M/s. Mapcon Pvt. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 353/CHNY/2012

• Counselvise Citation: 35321714 RSA 2012
• Duration Of Justice: 2 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 20-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Earning of tax free income
• Section: 43B; 143(3); 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . , . . , ! ' [BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMB ER AND SHRI S. S. GODARA, JUDICIAL MEMBER] ./ I.T.A.NO.353/MDS/2012 / ASSESSMENT YEAR : 2008-09 M/S MAPCON PVT. LTD NO.161, GREAMS ROAD CHENNAI 600 006 VS. THE DY. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE IV(1) CHENNAI [PAN AAACM 4599 F] ( #$ / APPELLANT) ( %&#$ /RESPONDENT) ./ I.T.A.NO.601/MDS/2012 / ASSESSMENT YEAR : 2008-09 THE ASST. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE IV(1) CHENNAI VS. M/S MAPCON PVT. LTD NO.161, GREAMS ROAD CHENNAI 600 006 ( #$ / APPELLANT) ( %&#$ /RESPONDENT) ASSESSEE BY : SHRI S SRIDHAR, ADVOCATE DEPARTMENT BY : SHRI GURU BASHYAM, JCIT / DATE OF HEARING : 11-09-2014 / DATE OF PRONOUNCEMENT : 17-10-2014 I.T.A.NOS.353 & 601/12 :- 2 -: ' / O R D E R PER S.S.GODARA, JUDICIAL MEMBER THESE CROSS APPEALS BY ASSESSEE AND THE REVENUE FOR ASSESSMENT YEAR 2008-09, ARE DIRECTED AGAINST ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-V CHENNAI, DATE D 30.12.2011, PASSED IN I.T.A.NO.353/2010-11 IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEES GROUNDS CHALLENGE THE CIT(A)S ORDER SUSTAINING DISALLOWANCES/ADDITIONS OF MERGER EXPENS ES, EMPLOYEES CONTRIBUTION TO PF AND STATE INSURANCE AND THE ONE PERTAINING TO EXEMPT INCOME U/S 14A AMOUNTING TO ` 2.80 LAKHS, ` 82,235/- AND ` 10,65,537/- RESPECTIVELY. THE REVENUES GRIEVANCE IN ITS APPEAL IS THAT THE LOWER APPELLATE AUTHORITY OUGHT TO HAVE AFFIRME D THE DISALLOWANCE/ADDITION OF ` 29,78,396/- RELATING TO COMPENSATION PAID TO THE ASSESSEES WORKMEN WELL AFTER 31.3.2008. 3. THE ASSESSEE IS A COMPANY. IT MANUFACTURES AND TRADES IN FLOOR TILES. THE ASSESSEE HAD FILED ITS RETURN ON 7.10.2008 ADMITTING INCOME OF ` 6,15,952/- UNDER NORMAL PROVISIONS WITH BOOKS PROF ITS U/S 115JB OF ` 36,85,368/-. THE SAME WAS SUMMARILY PROCESSED. THEREAFTER, THE ASSESSING OFFICER FRAMED REGULAR ASSESSMENT ON 29.12.2010 INTERALIA, MAKING THE AFORESAID DISALLOW ANCES/ADDITIONS. I.T.A.NOS.353 & 601/12 :- 3 -: THE CIT(A) HAS ONLY DELETED THE DISALLOWANCE OF ` 29,78,396/- QUA COMPENSATION PAID TO THE ASSESSEES WORKMEN AND AFF IRMED THE ASSESSING OFFICERS OTHER FINDINGS. IN THIS BACKD ROP, BOTH PARTIES HAVE PREFERRED THEIR RESPECTIVE APPEALS. WE TAKE UP ASSESSEES APPEAL I.T.A.NO.353/MDS/201 2 FOR DISPOSAL. 4. THE ASSESSEES FIRST GROUND PERTAINS TO EXPENSES O F ` 2.80 LAKHS INCURRED IN FURTHERANCE TO HON'BLE MADRAS HI GH COURTS ORDER DATED 17.12.2007 APPROVING MERGER SCHEME OF SHREE S TRUCTURALS PVT. LTD WITH ITSELF. IT HAD NOT ELABORATED THE CLAIM B EFORE THE LOWER AUTHORITIES BY FILING ATLEAST A COPY OF THE RELEVAN T SCHEME. THE ASSESSING OFFICER AS WELL AS CIT(A) ADOPT THIS PREC ISE REASON FOR MAKING THE IMPUGNED DISALLOWANCE. THE VERY FACTUAL POSITION CONTINUES HEREIN AS WELL. IN THESE CIRCUMSTANCES, WE ALSO AFFIRM THE ACTION OF THE LOWER AUTHORITIES AND UPHOLD THE IMPU GNED DISALLOWANCE OF ` 2.80 LAKHS. THE ASSESSEES RELEVANT GROUND IS RE JECTED. 5. THE ASSESSEES SECOND SUBSTANTIVE GROUND ASSAILS DISALLOWANCE OF ` 86,235/- QUA ITS EMPLOYEES PROVIDENT FUND AND STA TE INSURANCE CONTRIBUTIONS. IT HAD RECEIVED THE SAID SUMS BUT DID NOT REMIT THE SAME UPTO THE DUE DATE. THE ASSESSEE HAD REMITTED THE AFORESAID CONTRIBUTIONS ONLY BEFORE FILING OF ITS RETURN. THE ASSESSING I.T.A.NOS.353 & 601/12 :- 4 -: OFFICER INVOKED SECTION 2(24)(X) R.W.S 36(1)(VA) R .W.S 43B OF THE ACT FOR MAKING THE IMPUGNED DISALLOWANCE AND OBSERVED T HAT IT OUGHT TO HAVE BEEN REMITTED THE SAID SUMS BEFORE THE DUE DAT E PRESCRIBED UNDER THE RELEVANT STATUTES. 6. THE CIT(A) HAS ALSO UPHELD THE ASSESSING OFFICERS ACTION. 7. WE HAVE HEARD BOTH PARTIES AND PERUSED THE RELEVA NT FINDINGS. THERE IS HARDLY ANY DISPUTE THAT THE AS SESSEE HAD REMITTED THE AFORESAID EMPLOYEES PROVIDENT FUND AND STATE I NSURANCE CONTRIBUTIONS AFTER THE DUE DATE STATED IN THE RE LEVANT STATUTES BUT BEFORE FILING ITS RETURN. IT RELIES ON CASE LAW CI T VS ALOM EXTRUSIONS LTD. [2009]319 ITR 306(SC), CIT VS AIMIL LTD. [2010 ] 321 ITR 508(DEL) AND DECISION OF A CO-ORDINATE BENCH IN I. T.A.NOS.1344 AND 1345/MDS/2014 M/S VENKATESWARA ELECTRICAL INDUSTRIE S (P) LTD VS DCIT DATED 28.8.2014 (THE LATTER TWO RELATING TO EMPLOYE ES CONTRIBUTIONS). IT SUBMITS THAT ITS CLAIM OUGHT NOT TO HAVE BEEN RE JECTED AS THE CONTRIBUTIONS HAD BEEN DULY REMITTED BEFORE FILING OF THE RETURN. THE REVENUE QUOTES CASE LAW CIT VS GUJARAT STATE ROAD T RANSPORT CORPORATION [2014] 41 TAXMANN.COM 100(GUJARAT), DCI T VS BENGAL CHEMICALS & PHARMACEUTICALS LTD. [2011] 11 TAXMANN. COM 328 (KOLKATA) FOR SUPPORTING THE DISALLOWANCE. BOTH TH ESE JUDICIAL PRECEDENTS DEAL WITH THE ISSUE OF EMPLOYEES CONTRI BUTION NOT REMITTED I.T.A.NOS.353 & 601/12 :- 5 -: WITHIN THE DUE DATE. THE CASE LAWS OF ALOM EXTRU SIONS(SUPRA) DEALS WITH A CASE OF EMPLOYERS CONTRIBUTION AND ALSO ABO UT RETROSPECTIVITY OF THE AMENDMENT INCORPORATED VIDE FINANCE ACT, 2003 I N SECTION 43B OF THE ACT. THE QUESTION BEFORE US IS AS TO WHETHER S UCH A DISALLOWANCE COULD BE MADE IN CASE OF EMPLOYEES PROVIDENT FUND AND STATE INSURANCE CONTRIBUTIONS IN CASE THEY ARE REMITTED A FTER THE DUE DATE BUT BEFORE FILING OF THE RETURN OR NOT. WE FIND TH AT THE HON'BLE DELHI HIGH COURT (SUPRA) HOLDS IN IDENTICAL FACTS THAT SU CH A DISALLOWANCE CANNOT BE MADE AS THE EMPLOYER/ASSESSEE PAYS PENA LTY AND UNDERGOES OTHER PENAL CONSEQUENCES IN REMITTING THE EMPLOYEES CONTRIBUTIONS AFTER THE DUE DATE BUT BEFORE FILIN G RETURN. IT ALSO EMERGES THAT THE HON'BLE GUJARAT HIGH COURT (SUPRA) HAS TAKEN A DIVERGENT VIEW FOR MAINTAINING THE DISALLOWANCE. THE TRIBUNALS BENCHES (SUPRA) HAVE ALSO TOED DIFFERENT VIEWS ABOVESAID. THERE IS NO CASE LAW FORTHCOMING DECIDED BY THE JURISDICTIONAL HIGH COUR T. IN THESE CIRCUMSTANCES, WE APPLY THE CASE LAW CIT VS VEGETABLE PRODUCTS LTD . [1973] 88 ITR 192(SC) AND ADOPT THE VIEW FAVOURING THE ASSESSEES CASE AN D DELETE THE IMPUGNED DISALLOWANCE. THE ASSESSEES GROUND IS ACCEPTED. 8. THE ASSESSEES LAST SUBSTANTIVE GROUND CHALLENGES DISALLOWANCE/ADDITION OF ` 10,65,537/- U/S 14A R.W.R 8D(II) AND (III) OF THE INCOME TAX RULES PERTAINING TO ITS EXEMPT INC OME. THE EXEMPT INCOME READS ` 1,45,27,328/- FROM DIVIDENDS AND LONG TERM CAPITAL I.T.A.NOS.353 & 601/12 :- 6 -: GAINS OF ` 1,24,60,242/-. THE ASSESSING OFFICER NOTICED THE ASSESSEES TRADING ACTIVITY TO HAVE COME DOWN AND INVESTMENTS GOING UP. THE AVERAGE OF THE INVESTMENTS AND ASSETS WERE FOUND TO BE ` 13,74,02,274/- AND ` 16,52,26,851/- RESPECTIVELY. THE ASSESSEE DENIED TO HAVE INCURRED ANY EXPENDITURE IN RELATION TO ITS EXEMPT INCOME. THE ASSESSING OFFICER OBSERVED THAT SUCH L ARGE SUMS OF INVESTMENTS NECESSARILY INVOLVE SOME EXERTING ENERG Y IN TERMS OF MONEY, LABOUR OR OTHER OUTGO. HE INVOKED SECTION 1 4A R.W.R 8D(II) AND (III) AND COMPUTED DISALLOWANCE/ADDITION OF ` 3,78,526/- AND ` 6,87,011/- TOTALLING ` 10,65,537/-. THE LOWER APPELLATE AUTHORITY AFFIRMS THE SAID VIEW. 9. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CAS E FILE. THERE IS NO ISSUE QUA RELEVANT DETAILS OF THE EXEM PT INCOME AND SCALE OF INVESTMENTS NARRATED HEREINABOVE. THE IMPUGNED ASSESSMENT YEAR IS 2008-09. THE RELEVANT ACCOUNTING PERIOD IS FROM 1.4.2007 TO 31.3.2008. THE AUTHORITIES BELOW HAVE APPLIED RULE 8D(II) AND (III) (SUPRA) FOR COMPUTING THE DISALLOWANCE IN QUESTION. ADMITTEDLY, RULE 8D HAS BEEN NOTIFIED ON 24.3.2008. IN CASE LAW MAXOPP INVESTMENT LTD VS CIT [2012] 347 ITR 272, THE HON'B LE DELHI HIGH COURT OBSERVES THAT THIS RULE DOES NOT APPLY RETROS PECTIVELY. IN CASE OF TVS INVESTMENTS VS ACIT I.T.A.NO.1609/MDS/2012 DECI DED ON 29.1.2013, IT HAS BEEN HELD THAT THIS RULE IS ONLY PROSPECTIVE AND DOES I.T.A.NOS.353 & 601/12 :- 7 -: NOT COVER THE FIELD UPTO 23.3.2008 FOR WHICH THE DI SALLOWANCE HAS TO BE COMPUTED ON REASONABLE METHOD. THE HON'BLE BOMBA Y HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD V DCIT (2010) 328 ITR 81 (BOM) HAS ALSO HELD RULE 8D TO BE APPLICABLE FROM ASSESSMENT YEAR 2008-09. IN THESE CIRCUMSTANCES, WE DIFFER WITH TH E LOWER AUTHORITIES IN PRINCIPLE COMPUTING THE IMPUGNED DISALLOWANCE B Y APPLYING RULE 8D FOR THE ENTIRE ASSESSMENT YEAR INSTEAD OF THAT FROM 24.3.2008 ONLY. WE PROPOSE TO COMPUTE THIS DISALLOWANCE UPTO 23.3. 2008 ON REASONABLE BASIS KEEPING IN MIND THE SCALE OF IN VESTMENTS, AMOUNT OF EXEMPT INCOME AND OTHER COLLATERAL FACTORS AND DEEM IT APPROPRIATE TO RESTRICT THE SAME TO ` 5 LAKHS ONLY. THE ASSESSEE GETS RELIEF TO THE TUNE OF ` 5,65,537/-. THE RELEVANT GROUND IS PARTLY ACCEP TED. THE ASSESSEES APPEAL I.T.A.NO.353/MDS/2012 IS PA RTLY ALLOWED. 10. NOW WE COME TO THE REVENUES APPEAL I.T.A.NO. 601/MDS/2012 RAISING THE SOLE ISSUE AS TO WHETHER T HE ASSESSEES CLAIM OF HAVING PAID COMPENSATION A SUM OF ` 29,78,396/- TO ITS WORKMEN IN FURTHERANCE TO A SETTLEMENT DATED 16.5.2 008 IN LABOUR COURT PROCEEDINGS IS ALLOWABLE AS AN ASCERTAINED LI ABILITY IN THE RELEVANT PREVIOUS YEAR I.E UPTO 31.3.2008 OR NOT. PER ASSE SSEE, ITS WORKMEN HAD DECLARED A STRIKE IN NOVEMBER 2007. IT DECLARE D A LOCK OUT ON I.T.A.NOS.353 & 601/12 :- 8 -: 14.11.2007. THIS WAS FOLLOWED BY TERMINATION OF IT S WORKMEN ON 17.11.2007. THESE WORKMEN TOOK RECOURSE TO THE REM EDIES UNDER THE LABOUR LAWS. IN SAID PROCEEDINGS, VARIOUS CONCILIA TORY MEETINGS APPEAR TO HAVE TAKEN PLACE ON 22.1.2008, 25.2.2008 AND 27. 3.2008 I.E WELL BEFORE 31.3.2008. THIS RESULTED IN A COMPROMISE DA TED 16.5.2008. THE ASSESSEE PAID 14 DAYS PAY FOR NOVEMBER 2007, G RATUITY UPTO THE SAID MONTH, SERVICE COMPENSATION, BONUS @ 8.33% FOR 31.3.2008, ONE MONTH NOTICE PAY AND ADMISSIBLE LEAVE ENCASHMENT. THE TOTAL AMOUNT CAME TO BE ` 29,78,396.91. THE ASSESSEE ACCOUNTED IT AS AN EXTRAORDINARY EXPENDITURE IN PROFIT & LOSS ACCOU NT. THE ASSESSING OFFICER DID NOT ACCEPT THIS CLAIM AS A LIABILITY DU RING FINANCIAL YEAR 2007-08 IN MERCANTILE SYSTEM OF ACCOUNTING SINCE QU ANTIFIED WELL AFTER 31.3.2008 RESULTING IN CONSEQUENTIAL DISALLOWANCE/A DDITION. 11. THE CIT(A) ACCEPTS THE ASSESSEES CONTENTIONS, OBS ERVES THAT THE EXPENDITURE PERTAINED TO THE RELEVANT PREV IOUS YEAR AS THE IMPUGNED LIABILITY ACCRUED AS A CONSEQUENCE TO THE LABOUR ISSUES WHICH COULD ONLY BE QUANTIFIED LATER ON AFTER 31. 3.2008. HE HOLDS THAT THE ASSESSEE COULD CLAIM THE LIABILITY P ERTAINING TO THE RELEVANT PREVIOUS YEAR ONLY AFTER THE ASST. LABOUR COMMISSIO NERS ORDER PASSED AFTER TWO MONTHS OF THE BALANCE SHEET DRAWN ON 31.3 .2008. IN SUPPORT, CASE LAW OF BHARAT EARTH MOVERS LTD VS CIT [2000] 245 ITR 428 (SC) AND NEYVELI LIGNITE CORPORATION LTD VS ACI T [2005] 2 SOT I.T.A.NOS.353 & 601/12 :- 9 -: 863 (CHENNAI) ALONG WITH ACCOUNTING STANDARD-4 HA VE BEEN QUOTED. THIS LEAVES THE REVENUE AGGRIEVED. 12. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CAS E FILE. RECORDS PERUSED. ADMITTED FACTUAL POSITION STANDS HIGHLIGHTED IN THE PRECEDING PARAGRAPHS. THERE IS NO FACTUAL EVIDENCE TO DISBELIEVE THE ASSESSEES ASSERTIONS HEREINABOVE. THE HEADS OF CO MPENSATION NAMELY BENEFITS OF PAY, GRATUITY, LEAVE ENCASHMENT, BONUS ETC. APPEAR TO BE UNDER THE NECESSARY STATUTORY PROVISIONS. I N OTHER WORDS, ANY EMPLOYER CAN COMPUTE ITS LIABILITY WELL IN ADVANCE UNDER THE PAYMENT OF GRATUITY ACT, BONUS ACT AND RELEVANT SERVICE CON DITIONS OF ITS WORKMEN. THE ASSESSEE SEEMS TO HAVE FOLLOWED THE SAME. IT HAS COME ON RECORD (SUPRA) THAT THE LABOUR COURT PROCEE DINGS WERE PENDING AND VARIOUS MEETINGS TOOK PLACE BEFORE 31 .3.2008 TO FIND OUT AN AMICABLE SOLUTION. THUS, THESE LIABILITIES COULD BE EXACTLY COMPUTED ONLY AFTER THE ASSISTANT LABOUR COMMISSIO NER ORDER PASSED IN MAY 2008. IN THESE CIRCUMSTANCES, WE HOLD THAT THIS LIABILITY PERTAINS TO THE RELEVANT PREVIOUS YEAR BUT QUANTIFI ED SUBSEQUENTLY. THE CASE LAW OF BHARAT EARTH MOVERS LTD (SUPRA) HOLDING LEAVE ENCASHMENT LIABILITY ARISEN EARLIER BUT ONLY QUANTIFIED AFTE R THE RELEVANT PREVIOUS YEAR AS ALLOWABLE IS QUOTED TO BUTTRESS OUR VIEW. THE LATTER CASE LAW OF NEYVELI LIGNITE CORPORATION LTD (SUPRA) ALSO HOL DS THAT SUCH A CLAIM IS ADMISSIBLE AS PER ACCOUNTING STANDARD-4. THE RE VENUE FAILS TO I.T.A.NOS.353 & 601/12 :- 10 -: DRAW ANY DISTINCTION. THUS, WE UPHOLD THE CIT(A )S FINDINGS. THE RELEVANT GROUND IS REJECTED. THE REVENUES APPEAL I.T.A.NO.601/MDS/2012 IS DISM ISSED. 13. TO SUM UP, THE ASSESSEES APPEAL I.T.A.NO.353/MDS/ 2012 IS PARTLY ALLOWED AND THE REVENUES APPEAL I.T.A.NO.60 1/MDS/2012 IS DISMISSED. 14. ORDER PRONOUNCED ON FRIDAY, THE 17 TH OF OCTOBER, 2014, AT CHENNAI. SD/- SD/- ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER ( . . ) (S. S. GODARA) / JUDICIAL MEMBER / CHENNAI / DATED: 17 TH OCTOBER, 2014 RD ! ' #$ %$ / COPY TO: 1 . &' / APPELLANT 4. ( / CIT 2. ')&' / RESPONDENT 5. $*+ ' , / DR 3. ( () / CIT(A) 6. +/ 0 / GF