TVS Infotech Limited, CHENNAI V. ACIT Corporate Circle 3(1), CHENNAI

ITA 3164/CHNY/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5033 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 26-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NETHRA PAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Business expenditure; Question of law; Set aside
• Section: 43B; 115JB

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.3164/CHNY/2017 / ASSESSMENT YEAR: 2007-08 M/S. TVS INFOTECH LIMITED, 98A, DR. RADHAKRISHNAN SALAI, MYLAPORE, CHENNAI 600 004. [PAN: AAACS7746L] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(1), CHENNAI 600 034. ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE / RESPONDENT BY : SHRI M.S. NETHRA PAL, JCIT / DATE OF HEARING : 13.05.2019 /DATE OF PRONOUNCEMENT : 22.05.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE CONSOLIDATED ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL) 9, CHENNAI, DATED 29.09.2017 RELEVANT TO THE ASSESSMENT YEAR 2007-08. THE GROUNDS RAISED IN THE APPEAL OF THE ASSESSEE ARE THAT (I) THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF PROVISION OF .9,41,721/- MADE TOWARDS LEAVE ENCASHMENT FOR THE YEAR ENDED 31.03.2007 AND (II) THE LD. CIT(A) ERRED IN CONFIRMING THAT THE PROVISION FOR GRATUITY AND LEAVE ENCASHMENT SHOULD BE ADDED TO BOOK PROFITS WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE INCOME I.T.A. NO. 3164/CHNY/17 2 TAX ACT, 1961 [ACT IN SHORT]. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND CONSULTANCY SERVICES. THE ASSESSEE HAS DEBITED .9,41,721/- AS PROVISION FOR LEAVE ENCASHMENT FOR THE YEAR ENDED 31.03.2007 AS BUSINESS EXPENDITURE BASED ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD. & ANR. V. UNION OF INDIA & ORS. [292 ITR 470]. SINCE THE EXPENDITURE WAS IN THE NATURE OF CONTINGENT LIABILITY AND THE ACTUAL PAYMENT WAS NOT MADE DURING THE ASSESSMENT YEAR, THE ASSESSING OFFICER DISALLOWED THE CLAIM MADE UNDER SECTION 43B OF THE ACT AND BROUGHT TO TAX. 3. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF PROVISIONS FOR LEAVE ENCASHMENT BY OBSERVING AS UNDER: 7.2.3 I HAVE CAREFULLY CONSIDERED THE OBSERVATION OF THE AO AND THE SUBMISSIONS OF THE APPELLANT. THE DECISION OF ITAT, CHENNAI IN THE CASE OF INDIAN OVERSEAS BANK, CITED SUPRA, IS NOT APPLICABLE BECAUSE IN THAT CASE THE TRIBUNAL FOLLOWED THE KOLKATA HIGH COURT DECISION IN THE CASE OF EXIDE INDUSTRIES LTD, 292 ITR 470, WHEREAS THE SUPREME COURT STAYED THE ORDER OF THE CALCUTTA HIGH COURT IN EXIDE INDUSTRIES LTD., CITED SUPRA, VIDE PETITIONS(S) FOR SPECIAL LEAVE TO APPEAL (CIVIL) NO(S).22889/2008 DATED 08.05.2009, WHICH IS REPRODUCED AS UNDER: PENDING HEARING AND FINAL DISPOSAL OF THE CIVIL APPEAL, DEPARTMENT IS RESTRAINED FROM RECOVERING PENALTY AND INTEREST WHICH HAS ACCRUED TILL DATE. IT IS MADE CLEAR THAT AS FAR AS THE OUTSTANDING INTEREST DEMAND AS OF DATE IS CONCERNED, IT WOULD BE OPEN TO THE DEPARTMENT TO RECOVER THAT AMOUNT IN CASE CIVIL APPEAL OF THE DEPARTMENT IS ALLOWED. WE FURTHER MAKE IT CLEAR THAT I.T.A. NO. 3164/CHNY/17 3 THE ASSESSEE WOULD, DURING THE PENDENCY OF THIS CIVIL APPEAL, PAY TAX AS IF SECTION 43B(F) IS ON THE STATUTE BOOK BUT AT THE SAME TIME IT WOULD BE ENTITLED TO MAKE A CLAIM IN ITS RETURNS. 7.2.4 THE SUPREME COURT THOUGH RESTRAINED THE DEPARTMENT FROM THE RECOVERY OF THE INTEREST AND THE PENALTY BUT HAD MADE IT CLEAR THAT THE ASSESSEE WOULD DURING THE PENDENCY OF THIS CIVIL APPEAL, PAY TAX AS IF SECTION 43B(F) IS ON THE STATUTE BOOK. SUBSEQUENTLY, THE KERALA HIGH COURT IN THE CASE OF SMITH INDIAN BANK LTD., 45 TAXMUNN.COM 428 HELD THAT THE SAID PAYMENT MUST BE ALLOWED ON ACTUAL PAYMENT BASIS AND THE RELEVANT PORTION IS REPRODUCED AS UNDER: 6. THEN COMING TO THE SECOND ISSUE, IT PERTAINS TO THE PROVISION MADE FOR LEAVE ENCASHMENT AND THE DISALLOWANCE CLAIMED WAS UNDER SECTION 43B(F). AS ALREADY STATED ABOVE, THE OPINION OF THE CIT (APPEALS) WAS SET ASIDE BY THE TRIBUNAL IN THE LIGHT OF THE STAY ORDER OF THE JUDGMENT OF THE HIGH COURT OF CALCUTTA IN EXCIDE INDUSTRIES CASE (SUPRA) AND THE SLP STATED ABOVE IS STILL PENDING. THEREFORE, THE OPINION OF THE TRIBUNAL SO FAR AS DISALLOWANCE CLAIMED IN RESPECT OF LEAVE ENCASHMENT UNDER SECTION 43B(F) OF THE ACT, AS ON TODAY, THE PROVISION SEEMS TO BE IN FORCE IN THE LIGHT OF THE STAY ORDER GRANTED BY THE APEX COURT IN THE SLP. THEREFORE, AS LONG AS SECTION 43B(F) IS ON STATUTE, THE SAID DISALLOWANCE IS JUSTIFIED. 7.2.5 SINCE THE HONOURABLE CHENNAI TRIBUNAL IN THE CASE OF INDIAN OVERSEAS BANK FOLLOWED THE DECISION OF CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD., WHICH DECISION WAS STAYED BY THE HONBLE SUPREME COURT, THE PROVISIONS OF SECTION 43B(F) IS IN STATUTE AND AS HELD BY THE KERALA HIGH COURT IN THE CASE OF SOUTH INDIAN BANK LTD., CITED SUPRA, THE SUMS HAVE TO BE ALLOWED ONLY ON ACTUAL PAYMENT BASIS AND NO PROVISION WHICH WAS NOT PAID CANNOT BE ALLOWED, THE DECISION OF BHARAT EARTH MOVERS, 112 TAXMAN 61, DATED 09,08.2000 IS ALSO NOT APPLICABLE BECAUSE THE CLAUSE (F) OF SECTION 43B WAS INSERTED SUBSEQUENT TO THE SAID SUPREME COURT JUDGMENT. THEREFORE, DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT OF RS.9,41,721/- IS HEREBY CONFIRMED. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. BY RELYING UPON THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE FINAL DISPOSAL OF THE CIVIL APPEAL IN THE CASE OF M/S. EXIDE INDUSTRIES LTD. & ANR. V. UNION OF INDIA & I.T.A. NO. 3164/CHNY/17 4 ORS. (SUPRA) IS PENDING BEFORE THE HONBLE SUPREME COURT, THIS ISSUE MAY BE REMITTED BACK TO THE ASSESSING OFFICER WITH THE SAME CONDITION IMPOSED BY THE HONBLE SUPREME COURT IN THE CASE OF M/S. EXIDE INDUSTRIES LTD. & ANR. V. UNION OF INDIA & ORS. (SUPRA) AND WHEN THE DECISION ON THE QUESTION OF LAW IN THAT CASE BECOMES FINAL, IT SHALL BE APPLIED TO THE ASSESSEES CASE. ON THE OTHER HAND, THE LD. DR FAIRLY CONCEDED TO THE SUBMISSIONS OF THE LD. COUNSEL. 5. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. AGAINST THE DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE AS REPRODUCED HEREINABOVE. IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2008-09, 2010-11 & 2014-15 IN I.T.A. NOS. 3165 TO 3167/CHNY/2017 DATED 30.05.2018, THE TRIBUNAL REMITTED THE MATTER BACK TO THE FILE OF ASSESSING OFFICER BY HOLDING AS UNDER: 8. THE AO/ASSESSEE SHALL FOLLOW THE DIRECTIONS ISSUED BY THE HONBLE SUPREME COURT IN THE CASE OF M/S. EXIDE INDUSTRIES LTD. & ANR. VS. UNION OF INDIA & ORS. IN APPEAL (CIVIL) NO(S).22889/2008 DATED 08.05.2009 AS EXTRACTED, SUPRA. WHEN THE QUESTION OF LAW IN THE CASE OF M/S. EXIDE INDUSTRIES LTD. & ANR. VS. UNION OF INDIA & ORS. BECOMES FINAL, THE AO SHALL AMEND THE IMPUGNED ORDERS CONFORMABLY TO SUCH DECISIONS AS PER SEC.158A OF THE INCOME TAX ACT, 1961. 6. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ALSO, WE DIRECT THE ASSESSING OFFICER TO DECIDE/AMEND THE IMPUGNED ORDERS WHEN THE QUESTION OF LAW IN THE CASE I.T.A. NO. 3164/CHNY/17 5 OF EXIDE INDUSTRIES LTD. & ANR. V. UNION OF INDIA & ORS (SUPRA) BECOMES FINAL. 7. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO CONFIRMATION OF ADDITION TOWARDS PROVISION FOR GRATUITY AND LEAVE ENCASHMENT ADDED TO BOOK PROFITS WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. THE PROVISION FOR GRATUITY, BEING ASCERTAINED LIABILITY, THOUGH DEBITED TO THE PROFIT AND LOSS ACCOUNT WAS NOT ADDED BANK IN COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT. HOWEVER, THE ASSESSING OFFICER HAD ADDED BACK THE PROVISION TOWARDS ASCERTAINED LIABILITIES VIZ., GRATUITY AND LEAVE ENCASHMENT IN COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE HAS SUBMITTED THAT THE PROVISION WAS MADE ON THE REPORT OF ACTUARY AND HENCE, IT IS AN ASCERTAINED LIABILITY. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED THAT SINCE THE ASSESSEE HAS NOT ESTABLISHED THAT THE PROVISION IS AN ASCERTAINED LIABILITY, HE HELD THAT THE ASSESSING OFFICER HAS CORRECTLY ADDED THE SAME AS PER CLAUSE (C) OF EXPLANATION 1 OF SECTION 115JB(2) OF THE ACT. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE CONSIDERED OPINION THAT EVEN THOUGH THE ACTUAL PAYMENT OF GRATUITY MAY BE MADE AT A LATER POINT OF TIME UPON PERIODICAL RELEASE OF THE EMPLOYEES FROM SERVICE, IT IS PROVISION HAVING BEEN MADE ON ACTUARIAL BASIS, IT CANNOT BE STATED TO BE AN I.T.A. NO. 3164/CHNY/17 6 UNASCERTAINED LIABILITY SO AS TO ADD IT BACK IN TERMS OF CLAUSE (C) TO EXPLANATION 1 TO SECTION 115JB OF THE ACT. HOWEVER, IF THE ASSESSEE HAS ESTABLISHED THAT THE PROVISIONS FOR PAYMENTS OF ASCERTAINED LIABILITIES WERE MADE ON THE BASIS OF ACTUARIAL VALUATION METHOD, THEN, THE ASSESSEE IS NOT REQUIRED TO BE ADDED BACK TO ITS BOOK PROFIT UNDER SECTION 115JB OF THE ACT. IT IS NOT EMANATING FROM THE ASSESSMENT ORDER AS TO WHETHER THE ASSESSEE HAS FURNISHED THE ACTUARIAL CALCULATIONS OF THE ASCERTAINED LIABILITY FOR EXCLUSION FROM ADDING THE SAME TO ITS BOOK PROFIT. THE ASSESSEE IS REQUIRED TO FURNISH BEFORE THE ASSESSING OFFICER THE ACTUARIAL CALCULATIONS OF THE ASCERTAINED LIABILITIES AND AFTER VERIFICATION OF THE SAME; THE ASSESSING OFFICER MAY ALLOW THE ASSESSEE TO EXCLUDE THE SAME FROM THE COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT. IF THE ASSESSEE CHOSE NOT FILE THE VALUATIONS, THEN THE ADDITION MADE BY THE ASSESSING OFFICER STANDS SUSTAINED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 22 ND MAY , 2019 IN CHENNAI. SD/ - SD/ - (A.MOHAN ALANKAMONY) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, 22.05.2019 VM/- I.T.A. NO. 3164/CHNY/17 7 /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.