, MADURAI, IN ITA NO.0172/2015- 16 FOR THE AY 2013-14. ITA NOS.3029 & 3030/MDS/2016 :- 2 -: 2.0 THE ISSUES INVOLVED FOR BOTH THE APPEALS ARE COMMO N. THEREFORE, THE APPEALS ARE HEARD TOGETHER AND DISPOSED OF BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2.1 THE FIRST ISSUE IS RELATED TO THE CHARITY COLLECTI ONS MADE BY THE ASSESSEE ALONG WITH THE CHIT SUBSCRIPTIONS. FOR TH E AY 2012-13, THE ASSESSEE COLLECTED A SUM OF RS.76,850/- AND FOR THE AY 2013-14 THE ASSESSEE COLLECTED A SUM OF RS.1,67,506/- AS CHARIT Y WHICH WAS ADDED BACK TO THE RETURNED INCOME IN THE RESPECTIVE ASSES SMENT YEARS. 2.2 THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CHITS W ITH HEAD OFFICE AT TIRUNELVELI AND HAVING BRANCHES IN OTHER LOCATIONS. THE ASSESSEE COLLECTED THE CHARITY AMOUNT ALONG WITH THE CHIT SUBSCRIPTION S FROM CHIT SUBSCRIBERS WHICH WERE LATER TRANSFERRED TO M/S.S.A.R. TRUST SE T TO HAVE BEEN INCORPORATED BY THE FOUNDER OF THE COMPANY. THE TR UST IS NOT HAVING EXEMPTION U/S.80-G OF INCOME TAX ACT. SINCE, DONATI ONS WERE COLLECTED ALONG WITH THE CHIT SUBSCRIPTIONS, THE ASSESSING OF FICER (IN SHORT AO) TREATED THE AMOUNT COLLECTED UNDER THE HEAD CHARIT Y A/C AS BUSINESS RECEIPTS AND ADDED BACK TO THE RETURN OF INCOME. THE ASSESSEE WENT ON APPEAL BEFORE THE LD.CIT(A) AND THE LEARNED COMMIS SIONER OF INCOME TAX(APPEALS) (IN SHORT LD.CIT(A)) AND THE LD.CIT( A) CONFIRMED THE ADDITION MADE BY THE AO OBSERVING THAT THE CUSTOMER S OF THE ASSESSEE HAD TO DEPOSIT THE CHARITY AMOUNT ALONG WITH CHIT SUBSCRIPTIONS AS THEY ITA NOS.3029 & 3030/MDS/2016 :- 3 -: DO NOT HAVE ANY OTHER CHOICE BUT TO REMIT THE CHARI TY AMOUNT ALONG WITH THE SUBSCRIPTION AS THE ASSESSEE WOULD NOT ACCEPT T HE CHIT SUBSCRIPTION WITHOUT THE CHARITY AMOUNT. IT IS NOT THE CASE OF ASSESSEE THAT THE CHARITY AMOUNT WAS VOLUNTARILY DEPOSITED TO M/S.S.A.R. TRUS T BY THE SUBSCRIBERS OF THE CHIT. IT CANNOT BE SAID THAT THERE WAS A DI VERSION BY OVERRIDING TITLE, SINCE THE ASSESSEE COLLECTED THE AMOUNT AND REMITTED THE SAME TO THE TRUST. THE LD.CIT(A) OBSERVED THAT THE ASSESSE E CAN ONLY MAKE A CLAIM U/S.80-G BUT THE RENEWAL OF EXEMPTION WAS NOT DONE, HENCE THE LD.CIT(A) CONFIRMED THE ADDITION. 2.3 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSES SEE FILED APPEAL BEFORE THIS TRIBUNAL AND ARGUED THAT THE ASSESSEE M AKES CHARITY COLLECTIONS ALONG WITH CHIT SUBSCRIPTIONS WHICH WAS LATER TRANSFERRED TO M/S.S.A.R. TRUST. THE AO MADE THE ADDITION WITHOUT UNDERSTANDING THE ISSUE PROPERLY. IN THE ASSESSEES CASE, THE RULE O F CONSISTENCY AND THE THEORY OF OVERRIDING TITLE WAS COMPLETELY IGNORED B Y THE LD.CIT(A) AS WELL AS THE AO. ACCORDING