TATA SECURITIES P. LTD., MUMBAI V. DCIT CIR. - 4(2)(1), MUMBAI

ITA 3589/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9961 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 24-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR MENON
• Keywords: Competent authority
• Section: 40(a)(ia); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E , MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI RAJESH KUMAR , ACCOUNTANT MEMBER ITA NO. 3589 /MUM/2019 ASSESSMENT Y EAR: 2013 - 14 M/S TATA SECURITIES LIMITED, C/O KALYANIWALLA AND MISTRY LL P, 2 ND FLOOR, ESPLANADE HOUSE, 29 HAZARIMAL SOMANI MARG, FORT, MUMBAI - 400001 PAN: AAACT2150R VS. THE DEPUTY COMMISSIONER OF INCOME TAX - 4(2)(1), ROOM NO. 669, 6 TH FLOOR, AAYAKAR BHAWAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) ASSESS EE BY : SHRI M.M. GOLVALA (A R) REVENUE BY : SHRI VIJAY KUMAR MENON ( D R) DATE OF HEARING: 23 /06 /20 21 DATE OF PRONOUNCEMENT: 09 / 07 /202 1 O R D E R PER SAKTIJIT DEY , JM THIS IS AN APPEAL BY THE ASSESSE E AGAINST ORDER DATED 05.04.2019 OF LEARNED COMMI SSIONER OF INCOME TAX (APPEALS) 9 , MUM BAI FOR THE ASSESSMENT YEAR 2013 - 14 . 2. THE ONLY DISPUTE ARISING IN THE APPEAL RELATES TO DIS ALLOWANCE OF RS. 13,14,859/ - UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961. 3. BRIEFLY THE FACTS ARE, THE ASSESSEE IS A RESIDENT COMPANY ENGAGED IN THE BUSINESS OF DISTRIBUTION OF INVESTMENT ORIENTED FINANCIAL PRODUCTS AND FIXED INCOME PRODUCTS, STOCK BROKING AND DEPOSI TORY SERVICES, MERCHANT BANKING AND INVESTMENT BANKING . FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 29.11.2013 DECLARING LOSS OF RS. 9,68,60,314/ - . IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) WHILE VERIFYING THE TAX AUDIT REPORT NOTICE D THAT THE AUDITOR HAS STATED THAT TH E ASSESSEE HAS 2 ITA NO. 3589 / MUM/20 19 ASSESSMENT YEAR: 20 13 - 14 MADE PROVISION FOR PAYMENT OF GRATUITY OF RS. 13,14,8 59/ - , WHICH IS NOT ALLOWABLE UNDER SECTION 40(A) (IA) OF THE ACT. WHEREAS, THE ASSESSEE HAD NOT ADDED BACK THE AMOUNT WHILE COMPUTING ITS INCOME. ACCORDINGLY, THE AO DISAL LOWED THE AMOUNT IN DISPUTE AND ADDED BACK TO THE INCOME OF THE ASSESSEE. CONTES TING THE AFORESAID ADDITION, ASSE SSEE PREFERRED APPEAL BEFORE LEARNED COMMISSIONER (APPEALS). HOWEVER, THE ADDITION WAS SUSTAINED. 4. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTE D , THE ASSESSEE HAS CREATED A GRATUITY FUND FOR TH E BENEFIT OF ITS EMPLOYEE S NAME D TATA SECURITIES LIMITED EMPLOYEES GRATUITY SCHEME . HE SUBMITTED , THE FUND WAS ESTABLISHED UNDER A IRR EVOCABLE TRUST DEED FOR MAKING PROVISI ON FOR GRATUITY BENEFIT TO THE E MPLOYEES OF THE ASSESSEE. HE SUBMITTED , THE GRATUITY SCHEME HAS BEEN FINALIZED IN COLLABORATION WITH THE TATA AIG LIFE INSURANCE COMPANY LTD. HE SUBMITTED , THOUGH , AN APPL ICATION WAS FILED BEFORE THE COMMISSIONER OF INCOME T AX FOR APPROVAL OF THE GRATUITY SCHEME AS EARLY AS ON 05.04.2007 , TILL DATE, NO APPROVAL HAS BEEN RECEIVED BY THE ASSESSEE. D RAWING OUR ATTENTION TO THE TRUST DE ED AND BOARD RESOLUTION LEARNED C OUNSEL SUBMITTED , THE ASSESSEE IS MAKING PAYMENT TO THE GRATUITY FUND AS PER THE SCHEME. IN TH IS CONTEXT, HE DREW OUR ATTENTION OF THE BANK STATEMENT AND THE CERTIFICATE/RECEIVED FROM TATA AIG LIFE INSURANCE ACKNOWLEDGING THE RECEIPT OF PAYMENT UNDER GRATUITY SCHEME. THUS, HE SUBMITTED , THERE BEING NO DEFAULT ON THE PART OF THE ASSESSEE, IT HAS BEE N UNDULY HAR ASSED BY MAKING DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT. HE SUBMITTED , DURING THE PENDENCY OF ASSESSEE S APPLICATION FOR APPROVAL THE PAYMENT MADE TO THE GRATUITY SCHEME CREATED FOR BENEFIT OF EMPLOYEES IS ALLOWABLE AS DEDUCTION . IN SUP PORT OF SUCH CONTENTION H E RELIED UPON THE FOLLOWING DECISIONS: 1. CIT V. TEXTOOL CO. LTD. (2013) 35 TAXMANN.COM 639 (SC). 2. NARASUS SPINNING MILLS V. ACIT, CIRCLE 1(2), CHENNAI, (2016) 66 TAXMANN.COM 277 (CHENNAI - TRIB.). 3. ACIT, COMPANY CIRCLE - III (4), CHENN AI V. VERIZON DATA SERVICES INDIA (P) LTD. (2017) 82 TAXMANN.COM 50 (CHENNAI - TRIB.). 3 ITA NO. 3589 / MUM/20 19 ASSESSMENT YEAR: 20 13 - 14 4. CAPITAL IQ INFORMATION SYSTEMS (INDIA) (P) LTD. V. ADDITIONAL COMMISSIONER OF INCOME TAX, CIRCLE 1(2), HYDERABAD (2014) 49 TAXMANN.COM 313 (HYDERABAD - TRIB). 5. CIT V. JAIPUR THAR GRAMIN BANK, (2016) 388 ITR 228 (RAJASTHAN) 6. RAJASTHAN FINANCIAL CORPN. V. DEPUTY COMMISSIONER OF INCOME TAX (1998) 66 ITD 1936 (JAIPUR) 7. M/S RAJASTHAN CO - OPERATIVE DAIRY FEDERATION LTD. V. THE ACIT, CIRCLE 6, JAIPUR (ITA NO. 352/JP/2017). 8. COMMISSIONER OF INCOME TAX, MEERUT V. ELECTRA (JAIPUR) (P) LTD. (2006) 282 ITR 598 (ALLAHABAD) 9. PEERLESS GENERAL FINANCE AND INVESTMENT COMPANY LTD. V. COMMISSIONER OF INCOME TAX (416 ITR 1) (S.C) 10.PR. COMMISSIONER OF INCOME TAX V. RAJASTHAN STATE SEED CORPORATION LTD . (386 ITR 267) (RAJ) 5. HE SUBMITTED , EVEN WHILE COMPLETING ASSESSMENTS IN ASSESSEES OWN CASE IN ASSESSMENT YEAR S 2011 - 12 AND 2014 - 15 T HE AO HAS ALLOWED ASSESSEES CLAIM OF DEDUCTION . IN THIS REGARD, H E DREW OUR ATTENTION TO THE COPIES OF THE ASSESSMENT ORDER S PLACED IN THE PAPER BOOK. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY REL YING UPON THE OBSERVATIONS OF LEARNED COMMISSIONER (APPEALS) SUBMITTED , IN ABSENCE OF APPROVAL OF THE GRATUITY SCHEME, NO DEDUCTION CAN BE ALLOWED. 7 . WE HAVE CONSID ERED RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. UNDISPUTEDLY, THE ASSESSEE HAS FORMULATED A GRATUITY SCHEME IN COLLABORATION WITH TATA AIG LIFE INSURANCE COMPANY LTD FOR THE BENEFIT OF ITS EMPLOYEES. IT IS EVIDENT , AS EARLY AS ON 05.04.2007, TH E ASSESSEE HAD FILED AN APPLICATION BEFORE T HE COMPETENT AUTHORITY SEEKING APPROVAL OF THE GRATUITY SCHEME. A CO PY OF THE SAID APPLICATION IS PLACED AT PAGE 35 OF THE PAPER BOOK. IT IS THE SPECIFIC CONTENTION OF THE ASSESSEE THAT THE AFORESAID APPLICATION SEEKING APPROVAL OF THE GRATUITY S CHEME HAS BEEN KEPT IN SUSPENDED ANIMATION TILL DATE AND NO OR DER EITHER APPROVING OR REJECTING THE APPLICATION HAS BEEN PASSED BY 4 ITA NO. 3589 / MUM/20 19 ASSESSMENT YEAR: 20 13 - 14 TH E COMPETENT AUTHORITY. ON A SPECIFIC QUERY , LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT THIS FACT. IT IS ALSO EVIDENT , IN TERMS OF THE GRATUITY SCHEME THE ASSESSEE IS REGULARL Y CONTRIBUTING TO TATA AIG LIFE INSURANCE COMPANY LTD. TOWARDS THE GRATUITY BENEFIT OF ITS EMPLOYEES. THE AFORESAID FACTUAL POSITION HAS NOT B EEN DISPUTED EI THER BY AO OR LEARNED COMMISSIONER (APPEALS). THE ONLY REASON FOR DISALLOWANCE OF ASSESSEES CLAIM OF DEDUCTION IS DUE TO NON APPROVAL OF THE GRATUITY SCHEME. WHEN , IT IS FACT ON RECORD THAT ASSESSEE HAS APPLIED FOR APPROVAL OF THE G RATUITY SCHEME IN THE Y EAR 2007, NO N APPROVAL OF THE SAID SCHEME EVEN AFTER MORE THAN 14 YEARS IS UNDESIRABLE AND HAS RESULTED IN UNDUE HARASSMENT TO THE ASSESSEE. DUE TO NO FAULT OF THE ASS ESSEE THE DEDUCTION OTHERWISE ALLOWABLE HAS BEEN DENIED. 8. IN CASE OF CIT VS. TEXTOOL C OMPANY LTD. (SUPRA ), THE HONBLE SUPREME COURT WHILE DEALING WITH IDENTICAL ISSUE OF DISALLOWANCE ARISING OUT OF NON APPROVAL OF GRATUITY FUND HAS OBSERVED , THOUGH , THE FISCAL STATUTE IS TO BE CONSTRUED STRICTLY, HOWEVER, CONSTRUC TION OF PROVISION DOES NOT RULE OUT THE APPLICATION OF THE PRINCIPLES OF REASONABLE CONSTRUCTION TO GIVE EFF ECT TO THE PURPOSE AND INTENT OF A PA RTICULAR PROVISION . THE HONBLE SUPREME COURT HAS OBSERVED THAT THE LEGISLATIVE INTENT BEHIND INTRODUCING THIS TYPE OF PROVISION IS THAT THE EMPLOYER SHOULD NOT HAVE ANY CONTROL OVER THE FUNDS OF THE IRREVOCABLE TRUST CREATED EXCLUSIVELY F OR THE BENEFIT OF THE EMPLOYEES. A KIN TO THE FACTS INVOLVED IN CASE OF CIT VS. TEXTOOL COMPANY