R S METALS P LTD., Jaipur V. ACIT, Jaipur

ITA 381/JPR/2011

• Counselvise Citation: 38123114 RSA 2011
• Duration Of Justice: 3 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 28-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: G G MUNDRA
• Keywords: Opportunity of being heard; Additional evidence
• Section: 40A(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. ME ENA) ITA NO. 381/JP/2011 ASSESSMENT YEARS : 2004-05 PAN : AAACR 4026 J M/S. R.S. METALS (P) LTD. VS. THE ACIT SP-1, BAIS GODAM CENTRAL CIRCLE- 3 INDUSTRIAL AREA, JAIPUR JAIPUR (APPELLANT) (RESPONDENT) ITA NO. 419/JP/2011 ASSESSMENT YEARS : 2004-05 PAN : AAACR 4026 J THE ACIT VS. M/S. R.S. METALS (P) LTD. CENTRAL CIRCLE- 3 SP-1, BAIS GODAM JAIPUR INDUSTRIAL AREA, JAIPUR (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.G. MUNDRA DEPARTMENT BY: SHRI RAJESH OJHA DATE OF HEARING: 10-09-2014 DATE OF PRONOUNCEMENT: 10-11-2014 ORDER PER T.R. MEENA, AM BOTH THESE APPEALS ARE THE CROSS APPEALS FILED AGA INST THE ORDER OF THE LD. CIT(A), CENTRAL DATED 17-02-2011 FOR THE ASS ESSMENT YEAR 2004-05. 2.1 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS I N ITS APPEAL. 2 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) IS WRONG, UNJUST AND HAS ERRED IN LAW IN CONFIRMING APPLICABILITY OF PROVISION OF SECTION 40A(3) TO THE PAYMENT OF RETRENCHMENT COMPENSATION AMOUNTING TO RS. 33,48,64 0/- ON ACCOUNT OF PAYMENT EXCEEDING RS. 2,00,000/- IN CAS H AND THEREBY DISALLOWING RS. 6,69,7787/- BEING 20% THERE OF UNDER THIS SECTION. 2. THAT THE LD. CIT(A) IS WRONG AND HAS ERRED IN LA W IN CONFIRMING DISALLOWANCE OF INTEREST PAYMENT OF RS. 1,49,625/- ON ACCOUNT OF ADVANCE TO M/S. D.R. POLYMERS (P) LT D., NEW DELHI AND M/S. NEEL KANTH CORPORATION, JAIPUR . 2.2 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL. 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) (CENTRAL), JAIPUR HAS ERRED IN LAW AND ON F ACTS IN DELETING THE DISALLOWANCE OF RS. 45,13,340/- MADE BY THE AO ON A CCOUNT OF APPLICATION OF THE PROVISIONS OF SECTION 35DDA OF T HE ACT ON THE RETIREMENT/RETRENCHMENT PAYMENTS MADE TO THE EMPLOY EES FOR GRATUITY, RETRENCHMENT EXPENSES AND NOTICE PAY. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE CIT (A) (CENTRAL), JAIPUR HAS ERRED IN LAW AND ON F ACTS IN HOLDING THAT THE PROVISIONS OF SECTION 35DDA OF THE ACT WERE NOT APPLICABLE IN THE ASSESSEE'S CASE TO PAYMENT OF RS. 45,13,340/- AS TH ESE WERE NOT PAID AT THE TIME OF VOLUNTARY RETIREMENT OF THE EMPLOYEES D ESPITE THE FACT THAT THE PAYMENT TO THE EMPLOYEES HAS BEEN MADE ON THE B ASIS OF AN AGREEMENT WITH THE MANAGEMENT AND NO REFERENCE HAD BEEN MADE FOR CLOSURE OF UNIT BY ISSUE OF NOTICE UNDER RULE 76B A S PER PROVISIONS OF SECTION 25FFA OF THE INDUSTRIAL DISPUTE ACT, 1947. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE CIT (A) (CENTRAL), JAIPUR HAS ERRED IN LAW AND ON F ACTS IN HOLDING THAT THE PAYMENTS MADE ON ACCOUNT OF GRATUITY, RETRENCH MENT COMPENSATION AND NOTICE PAY WERE NOT COVERED U/S 35 DDA OF THE ACT BUT THE SAME WAS MADE UNDER RULE 76B IN TERMS OF SE CTION 26FFA OF THE INDUSTRIAL DISPUTE ACT. 3 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) (CENTRAL), JAIPUR HAS ERRED IN LAW AND ON F ACTS IN DELETING THE DISALLOWANCE OF RS. 45,13,340/- DESPIT E THE FACT THAT BEFORE THE AO THERE WAS NO SUBMISSION OF GIVI NG NOTICE UNDER RULE 76B IN TERMS OF SECTION 25FFA OF THE IND USTRIAL DISPUTES ACT AND RAJASTHAN INDUSTRIAL DISPUTE RULE FOR CLOSING DOWN OF FACTORY. THEREFORE, THE AO HAS NO OCCASION TO COMMENT ON THESE FRESH EVIDENCE BASED ON WHICH THE LD. CIT(A) HAD ALLOWED THE ASSESSEE'S APPEAL. 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) (CENTRAL), JAIPUR HAS ERRED IN LAW AND ON F ACTS IN ALLOWING RELIEF ON THE BASIS OF ADDITIONAL EVIDENCE S FILED BEFORE HIM WITHOUT ALLOWING OPPORTUNITY TO THE AO COMMENT UPON THE SAME IN TERMS OF PROVISIONS OF RULE 46A(3) AND ALSO ADMITTING THE SAME WITHOUT RECORDING SPECIFIC FINDING IN TERM S OF PROVISIONS OF RULE 46A(2) OF THE I.T. RULES, 1962. 2.3 NOW WE TAKE UP THE GROUND NO. 1 OF THE ASSESSEE AS WELL AS GROUND NOS. 1 TO 5 OF THE REVENUE AS MENTIONED ABOVE. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS MANUFACTURER OF CABLE WIRES THE ASSESSEE IS ALSO DEALING IN TRADING OF COPPER AND O THER GOODS. THE ASSESSEE FILED NIL INCOME RETURN ON 20-10-2004 FOR THE ASS ESSMENT YEAR 2004-05. IN THIS CASE, THE SCRUTINY ASSESSMENT WAS MADE U/S 14 3(3) OF THE ACT. THE AO FOUND THAT THE ASSESSEE HAS CLAIMED GRATUITY AMOUNT ING TO RS. 9.98 LACS ON RETRENCHMENT COMPENSATION AMOUNTING TO RS. 28,79,94 2/-, NOTICE PAY AMOUNTING TO RS. 1,84,483/- PERTAINING TO ASSESSMEN T YEAR 2003-04 CLAIMED IN ASSESSMENT YEAR 2004-05, TOTALING TO RS. 40,62,4 25/-. THE AO U/S 40A(3) DISALLOWED THE AMOUNT AT RS. 6,69,728/- AND AMOUNT AT RS. 45,13,340/- U/S 4 35DDA OF THE ACT. HE FURTHER OBSERVED THAT THESE PA YMENTS WERE CLAIMED AS PER THE AGREEMENTS MADE BETWEEN THE MANAGEMENT AND WORKERS NOT ON PAYMENT BASIS. THE ASSESSEE ADOPTED DOUBLE STANDARD . IN THE LAST YEAR, THE PLEA OF THE ASSESSEE WAS REJECTED ON THE GROUND THA T ALTHOUGH THE AGREEMENT WAS MADE IN THE FINANCIAL YEAR 2002-03 YET THE PAY MENTS WERE MADE IN THE NEXT FINANCIAL YEAR 2003-04. NOW THE ASSESSEE CLAIM ED IN THE YEAR OF PAYMENT TO ITS WORKERS. THUS THE AO REJECTED ASSESS EE'S PLEA. FURTHER THE AO HELD THAT RETRENCHMENT PAYMENTS WERE ALSO ON THE BASIS OF THE AGREEMENT BETWEEN BOTH OF THEM. THE CLAIM FOR ASSESSMENT YEAR 2003-04 WAS DISALLOWED BY THE AO BY MAKING DETAILED DISCUSSION IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2003-04 AND THESE EXPENSES ARE COVERED U/S 35DDA OF THE ACT. AFTER CONSIDERING THIS SECTION, THE AO ALLOWED ONLY 20% OUT OF RETRENCHMENT COMPENSATION OF RS. 33,48,640/- AND NO TICE PAYMENT OF RS. 2,16,628/-. SINCE THESE PAYMENTS WERE MADE TO THE W ORKERS IN CASH AS CLAIMED BY THE ASSESSEE THEREFORE, THESE WORKERS W ERE NOT INTERESTED TO ACCEPT THE CHEQUES. FINALLY, THE ALLOWED THE CLAIM OF THE ASSESSEE ON THE BASIS OF THE RETURN FOR THE ASSESSMENT YEAR 2004-05 AFTER REDUCING THE CASH PAYMENT U/S 40A3) OF THE ACT AT RS. 45,13,340/- @ 1 /5 TH I.E. RS. 9,02,668/- 2.4 BEING AGGRIEVED BY THE ORDER OF THE AO, THE ASS ESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE 5 BY OBSERVING THAT THESE PAYMENTS ARE NOT COVERED U/ S 35DDA OF THE ACT AND HE FULLY ALLOWED THE EXPENSES CLAIMED BY THE ASSESS EE AT RS. 45,13,340/-. 2.5 NOW THE ASSESSEE IS IN APPEAL AGAINST CONFIRMIN G THE DISALLOWANCE U/S 40A(3) ON ACCOUNT OF PAYMENT EXCEEDING RS. 20,000/ - IN CASH AND ADDITION MADE AT RS. 6,69,778/-. THE ASSESSEE SUBMITTED THAT THE EXPENDITURE CLAIMED UNDER THE HEAD GRATUITY, RETRENCHMENT AND NOTICE P AY IN ASSESSMENT YEAR 2003-04 WAS NOT ALLOWED BY THE AO IN THE ASSESSMENT . THEREFORE, THEY WERE CLAIMED IN THE ASSESSMENT YEAR 2004-05. THE AO ALLO WED ONLY 1/5 TH EXPENSES AFTER REDUCING THE CASH PAYMENT U/S 40A(3) OF THE ACT. IT IS ARGUED THAT THAT THESE PAYMENTS WERE MADE TO THE EMPLOYEES IN CASH IN CONNECTION WITH RETIREMENT/ RETRENCHMENT/ RESIGNATION OR DEATH OF SUCH EMPLOYEE ON ACCOUNT OF GRATUITY, RETRENCHMENT COMPENSATION OR SIMILAR TERMINAL BENEFIT AND THE AGGREGATE OF SUCH SUMS PAYABLE TO THE EMPLO YEE OR THEIR HEIR DOES NOT EXCEED RS. 50,000/- IS COVERED UNDER RULE 6DD(H ) OF THE INCOME-TAX RULES. ACCORDINGLY, THE WHOLE EXPENSES CLAIMED BY T HE ASSESSEE IS ALLOWABLE. 2.6 AT THE OUTSET, THE LD. DR SUPPORTED THE ORDER O F THE LD. CIT(A). 2.7 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE LD. CIT(A) WAS NOT JUSTIFI ED IN CONFIRMING THE ADDITION U/S 40A(3) OF THE ACT ON THE BASIS OF CASH PAYMENT EXCEEDING RS. 6 20,000/-. IN THIS CASE RULE 6DD(H) OF THE INCOME-TA X RULES IS APPLICABLE WHEREIN THE CASH PAYMENT LIMIT IS NOT EXCEEDING RS. 50,000/-. THUS, WE REVERSE THE ORDER OF THE LD. CIT(A) ON THE ISSUE OF GROUND NO. 1 AND GROUND NO. 1 RAISED BY THE ASSESSEE IS ALLOWED. THE REVEN UES GROUNDS ARE REVOLVING AROUND ALLOWING EXPENSES CLAIMED BY THE A SSESSEE AT RS. 45,13,340/- U/S 35DDA OF THE ACT. THE LD. CIT(A) HE LD THAT THESE EXPENSES ARE NOT COVERED U/S 35DDA OF THE ACT. AS PER SECTIO N 35DDA, THE ONLY EXPENSES ARE ALLOWED TO BE PROPORTIONATE BASIS I.E. 15 TH EXPENDITURE IN CONNECTION WITH VOLUNTARY RETIREMENT. THEREFORE, IN THIS CASE, THERE WAS NO VOLUNTARY RETIREMENT IN ASSESSEE CASE. THE PAYMENTS WERE RELATED TO GRATUITY, RETRENCHMENT AND NOTICE PAY. THE LD. CIT( A) HAS RIGHTLY DECIDED THE CASE. FURTHER, THE LD. CIT(A) HAS NOT ACCEPTED ANY ADDITIONAL EVIDENCE DURING THE APPELLATE PROCEEDINGS. THEREFORE, THE GR OUND NO. 5 RAISED BY THE REVENUE IS NOT EMERGED FROM THE ORDER OF THE LD. CI T(A). THUS GROUNDS NOS. 1 TO 5 OF THE REVENUE ARE DISMISSED AND GROUND NO. 1 OF THE ASSESSEE IS ALLOWED IN VIEW OF THE FOREGOING DISCUSSIONS. 3.1 THE GROUND NO. 2 OF THE ASSESSEE IS AGAIN CONFI RMING THE ADDITION OF RS. 1,49,625/- ON ACCOUNT OF ADVANCE TO M/S. D.R. POLYMERS (P) LTD., NEW DELHI AND M/S. NEEL KANTH CORPORATION, JAIPUR. 7 3.2 THE BRIEF FACTS OF THIS GROUND ARE THAT THE AO HAS OBSERVED THAT THE ASSESSEE HAS SHOWN ADVANCE TO BOTH THE PARTIES I.E. M/S. D.R. POLYMERS (P) LTD., NEW DELHI AND M/S. NEEL KANTH CORPORATION, JA IPUR AND OPENING BALANCE AS ON 01-04-2003 WAS AT RS. 7.50 LACS AND R S. 7.00 LACS RESPECTIVELY AND CLOSING BALANCE WAS AT RS. 5.25 LACS IN THE CA SE OF M/S. NEEL KANTH. THE ASSESSEE HAS NOT CHARGED ANY INTEREST ON THESE ADVA NCES. THE AO GAVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE ON THIS ISSUE FOR NOT CHARGING OF INTEREST ON ADVANCES. AFTER CONSIDERING THE ASSESSEE'S REPLY, THE AO CALCULATED THE INTEREST @ 12% PER ANNUM ON THE A MOUNT OUTSTANDING. THUS HE MADE AN ADDITION OF RS. 1,49,625/-. 3.3 BEING AGGRIEVED BY THE ORDER OF THE AO, THE ASS ESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE ADDITION BY OBSERVING AS UNDER:- 3.3 I HAVE CONSIDERED THE ARGUMENTS OF THE A.R. A ND HAVE PERUSED THE ASSESSMENT ORDER AND RELEVANT MATE RIAL ON RECORD. THE ADVANCE TO M/S. D.R. POLYMERS (P) LTD. IS CLAIMED TO BE AS SHARE APPLICATION MONEY. DEALING IN THE SH ARE IS NOT THE BUSINESS OF THE APPELLANT, HENCE MONEY BORROWED RELATABLE TO THE ADVANCE TO M/S. D.R. POLYMER (P) LTD. IS NOT FOR THE PURPOSE OF BUSINESS. SIMILARLY, AS INTEREST FREE AD VANCE HAS BEEN GIVEN TO M/S. NEELKANTH CORPORATION, IT IS EVI DENT THAT MONEY BORROWED TO THAT EXTENT IS NOT USED FOR THE P URPOSE OF BUSINESS. THE CASE LAWS CITED BY THE A.R. ARE DISTI NGUISHABLE FROM THE INSTANT CASE OF APPELLANT. ACCORDINGLY, DI SALLOWANCE OF INTEREST SO MADE BY THE AO AMOUNTING TO RS. 1,49,62 5/- RELATABLE TO THE INTEREST FREE ADVANCE GIVEN, IS UP HELD. 8 3.4 NOW THE ASSESSEE IS BEFORE US. THE LD. AR OF TH E ASSESSEE SUBMITTED THAT AS REGARDS TO THE DEBIT IN THE ACCOUNT OF M/S. D.R. POLYMERS (P) LTD., THE AMOUNT WAS DEPOSITED ON 26-09-2002 BY CHEQUE AGAINS T SHARE APPLICATION MONEY WHICH WAS LYING IN THE SAID COMPANY AS IT IS. THERE WAS NO STIPULATION TO CHARGE INTEREST AS THE SAME WAS TOWA RDS SHARE APPLICATION MONEY . IN VIEW OF THESE FACTS, NO INTEREST WAS CHA RGED FROM IT. THERE IS NO MATERIAL ON RECORD THAT THE SAID AMOUNT WAS PAID OU T OF BORROWING OF THE COMPANY. IN THE LAST YEAR, WHILE COMPLETING ASSESSM ENT U/S 143(3), THE AO ACCEPTED THE ABOVE POSITION AND THERE COULD BE NO D ISALLOWANCE IN THIS RESPECT. THE DISALLOWANCE OF RS. 90,000/- ON RS. 7. 50 LACS IS NOT JUSTIFIED. AS REGARDS THE ADVANCE TO M/S. NEELKANTH CORPORATION, THESE ADVANCES WERE MADE IN EARLIER YEARS FOR PURCHASE OF GOODS AND NO INTEREST IS BEING CHARGED. IN THE MEANTIME, FINANCIAL POSITION OF THE ASSESSEE BECAME WEAK AND IT NEITHER COULD SUPPLY THE GOODS NOR RETURN THE ADVAN CE. THEREFORE, THE RECOVERY OF PRINCIPAL AMOUNT WAS ITSELF DOUBTFUL. THE DECISION FOR NOT CHARGING THE INTEREST TO AFORESAID DEBIT BALANCES C ONSIDERING THE WEAK FINANCIAL POSITION OF CONCERN WAS BASED ON COMMERCI AL EXPEDIENCY. THE LD. AR OF THE ASSESSEE PLACED RELIANCE IN THE CASE OF C IT VS. MOTOR CREDIT COMPANY (P) LTD. (1981) 127 ITR 572 (MAD.) WHEREIN IT WAS HELD THAT WHERE PRINCIPAL MONIES ADVANCED BY ASSESSEE ARE NOT CAPABLE OF REALIZATION 9 NO QUESTION OF TAXING INTEREST ARISE AND THERE IS N O HYPOTHETICAL ACCRUAL OF ILLUSORY INTEREST. SIMILAR VIEW HAS BEEN UPHELD BY HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. DHAMPUR SUGAR MILLS (2 007) 159 TAXMAN 397 AND HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. BOMABY SAMACHAR LTD. (1969) 74 ITR 723 (BOM.). THUS THE LD. AR OF T HE ASSESSEE PRAYED TO DELETE THE ADDITION CONFIRMED BY THE LD. CIT(A). 3.5 AT THE OUTSET, THE LD. DR SUPPORTED THE ORDER O F THE LD. CIT(A) AND ARGUED THAT THE ASSESSEE HAS NOT DISCHARGED ITS BUR DEN TO PROVE THAT THERE WAS SHARE APPLICATION MONEY IN THE CASE OF M/S. D.R. PO LYMERS (P) LTD. NEW DELHI AND WEAK FINANCIAL POSITION IN THE CASE OF M/S. NEELKANTH CORPORATION, JAIPUR. 3.6 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE LD. AR HAS NOT BROUGHT ANY EVIDENCE TO SUBSTANTIATE ITS CLAIM EXCEPT THE ARGUMENTS THAT THESE PAYMENTS WERE MADE EITHER IN THE FORM OF SHARE APPLICATION MONEY OR WEAK FINANCIAL P OSITION OF THE COMPANY, BEFORE US AS WELL AS THE LOWER AUTHORITIES. AS SUCH , BEFORE AO, NO REPLY WAS FILED BY THE ASSESSEE. THEREFORE, IN THE INTEREST O F JUSTICE, WE SET ASIDE THIS ISSUE BACK TO THE FILE OF THE AO TO DECIDE IT AFRES H BY PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASS ESSEE IS DIRECTED TO PRODUCE ALL THE RELEVANT EVIDENCE BEFORE THE AO TO JUSTIFY ITS CLAIM. 10 4.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED IN OPEN COURT ON 10-11-2014 . SD/- SD/- (R.P. TOLANI) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED: 10 TH NOV 2014 *MISHRA COPY FORWARDED TO:- 1. M/S. R.S.METALS (P) LTD. , JAIPUR 2. THE ACIT, CENTRAL CIRCLE- 3, JAIPUR 3. THE LD. CIT 4. THE LD. CIT(A), JAIPUR 5..THE LD. DR 6.THE GUARD FILE (IT NO. 381/JP/2011) BY ORDER AR ITAT, JAIPUR