TO THE LD.AR, THE AMOUNT WAS TRANSFERRED TO M/S.S.A.R. TRUST IS DIVERSION OF INCOME BY OVERRIDI NG TITLE AND THE CASE IS SQUARELY COVERED BY THE HONBLE SUPREME COURT JUDGM ENT IN THE CASE OF CIT V BIJLI COTTON MILLS (P) LTD. (1979) 116 ITR 60 AND ALSO THE DECISION OF THIS BENCH IN THE CASE OF M/S.STANDARD FIREWORKS PV T. LTD. V. ACIT IN ITA NOS.2286 & 2287/MDS/2015 DATED 27.12.2016. ON THE OTHER HAND, THE LD.DR SUPPORTED THE LOWER AUTHORITIES ORDERS. ITA NOS.3029 & 3030/MDS/2016 :- 4 -: 2.4 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. THE ASSESSEE COLLECTED CHARITY AMOUNT FROM THE CHI T SUBSCRIBERS AND THE SAME IS TRANSFERRED TO M/S.S.A.R. TRUST. THE T RUST IS PROMOTED BY THE FOUNDER OF THE ASSESSEE. THE TRUST IS NOT HAVING E XEMPTION U/S.80G SINCE IT WAS NOT RENEWED AFTER 31.03.2006. THE ASSESSEE RELIED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF M/S.STANDARD FIREWO RKS PVT. LTD. CITED SUPRA AND ARGUED THAT THE CHARITY AMOUNT SHOULD NOT BE IN CLUDED IN THE INCOME OF THE ASSESSEE. IN THE CASE LAW RELIED UPON BY TH E ASSESSEE IN THE CASE OF M/S.STANDARD FIREWORKS PVT. LTD. THE ISSUE WAS R EMITTED BACK TO THE FILE OF AO. WE EXTRACT THE RELEVANT PARAGRAPHS OF THE I TAT ORDERS CITED SUPRA: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IS ENGAG ED IN THE BUSINESS OF MANUFACTURING AND SALE OF FIREWORKS. IN THE COURSE OF BUSINESS ACTIVI TY, THE ASSESSEE HAS COLLECTED 1.5% OF SALE VALUE TOWARDS CHARITY. FROM THE MATERIAL AVAILABLE ON RECORD, IT APPEARS WITHOUT PAYMENT OF SO-CALLED MAHAMAI / CHARITY, THE CUSTOMERS WERE NOT ABLE TO PURCHASE FIREWORKS FROM THE ASSESSEE COMPANY. THE QUESTION ARISES FOR CONSIDERA TION IS WHETHER THE CHARITY / MAHAMAI COLLECTED BY THE ASSESSEE FORMS PART OF TOTAL TURNO VER OF THE ASSESSEE? WHEN THE PAYMENT WAS MADE TO THE CHARITABLE INSTITUTION, WHETHER IT IS AN APPLICATION OF INCOME OR THE INCOME DIVERTED BY OVERRIDING TITLE ALSO NEEDS TO BE CONSI DERED? 7. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF A PEX COURT IN BIJLI COTTON MILLS (P.) LTD. (SUPRA). IN THE CASE BEFORE THE APEX COURT, DHARMA DA WAS COLLECTED ON SALE OF YARN AND COTTON, AT THE RATE OF 1 ANNA PER BUNDLE OF 10 LBS. OF YARN AND 2 ANNAS PER BALE OF COTTON. IN THE BILLS ISSUED TO THE CUSTOMERS, THESE AMOUNTS WERE SHOWN IN A SEPARATE COLUMN HEADED DHARMADA. THE AMOUNT SO COLLECTED WAS NOT IN THE TRADING ACCOUNT BUT A SEPARATE BOOKS OF ACCOUNT WAS MAINTAINED KNOWN AS DHARMADA ACCOUNT IN WHICH THE AMOUNT COLLECTED WAS CREDITED AND PAYMENTS MADE TO CHARITY WERE DEBITED. THE HIGH COURT FOUND THAT THE AMOUNT COLLECTED BY THE ASSESSEE TOW ARDS DHARMADA IS NOT AN INCOME OF THE ASSESSEE, THEREFORE, NOT LIABLE TO TAX. ON FURTH ER APPEAL BEFORE THE APEX COURT, IT WAS FOUND THAT WHEN THE CUSTOMERS PAID AMOUNTS TO ASSES SEES EARMARKING THEM FOR DHARMADA, THOSE PAYMENTS WERE VALIDLY EARMARKED F OR CHARITY AND THE ASSESSEE HOLDS THE AMOUNT UNDER AN OBLIGATION TO SPEND THE SAME FO R CHARITABLE PURPOSE, IT CANNOT BE CONSIDERED TO BE A TRADING RECEIPT. IN THE CASE BEF ORE US, IT IS NOT CLEAR FROM THE ORDERS OF BOTH THE AUTHORITIES BELOW WHETHER THE CHARITY / MA HAMAI COLLECTED BY THE ASSESSEE IS CREDITED IN THE TRADING ACCOUNT OR THE ASSESSEE IS MAINTAINING SEPARATE BOOKS OF ACCOUNT. IF THE ASSESSEE WAS MAINTAINING SEPARATE BOOKS AND CRE DITED THE AMOUNTS COLLECTED TOWARDS CHARITY / MAHAMAI AND DEBITED THE AMOUNTS PAID TO C HARITABLE PURPOSE, THEN THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT IN VIEW OF THE JUDGM ENT OF APEX COURT IN BIJLI COTTON MILLS (P.) LTD. (SUPRA), IT CANNOT BE CONSIDERED TO BE IN COME OF THE ASSESSEE, THEREFORE, THERE IS NO LIABILITY TO PAY THE TAX. ITA NOS.3029 & 3030/MDS/2016 :- 5 -: 8. THIS JUDGMENT OF APEX COURT WAS DISTINGUISHED BY THE CIT(APPEALS) ON THE GROUND THAT THE DIRECTORS OF THE ASSESSEECOMPANY WERE CONTROLLI NG THE TRUST. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT MERELY BECAUSE THE DIRECTOR S OF THE ASSESSEE-COMPANY WERE CONTROLLING THE TRUST, WHEN THE AMOUNTS WERE SPECIF ICALLY COLLECTED TOWARDS CHARITY AND THE ASSESSEE WAS MAINTAINING SEPARATE BOOKS OF ACCOUNT WITH REGARD TO COLLECTION OF CHARITY AND THE PAYMENTS MADE TO TRUST, IT CANNOT BE SAID THAT THE JUDGMENT OF APEX COURT IS NOT APPLICABLE TO THE FACTS OF THE CASE. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHEN THE ASSESSEE IS MAINTAINING BOOKS OF ACCOUNT IN RESPECT OF THE AMOUNTS COLLECTED TOWARDS MAHAMAI / CHARITY AND CREDITED THE AMOUNTS COLLECTE D TOWARDS CHARITY AND DEBITED THE AMOUNTS PAID TO THE TRUST IN THE SEPARATE BOOKS OF ACCOUNT, THE ASSESSEE IS NOT LIABLE FOR TAXATION. SINCE THESE ASPECTS WERE NOT EXAMINED BY THE ASSESSING OFFICER AS WELL AS THE CIT(APPEALS), THIS TRIBUNAL IS OF THE CONSIDERED OP INION THAT THE MATTER NEEDS TO BE RE- EXAMINED. ACCORDINGLY, THE ORDERS OF THE LOWER AUTH ORITIES ARE SET ASIDE AND THE CLAIM OF THE ASSESSEE IS REMITTED BACK TO THE FILE OF THE AS SESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE THE MATTER AFRESH AND BRING ON RECORD WH ETHER THE BILLS ISSUED BY THE ASSESSEE DISCLOSE THE MAHAMAI / CHARITY IN A SEPARATE COLUMN AND ALSO FIND OUT WHETHER THE ASSESSEE IS MAINTAINING SEPARATE BOOKS OF ACCOUNT IN RESPECT OF CHARITY / MAHAMAI COLLECTED AND PAYMENTS MADE TO THE TRUST AND, THEREAFTER DECIDE T HE ISSUE AFRESH IN THE LIGHT OF THE JUDGMENT OF APEX COURT IN BIJLI COTTON MILLS (P.) L TD. (SUPRA), AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 2.5 THE FACTS OF THE ASSESSEE ARE IDENTICAL TO THE DEC ISION OF THIS TRIBUNAL IN THE CASE OF M/S.STANDARD FIREWORKS PVT. LTD., CITED SUPRA. THEREFORE, WE REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE WHETHER THE ASSESSEE WAS MAINTAINING SEP ARATE BOOKS OF ACCOUNTS OR NOT AND DECIDE THE ISSUE AFRESH ON MERI TS. THE AASESSEES APPEAL ON THE ISSUE OF CHARITY COLLECTIONS IS ALLOW ED FOR STATISTICAL PURPOSES. 3.0 THE NEXT ISSUE IS RELATED TO THE DISALLOWANCE OF E NTERTAINMENT EXPENSES AMOUNTING TO RS.15,000/- FOR THE AY 2012-1 3 AND RS.25,000/- FOR THE AY 2013-14. DURING THE ASSESSMENT PROCEEDI NGS, THE AO FOUND THAT THE ASSESSEE HAS DEBITED THE FOLLOWING EXPENSE S UNDER THE HEAD ENTERTAINMENT AND STAFF WELFARE: AY ENTERTAINMENT STAFF WELFARE 2012-13 40,410.00 15,300.00 2013-14 94,920.00 SEPARATELY EXPENDITURE INCURRED FOR STAFF WELFARE ITA NOS.3029 & 3030/MDS/2016 :- 6 -: 3.1 THE AO DISALLOWED A SUM OF RS.40,410/- FOR THE AY 2012-13 AND RS.94,920/- FOR THE AY 2013-14. 3.2 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T ON APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) RESTRICTED THE DISALLOWANCE TO RS.15,000/- FOR THE AY 2012-13 & RS.25,000/- FOR TH E AY 2013-14. 3.3 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSES SEE FILED APPEAL BEFORE US. THE LD.DR ARGUED THAT THE DISALLOWANCE OF EXPENDITURE IS EXCESSIVE AND NO PROPER OPPORTUNITY WAS GIVEN BY TH E LD.CIT(A). ON THE OTHER HAND, THE LD.DR RELIED ON THE ORDERS OF THE L OWER AUTHORITIES. 3.4 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. THE EXPENDITURE INCURRED WAS ENTERTAINMENT OF STAF F UNDER THE HEAD ENTERTAINMENT EXPENSES & STAFF WELFARE, BOTH THE EX PENSES ARE INCURRED FOR THE WELFARE OF THE STAFF AND FOR THE PURPOSE OF BUSINESS. THE AO HAS NOT POINTED OUT THAT THE CLAIM OF THE ASSESSEE IS B OGUS. THE DISALLOWANCE MADE BY THE AO WAS ONLY WITH A REASON THAT THE EXPE NDITURE DEBITED WAS EXCESSIVE WITHOUT VERIFYING THE GENUINENESS OF THE EXPENDITURE. SINCE, THE AO HAS NOT MADE OUT ANY CASE FOR BOGUS EXPENDIT URE, WE DO NOT FIND ANY VALID REASON TO SUSTAIN THE ADDITION. ACCORDIN GLY, WE SET-ASIDE THE ITA NOS.3029 & 3030/MDS/2016 :- 7 -: ORDER OF THE LOWER AUTHORITIES AND ALLOW THE APPEAL OF THE ASSESSEE FOR BOTH THE AYS. 4.0 FOR THE AY 2013-14, THE ASSESSEE RAISED GROUN D NO.7 AGITATING THE RESTRICTIONS OF DISALLOWANCE OF REPAIRS AND MAINTEN ANCE EXPENSES RS.15,000/-, PRINTING & STATIONERY RS.20,000/-, ADV ERTISEMENT RS.15,000/- AND MISCELLANEOUS EXPENSES RS.20,000/- SUSTAINED BY THE LD.CIT(A). THE AO MADE ADDITION OF RS.26,522/- UND ER THE HEAD REPAIRS AND MAINTENANCE, RS.46,577/- UNDER THE HEAD STATION ERY AND ADVERTISEMENT, RS.41,704/- UNDER THE HEAD MISCELLAN EOUS EXPENSES FOR WANT OF VOUCHERS AND INVOICES. THE LD.CIT(A) RESTR ICTED THE DISALLOWANCE AS UNDER: REPAIRS AND MAINTENANCE EXPENSES RS.15,000/- PRINTING & STATIONERY RS.20,000/- ADVERTISEMENT RS.15,000/- AND MISCELLANEOUS EXPENSES RS.20,000/- 4.1 DURING THE APPEAL, THE LD.AR OF THE ASSESSEE REPLI ED TO QUERRY FROM THE BENCH THAT IT IS NOT POSSIBLE TO OBTAIN VOUCHER S/INVOICES IN RESPECT OF ENTIRE EXPENDITURE UNDER THE ABOVE HEADS AND FURTHE R SUBMITTED THAT IT IS A ROUTINE BUSINESS EXPENDITURE INCURRED FOR DAY-TO- DAY RUNNING OF THE BUSINESS AND ARGUED THAT THE AO IS NOT JUSTIFIED IN MAKING THE ADDITION AND THE LD.CIT(A) OUGHT TO HAVE DELETED THE ADDITI ON. ON THE OTHER HAND, THE LD.DR SUPPORTED THE ORDERS OF THE LOWER A UTHORITIES. ITA NOS.3029 & 3030/MDS/2016 :- 8 -: 4.2 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. IT IS NOTICED FROM THE ASSESSMENT ORDER THAT THE A SSESSEE DEBITED A SUM OF RS.53,043/-, RS.1,55,256/-, RS.1,29,013 & RS .55,000/- UNDER THE HEADS REPAIR AND MAINTENANCE, PRINTING AND STATIONE RY, MISCELLANEOUS EXPENSES AND CONVEYANCE EXPENSES. THE ASSESSEE COU LD NOT PRODUCE THE EVIDENCES IN THE FORM OF BILLS AND VOUCHERS FOR MAJ OR PART OF THE EXPENDITURE BEFORE THE AO AND THE EXPENDITURE WAS I NCURRED IN SELF-MADE VOUCHERS. THEREFORE, THE AO DISALLOWED RS.79,379/- UNDER THE HEAD TRAVELLING, RS.26,522/- UNDER THE HEAD REPAIRS AND MAINTENANCE, RS.46,577/- UNDER THE HEAD PRINTING AND STATIONERY AND ADVERTISEMENT, RS.41,704/- UNDER THE HEAD MISCELLANEOUS EXPENSES A ND RS.55,000/- UNDER THE HEAD CONVEYANCE EXPENSES. BEFORE THE LD. CIT(A) ALSO THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE AND SUBMITTED THAT IT IS NOT POSSIBLE TO OBTAIN PROPER VOUCHERS IN RESPECT OF TH E ENTIRE EXPENDITURE CLAIMED UNDER THE ABOVE HEADS. THE LD.CIT(A) CONSI DERED THE SUBMISSION AND SCALED DOWN THE DISALLOWANCE REASONABLY. THERE FORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) AND UPH OLD THE ORDER OF THE LD.CIT(A) AND THE ASSESSEES APPEAL ON THIS GROUND IS DISMISSED. ITA NOS.3029 & 3030/MDS/2016 :- 9 -: 5.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MARCH, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( '# . . $ %!& ) (D.S.SUNDER SINGH) ( /ACCOUNTANT MEMBER /CHENNAI, 6! /DATED: 23 RD MARCH, 2017. TLN 1 /3%7 87,3 /COPY TO: 1. -. /APPELLANT 4. $ 93 /CIT 2. /0-. /RESPONDENT 5. 7 : /3 /DR 3. $ 93 ( ) /CIT(A) 6. #+ = /GF