LTD. (SUPRA) , THERE IS NO ALLEGATION BY THE DEPARTMENTAL AU THORITIES THAT EITHER THE ASSESSEE HAS ANY CONTROL OVER THE FUNDS CREATED FOR THE BENEFIT OF THE EMP LOYEES OR CONTRIBUTION MADE TO THE SAID FUND HAS COME BACK TO THE ASSESSEE. EVEN , IN A NUMBER OF CASES OF SIMILAR NATURE, IT HAS BEEN HELD BY COURTS AND DIF FERENT BENCHES OF THE TRIBUNAL THAT EVEN IF ASSESSEES APPLICATION SEEKING AP PROVAL OF THE GRATUITY SCHEME IS PENDING BEFORE THE COMP ETENT AUTHORITY, HOWEVER, NO DISALLOWANCE OF DEDUCTION CLAIMED CAN BE MADE. IN THIS REGARD, WE MAY REFER TO THE FOLLOWING D ECISIONS: - 1. NARASUS SPINNING MILLS V. ACIT, CIRCLE 1(2), CHENNAI, (2016) 66 TAXMANN.COM 277 (CHENNAI - TRIB.). 5 ITA NO. 3589 / MUM/20 19 ASSESSMENT YEAR: 20 13 - 14 2. ACIT, COMPANY CIRCLE - III (4), CHENNAI V. VERIZON DATA SERVICES INDIA (P) LTD. (2017) 82 TAXMANN.COM 50 (CHENNAI - TRIB.). 3. CIT V. JAIPUR THAR GRAMI N BANK, (2016) 388 ITR 228 (RAJASTHAN) 4. RAJASTHAN FINANCIAL CORPN. V. DEPUTY COMMISSIONER OF INCOME TAX (1998) 66 ITD 1936 (JAIPUR) 5. PR. COMMISSIONER OF INCOME TAX V. RAJASTHAN STATE SEED CORPORATION LTD. (386 ITR 267) (RAJ) 10. THUS, THE LEGAL PRINCIPLE W HICH EMERGE S FROM THE AFORESAID JUDICIAL PRECEDENT S IS , NO DISALLOWANCE OF DEDUCTION CLAIM ED TOWARDS PROVISION MADE FOR GRATUITY FUND CAN BE MADE EVEN DURING THE PENDENCY OF ASSESSEES APPLICATION FOR APPROVAL OF THE GRATUITY SCHEME. IN THE FACTS OF THE PR ESENT APPEAL , AS EARLIER DISCUSSED, THERE HAS B EEN INORDINATE AND UNACCEPTABLE DELAY IN DISPOSING OF ASSESSEES APPLICATION SEEKING APPROVAL OF THE GRATUITY SCHEME. PERTINENTLY, WHILE COMPLETING THE ASSESSMENT FOR ASSESSMENT YEARS 2011 - 12 AND 2014 - 15 IN AS SESSEES OWN CA SE, THE AO HIMSELF HAS ALLOWED DEDUCTION CLAIMED TOWARDS PROVISION CREATED FOR GRATUITY, THOUGH , ASSESSEES APPLICATION SEEKING APPROVAL OF THE GRATUITY SCHEME IS STILL PENDING. THUS, CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE C ASE IN THE LIGHT OF THE RATIO LAID DOWN IN THE DECISION S CITED BEFORE US, W E ARE OF THE VIEW THAT THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION OF THE CONTRIBUTION MAKE TOWARDS THE GRATUITY FUND OF THE EMPLOYEES. ACCORDINGLY, WE DELETE THE IMP UG NED DISALLOWA NCE. GROUNDS ARE ALLO WED. 11 . IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH JULY , 2021 . SD/ - SD/ - ( RAJESH KUMAR ) ACCOUNTANT MEMBER ( SAKTIJIT DEY ) JUDICIAL MEMBER MUMBAI ; DATED: 09 / 07/2021 ALINDRA, PS 6 ITA NO. 3589 / MUM/20 19 ASSESSMENT YEAR: 20 13 - 14 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI