GRAVISS HOSPITALITY LTD ( EARLIER KNOWN AS THE G.L. HOTELS LTD, MUMBAI V. DCIT 1(1), MUMBAI

ITA 3162/MUM/2010

• Counselvise Citation: 316219914 RSA 2010
• Duration Of Justice: 1 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 22-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: A K NAYAK
• Section: 43B; 143(3); 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, H BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, PRESIDENT AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER I.T.A NO.3162/ MUM/2010 ASSESSMENT YEAR: 2006-07 GRAVISS HOSPITALITY LTD .. APPELLANT (EARLIER KNOWN AS THE G.L.HOTELS LTD) 254-C DR. A.B.ROAD, WORLI, MUMBAI. PA NO.AAACT 0048 E VS DCIT 11(1) ,. RESPONDEN T AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. APPEARANCES: VIJAY MEHTA, FOR THE APPELLANT A.K.NAYAK, FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CALLED INTO QUESTION CORRECTNESS OF CIT(A)S ORDER DATED 21 ST DECEMBER, 2009, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 206- 07. 2. GROUND NO.1 IS AGAINST CIT (A)S CONFIRMATION O F DISALLOWANCE OF RS.5,11,281 MADE BY THE AO UNDER SECTION 14A BY APPLYING RULE 8D. 3. BRIEFLY STATED THE MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.1,36,769 AND CLAIMED IT EXEMPT FROM TAXATION. T HE AO ALSO NOTICED THAT THE ASSESSEE HAD 2 NOT ALLOCATED ANY EXPENDITURE FOR EARNING DIVIDEND INCOME. IT WAS IN THIS BACKDROP, THE ASSESSING OFFICER REQUIRED TO ASSEESSEE TO EXPLAIN AS TO WHY THE DISALLOWANCE BE NOT MADE UNDER SECTION 14A OF THE ACT IN RESPECT OF THE EXPE NSES INCURRED, FOR EARNING THE INCOME CLAIMED AS EXEMPT AS PER RULE 8D. IN RESPONSE TO A SSESSING OFFICERS REQUISITION, IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAS NOT USED ANY INTEREST BEARING BORROWED FUNDS FOR MAKING INVESTMENTS IN SHARES AND SECURITIES AND MUT UAL FUNDS AND THERE IS NO DIRECT NEXUS BETWEEN EXPENSES INCURRED AND EXEMPTED INCOME. THE REFORE, NO EXPENSES SHALL BE DISALLOWED UNDER SECTION 14A OF THE ACT. THE ASSES SING OFFICER DID NOT ACCEPT THE ASSESSEES CONTENTION AND DISALLOWED RS.5,11,281 UNDER SECTION 14A OF THE ACT. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. BEING AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. LEARNED REPRESENTATIVES AGREE THAT SO FAR AS THE QUESTION OF RULE 8D IS CONCERNED, THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESEE B Y THE HONBLE JURISDICTIONAL HIGH COURTS JUDGEMENT IN THE CASE OF GODREJ & BOYCE MFG CO LTD VS DCIT (328 ITR 81), WHEREIN, IT HAS BEEN HELD THAT RULE 8D OF THE INCOME TAX RULES, 19 62 IS APPLICABLE ONLY PROSPECTIVELY I.E. FROM A.Y. 2008-09. THE ASSESSMENT YEAR INVOLVED IN THE PRESENT CASE IS 2006-07. THE HONBLE HIGH COURT HAS HELD THAT A REASONABLE DISALLOWANCE FOR EXPENSES INCURRED IN EARNING DIVIDEND INCOME IS NEVERTHELESS TO BE COMPUTED BY T HE AO. IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GO DREJ BOYCE MFG CO. LTD (SUPRA), WE REMIT THE ISSUE TO THE FILE OF THE AO TO RE-COMPUTE THE D ISALLOWANCE U/S.14A IN THE LIGHT OF THE LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG CO. LTD (SUPRA). 5. GROUND NO.1 IS THUS ALLOWED FOR STATISTICAL PURP OSES. 6. GROUND NO.2 IS AGAINST CIT (A)S CONFIRMATION OF DISALLOWANCE OF RS.5,04,619 OUT OF EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND AND ESIC. 7. FACTS ARE THAT DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS MADE DELAYED PAYMENTS OF RS.12,25,973 IN RESPECT OF EMPLOYEES CONTRIBUTION TOWARDS PF AND ESIC. THE A SSESSING OFFICER REQUIRED THE ASSESSEE AS TO WHY THE BELATED PAYMENTS MADE TO PF & ESIC SH OULD NOT BE DISALLOWED WITHOUT 3 CONSIDERING THE GRACE PERIOD AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. SINCE THE ASSESSEE DID NOT ANY REPLY TO ASSESSING OFFICERS R EQUISITION, AN AMOUNT OF ` . 12,25,973 WAS DISALLOWED BEING THE DELAYED PAYMENTS TOWARDS EMPLO YEES CONTRIBUTION TO PF AND ESIC. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE CIT (A). 8. THE CIT (A) TOOK NOTE THAT OUT OF TOTAL AMOUNT O F RS 12,25,973, AN AMOUNT OF RS. 4,67,772 TOWARDS PF AND RS. 36,847 TOWARDS ESIC HAS BEEN PAID BEYOND THE GRACE PERIOD OF 5 DAYS. THE CIT (A) FOLLOWING THE DECISION OF ITAT , MUMBAI IN THE CASE OF VIRAJ FORGOINGS LTD V ACIT, WAS OF THE VIEW THAT DEDUCTION U/S.36(1)(VA ) IS ADMISSIBLE ONLY IF THE EMPLOYER PAYS OR CREDIT SUCH CONTRIBUTION TO THE EMPLOYEES ACCOU NT IN THE RELEVANT FUND ON OR BEFORE THE DUE DATE PRESCRIBED UNDER THE RELEVANT LAW AND SUCH PAYMENTS AFTER THE DUE DATE AS EXTENDED BY GRACE PERIOD ARE PLAINLY INADMISSIBLE FOR DEDUCT ION. HENCE, HE DISALLOWED THE CONTRIBUTION OF RS. 5,04,619 BEING PAID BEYOND THE GRACE PERIOD AND ALLOWED THE GROUND IN PART. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 9. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE EMPLOYEES CONTRIBUTION SHOULD BE ALLOWED UNDER SEC TION 43B IF IT IS DEPOSITED WITHIN THE DUE DATE FOR FILING THE RETURN OF INCOME FOR THE ASSESS MENT YEAR IN QUESTION. HE ALSO PRODUCED A COPY OF DECISION OF A CO-ORDINATE BENCH OF THIS TRI BUNAL IN THE CASE OF PRANAVADITYA SPINNING MILLS LTD V ACIT IN ITA NO.6855/M/2008 ORDER DATED 22.3.2010, WHEREIN, ON SIMILAR FACTS, THE DISALLOWANCE MADE IN RESPECT OF PF AND ESIC HAS BEEN DELETED. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS FOLLOWS: 4. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON SEVERAL ORDERS OF THE MUMBAI BENCHES OF THE TRIBUNAL IN SUPPORT OF HIS CO NTENTION THAT THE EMPLOYEES CONTRIBUTION SHOULD BE ALLOWED UNDER SEC TION 43B IF IT IS DEPOSITED WITHIN THE DUE DATE FOR FILING THE RETURN FOR THE ASSESSMENT YEAR IN QUESTION. IN THE CASE OF IMPLEX ENGINEERING & FOUND RY WORKS P. LTD. VS. JCIT, IN ITA NO: 60/MUM/2006 DATED 29TH NOVEMBER 2007 (A SSESSMENT YEAR 2003-04) AND CONNECTED APPEALS, IT HAS BEEN OPINED BY THE TRIBUNAL IN PARA 16 THAT SINCE THE CONTRIBUTION OF THE EMPLOYEES IS WITHHELD BY THE EMPLOYER BY DEDUCTING THE SAME FROM THE WAGES AND SALARIES, THE DUES OF THE EMPLOYEES MERGED WITH THE FUNDS OF THE EMPLOYER AN D THE EMPLOYEES CONTRIBUTION THUS BECOMES SIMILAR TO THE EMPLOYERS OWN CONTRIBUTION. IT HAS BEEN OBSERVED THAT THE NATURE OF THE SOURCE OF BOTH EMPLOYERS AS WELL AS EMPLOYEES CONTRIBUTION IS THE SAME, NAMELY, THE FUNDS OF THE EMPLOYER. IN THIS VIEW OF THE MATTER IT HAS BEEN HELD THAT TH E CONTRIBUTION OF THE EMPLOYEES PAID WITHIN THE DUE DATE FOR FILING THE RETURN OF INCOME IS ALLOWABLE UNDER SECTION 43B. THIS ORDER OF THE TRIB UNAL HAS NOT BEEN REFERRED TO IN THE SUBSEQUENT ORDER OF THE TRIBUNAL DATED 28TH JANUARY 2010 4 IN THE CASE OF THE SAME ASSESSEE, NAMELY, SIMPLEX E NGINEERING & FOUNDRY WORKS, FOR THE ASSESSMENT YEAR 2004-05 IN ITA NO: 3 78/MUM/2009 AND WITHOUT REFERENCE TO THE EARLIER ORDER, THE DISALLO WANCE OF THE EMPLOYEES CONTRIBUTION WAS UPHELD BY THE TRIBUNAL. IN ANOTHER ORDER PASSED ON 28TH JANUARY 2010 IN ITA NO: 6847/MUM/2008 (ASSESSMENT Y EAR 2005-06) IN THE CASE OF PIK PEN PRIVATE LIMITED VS. ITO, THE TRIBUN AL WAS DEALING WITH THE EMPLOYEES CONTRIBUTION TO PROVIDENT FUND AND ESIC , WHICH WAS PAID EVEN BEYOND THE GRACE PERIOD. THE ASSESSING OFFICER HAD DISALLOWED THE PAYMENT UNDER SECTION 36(1)(VA), HOLDING THAT THE CONTRIBUT ION WAS NOT COVERED BY SECTION 43B. THE TRIBUNAL WAS OF THE OPINION THAT T HE CASE WAS COVERED BY THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CI T VS. ALOM EXTRUSIONS LTD. (2009) 319 ITR 306 (SC) AND ACCORDINGLY HELD T HAT THE CONTRIBUTION OF THE EMPLOYEES, IF PAID BEFORE THE DUE DATE FOR FIL ING THE RETURN OF INCOME AS CONTEMPLATED BY THE PROVISO TO SECTION 43B, IS TO B E ALLOWED AS A DEDUCTION. IN THE CASE OF RADHAKRISHNA FOOD LAND PVT. LTD. VS. ACIT, IN ITA NO: 4211/MUM/2006 (ASSESSMENT YEAR 2003-04), THE TRIBUN AL BY ORDER DATED 11TH FEBRUARY 2008 HELD, FOLLOWING THE VIEW TAKEN B Y THE SUPREME COURT IN THE CASE OF CIT VS. VINAY CEMENT LTD. (2007) 213 CT R 268 (SC), THAT THE EMPLOYEES CONTRIBUTION PAID BEFORE THE DUE DATE FO R FILING THE RETURN OF INCOME IS ALLOWABLE AS A DEDUCTION. THERE IS THUS A SERIES OF ORDERS OF THE MUMBAI BENCHES OF THE TRIBUNAL ON THE ISSUE AND RES PECTFULLY FOLLOWING THEM WE DELETE THE DISALLOWANCE OF 14,02,512/-, OUT OF WHICH RS.5,62,450/- WAS PAID AFTER THE DUE DATE BUT BEFORE THE GRACE PE RIOD AND RS.8,40,062/- WAS PAID AFTER THE GRACE PERIOD BUT BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME. THE FIRST GROUND IS ACCORDINGLY ALLOWED. RESPECTFULLY FOLLOWING THE DECISION OF A CO-ORDINAT E BENCH IN THE CASE OF M/S. PRANAVADITYA SPINNING MILLS LTD (SUPRA) WE DELETE THE ADDITION O F RS. 5,04,619 SUSTAINED BY THE CIT (A). 10. GROUND NO.2 IS THUS ALLOWED. 11. IN GROUND NO.3, THE ASSESSEE IS AGGRIEVED BY TH E CONFIRMATION OF ADDITION OF ` .59,889 MADE BY THE AO TO THE TOTAL INCOME BASED ON INFORMA TION IN AIR. 12. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT AS PE R INFORMATION RECEIVED BY HIM, THE ASSESSEE HAS RECEIVED A SUM OF ` .51,939 ON 30.9. 2005 FROM M/S. L.K.P. FOREX LTD., TOWARDS COMMISSION INCOME AND SUM OF ` .3,050, ` .3,050 ON 3.2.2006 AND ` .1,850 FROM M/S. HDFC ASSET MANAGEMENT CO. LTD. ON 24.2.2006 TOTALING TO ` .59,889. SINCE THE RECEIPTS OF ABOVE AMOUNTS WERE NOT OFFERED IN THE RETURN OF INCOME, T HE ASSESSING OFFICER ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, THE A SSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A) BUT WITHOUT ANY SUCCESS. 5 13. THE CIT (A) NOTED THAT THE ASSESSEE HAS PRODUCE D LEDGER ACCOUNTS OF M/S. L.K.P. FOREX AND HDFC CASH MANAGEMENT CO. LTD, WHICH APPARENTLY DID NOT SHOW THESE ENTRIES BUT STILL HE PROCEEDED TO CONFIRM THE ADDITION ON THE GROUND THAT THE APPELLANT COMPANY FAILED TO PRODUCE ANY VALID REASON AS TO WHY THE APPELLANT HA S NOT SHOWN THIS AMOUNT IN THE RETURN OF INCOME. THE ASSESSEE IS AGGRIEVED AND IS IN FURTH ER APPEAL BEFORE US. 14. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING P ERUSED THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE IMPUGNED ADDITION IS INDEE D DEVOID OF LEGAL SUSTAINABLE MERITS INASMUCH AS INFORMATION RECEIVED THROUGH AIR, OR WH ATEVER SOURCES, CAN AT BEST A STARTING POINT FOR ASCERTAINING THE FACTS BUT SUCH INFORMATI ON CANNOT BY ITSELF BE THE REASON FOR MAKING ANY ADDITION. IN THE PRESENT CASE, WHEN ASS ESSEE WAS CONFRONTED THAT THE INFORMATION REGARDING ALLEGED RECEIPTS BY THE ASSES SEE, THE ASSESSEE HAD GIVEN DETAILS OF TRANSACTIONS WITH THE RELATED PARTIES AND MADE AN E FFORT TO DEMONSTRATE THAT HE HAS NOT RECEIVED MONEY AS INDICATED BY AIR INFORMATION. T HE EXPLANATION GIVEN BY THE ASSESSEE CANNOT SIMPLY BE BRUSHED ASIDE AS THE AUTHORITIES B ELOW HAVE CHOSEN TO DO IN THE PRESENT CASE. HAVING SAID THAT, HOWEVER, WE MAY ADD THAT T HE EXPLANATIONS GIVEN BY THE ASSESSEE ARE REQUIRED TO BE DEALT WITH ON MERITS SO AS TO TAKE A DECISION ON THE ISSUE. THE ASSESSING OFFICER WAS REQUIRED TO OBTAIN FURTHER INFORMATION FROM LKP FOREX AND HDFC DIRECTLY AND CO NFRONT THEM WITH THE STAND OF THE ASSESSEE, SO AS T O GET AT THE TRUTH. IN THIS VIEW OF THE MATTER, WE DEEM IT FIT AND PROPER TO REMIT THE ISSU E BACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATING DENOVO IN THE LIGHT OF ABOVE OBSER VATIONS, IN AN OBJECTIVE MANNER AND BY DEALING WITH THE CONTENTION OF THE ASSESSEE BY WAY OF A SPEAKING ORDER. 15. GROUND NO.3 IS THUS ALLOWED FOR STATISTICAL PUR POSES IN THE TERMS INDICATED ABOVE. 16. IN THE RESULT, APPEAL IS ALLOWED IN THE TERMS I NDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON 29 TH APRIL, 2011 SD/- (R.V.EASWAR) PRESIDENT SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 29 TH APRIL, 2011 PARIDA 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),1, MUMBAI 4. COMMISSIONER OF INCOME TAX,1 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH H, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI