ACIT, Ernakulam V. Muthoot Finance P.Ltd, Ernakulam

ITA 410/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61503 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 02-04-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 18-06-2010
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Keywords: Salary income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 410/COCH/2010 ASSESSMENT YEAR :2006-07 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(2), ERNAKULAM VS. M/S. MUTHOOT FINANCE (P) LTD., MUTHOOT CHAMBERS, BANERJEE ROAD, ERNAKULAM. [PAN : AABCT 0343B] (REVENUE-APPELLANT) (ASSESSEE -RESPOND ENT) I.T.A. NO. 344/COCH/2010 ASSESSMENT YEAR: 2006-07 M/S. MUTHOOT FINANCE (P) LTD., M.G.ROAD, ERNAKULAM. [PAN: AABCT 0343B] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(3), ERNAKULAM (ASSESSEE -APPELLANT) (REVENUE -RESPONDENT) ASSESSEE BY SHRI R.SREENIVASAN, CA REVENUE BY SMT. VIJAYAPRABHA, JR. DR DATE OF HEARING 02/04/2012 DATE OF PRONOUNCEMENT 01/06/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 31.3.2010 PASSED BY LD CIT(A)-II, KOCHI AND THEY RELATE TO THE ASSESSMENT YEAR 2006-07. 2. AT THE TIME OF HEARING THE LD COUNSEL FOR TH E ASSESSEE DID NOT PRESS GROUND NUMBERED AS 3, BY AFFIXING HIS SIGNATURE ON THE GRO UNDS OF APPEAL. ACCORDINGLY THE I.T.A. NO. 410 & 344/COCH/2010 2 SAID GROUND IS DISMISSED AS WITHDRAWN. THE OTHER GR OUNDS GIVE RISE TO A SINGLE ISSUE VIZ., WHETHER THE LD CIT(A) IS JUSTIFIED IN CONFIRM ING THE DISALLOWANCE OF RS.35,41,700/- RELATING TO THE DIMINUTION IN THE VALUE OF ITS CURR ENT INVESTMENTS MADE IN GOVERNMENT OF INDIA SECURITIES. 3. IN THE APPEAL FILED BY THE REVENUE, THE DECIS ION OF LD CIT(A) IN DELETING THE DISALLOWANCE OF STAFF WELFARE EXPENDITURE IS BEING ASSAILED. 4. THE FACTS RELATING TO THE ABOVE SAID ISSUES ARE STATED IN BRIEF. THE ASSESSEE IS A NON-BANKING FINANCIAL COMPANY ENGAGED IN THE BUSINE SS OF ADVANCING MONEY ON THE SECURITY OF GOLD. IT IS ALSO ENGAGED IN TRADING OF SHARES AND SECURITIES. DURING THE YEAR UNDER CONSIDERATION, IT PURCHASED 10.25% GOVERNMENT OF INDIA 2021 SECURITIES FOR AN AMOUNT OF RS.12,64,00,000/-, THE FACE VALUE OF WHIC H WAS RS.10.00 CRORES. AT THE YEAR END, THE ASSESSEE VALUED THE ABOVE SAID SECURITY AT RS.12,28,58,300/- AND CLAIMED THE DIMINUTION IN THE VALUE AMOUNTING TO RS.35,41,700/- AS EXPENDITURE. BOTH THE TAX AUTHORITIES DISALLOWED THE SAID CLAIM OF THE ASSESS EE. THE ASSESSEE HAD CLAIMED A SUM OF RS.8,10,572/- UNDER THE HEAD STAFF WELFARE EXPE NSES, WHICH CONSISTED OF CONTRIBUTION MADE TO AND ALSO INTEREST PAID ON AN A CCOUNT NAMED STAFF WELFARE SCHEME. THE AO TOOK THE VIEW THAT THE PROVISIONS OF SEC. 2(24)(X) AND SEC. 36(1)(VA) SHALL APPLY TO THE ABOVE SAID ACCOUNT AND ACCORDING LY DISALLOWED THE CLAIM OF RS.8,10,572/-. HOWEVER, THE LD CIT(A) DELETED THE SAID DISALLOWANCE AND HENCE THE REVENUE IS IN APPEAL BEFORE US. 5. THE FIRST ISSUE RELATES TO THE DISALLOWANCE O F DIMINUTION IN THE VALUE OF SECURITIES AMOUNTING TO RS.35,41,700/-. BOTH THE TAX AUTHORIT IES HAVE TAKEN THE VIEW THAT THE ASSESSEE HAS MADE LONG TERM INVESTMENT IN THE GOVER NMENT OF INDIA SECURITIES. HOWEVER, THE CLAIM OF THE ASSESSEE IS THAT IT HAS P URCHASED THE ABOVE SAID SECURITY AS PART OF ITS STOCK IN TRADE OR CURRENT INVESTMENT. ACCORDING TO THE ACCOUNTING POLICY FOLLOWED BY THE ASSESSEE, THE STOCK IN TRADE OR CUR RENT INVESTMENT HAS TO BE VALUED AT COST OR MARKET VALUE WHICHEVER IS LOWER. SINCE THE MARKET VALUE AS ON 31.3.2006 HAS GONE DOWN, THE ASSESSEE HAS ACCOUNTED FOR THE DIMIN UTION IN THE VALUE AND CLAIMED THE I.T.A. NO. 410 & 344/COCH/2010 3 SAME AS EXPENDITURE. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSEE HAS SOLD THE ABOVE SAID SECURITY DURING THE YEAR ENDING 31.3.200 9 AND HAS ACCOUNTED FOR ENTIRE PROFIT (WHICH INCLUDES THE AMOUNT CLAIMED AS EXPEND ITURE DURING THE YEAR UNDER CONSIDERATION) AS ITS INCOME. BEFORE US THE ASSESS EE HAS FILED A COPY OF ANNUAL REPORT RELATING TO THE FINANCIAL YEAR 2008-09. IN THE SAI D ANNUAL REPORT, THE INVESTMENT MADE IN THE GOVERNMENT OF INDIA SECURITY IS SHOWN AS CU RRENT INVESTMENT ONLY. THE VALUE OF THE SAID INVESTMENT AS ON 01.4.2008 WAS SHOWN AT RS.11,81,25,000/-, MEANING THERE BY THE ASSESSEE HAS FURTHER REDUCED THE VALUE DURIN G THE YEAR ENDING 31.3.2007 AND 31.3.2008. IT IS NOT KNOWN WHETHER THE AO HAS MADE SIMILAR DISALLOWANCES IN THOSE YEARS OR NOT. BE THAT AS IT MAY, THIS INFORMATION PROVES THE FACT THAT THE ASSESSEE HAS TREATED THE PURCHASE OF GOVERNMENT OF INDIA SECURIT Y AS CURRENT INVESTMENT ONLY AND HAS BEEN VALUING THE SAME AT THE END OF EACH YEAR U NDER THE POLICY VIZ., THE COST OR MARKET VALUE WHICH EVER IS LESS. THE ASSESSEE HAS SOLD THE ABOVE SAID SECURITY IN THE FINANCIAL YEAR ENDING 31.3.2009 FOR AN AMOUNT OF RS .12,86,69,300/- AND HAS ACCOUNTED FOR THE ENTIRE PROFIT OF RS.1,05,44,300/- AS ITS IN COME. THE SAID PROFIT OF RS.1,05,44,300/- INCLUDES THE AMOUNT CLAIMED AS EXP ENDITURE IN THE YEARS RELEVANT TO THE ASSESSMENT YEARS 2006-07 TO 2008-09. THUS IT I S SEEN THAT THE ASSESSEE HAS TREATED THE PURCHASE OF GOVERNMENT OF INDIA SECURIT Y AS ITS CURRENT INVESTMENT AND HAS FOLLOWED A CONSISTENT POLICY FOR VALUING THE CURREN T INVESTMENTS AT THE YEAR END. IT IS NOT SHOWN TO US THAT THE SAID ACCOUNTING POLICY FOL LOWED BY THE ASSESSEE IS NOT PERMISSIBLE UNDER THE LAW. INSTEAD, ACCORDING TO T HE ASSESSEE, THE SAID POLICY IS PERFECTLY WITHIN THE PERMISSIBLE ACCOUNTING SYSTEMS . IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE TAX AUTHOR ITIES ARE NOT RIGHT IN LAW IN DISALLOWING THE CLAIM OF RS.35,41,700/- MADE BY THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRE CT THE AO TO DELETE THE ABOVE SAID DISALLOWANCE. 6. THE ISSUE URGED BY THE REVENUE RELATES TO THE DISALLOWANCE OF STAFF WELFARE EXPENDITURE RELATING TO STAFF WELFARE SCHEME. TH IS TRIBUNAL HAS CONSIDERED THIS ISSUE IN THE ASSESSEES OWN CASE RELATING TO THE ASSESSME NT YEAR 2004-05. WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY THE TRIBUNAL ON T HIS ISSUE:- I.T.A. NO. 410 & 344/COCH/2010 4 12. THE LAST ISSUE RELATES TO THE DISALLOWANCE OF CONTRIBUTIONS MADE TO AS WELL AS INTEREST PAID ON STAFF WELFARE SCHEME A/C. TH E ASSESSEE HAS MADE CONTRIBUTIONS IN RESPECT OF ITS EMPLOYEES TO A SCHE ME NAMED AS STAFF WELFARE SCHEME A/C. THE AMOUNT SO CONTRIBUTED BY IT ON B EHALF OF ITS EMPLOYEES WAS TREATED AS SALARY INCOME IN THE HANDS OF RESPECTIVE EMPLOYEES AND INCOME TAX WAS ALSO DEDUCTED THERE ON. THE AMOUNT ACCUMULATED IN THE NAME OF EMPLOYEES WERE COLLECTIVELY ACCOUNTED AS STAFF WELFARE SCHEME AN D THE ACCUMULATED BALANCE WAS NOT INVESTED ANY WHERE ELSE. INSTEAD, THE ASSES SEE ITSELF HAS USED SUCH CONTRIBUTIONS FOR ITS OWN BUSINESS PURPOSE. THUS, THE NET EFFECT OF THIS ARRANGEMENT IS THAT THE AMOUNTS CREDITED TO THE EM PLOYEES WELFARE SCHEME A/C REPRESENTS THE AMOUNTS COLLECTED FROM EMPLOYEES ONL Y. THE ASSESSEE HAS ALSO PROVIDED FOR INTEREST ON THE LIABILITY AMOUNT HELD UNDER THE STAFF WELFARE SCHEME A/C AND CLAIMED THE SAME AS EXPENDITURE. 13. ACCORDING TO THE AO, THE SAID STAFF WELFAR E SCHEME WOULD FALL IN THE CATEGORY OF ANY OTHER FUND FOR THE WELFARE OF EMPL OYEES AS SPECIFIED IN SEC. 2(24)(X) OF THE ACT. THE LD CIT(A) HAS TAKEN THE VIEW THAT THE IMPUGNED EXPENDITURE IS ALLOWABLE UNDER THE PROVISIONS OF SE C.40A(9) OF THE ACT. IT IS PERTINENT TO NOTE THAT ONE OF THE CONDITIONS PRESC RIBED IN SEC.40A(9) IS THAT THE CONTRIBUTIONS SHOULD HAVE BEEN MADE TO A FUND, TRUS T, COMPANY ETC., WHICH MEANS THE CONTRIBUTIONS SHOULD NOT HAVE BEEN USED BY THE ASSESSEE ITSELF. IN THE INSTANT CASE, THE ASSESSEE HAS USED THE AMOUNTS SO ACCUMULA TED BY IT FOR ITS OWN BUSINESS PURPOSE. HENCE THE PROVISIONS OF SEC.40A(9) SHALL NOT APPLY TO THE INSTANT CASE. 14. WE HAVE ALREADY STATED THAT THE CONTRIBUTION S TO THE STAFF WELFARE SCHEME, IN EFFECT, HAVE BEEN MADE BY EACH OF THE EMPLOYEES OF THE ASSESSEE COMPANY. THE STAFF WELFARE SCHEME IS A COLLECTIVE NAME GIVEN B Y THE ASSESSEE IN RESPECT OF SUCH CONTRIBUTIONS, WHICH MEANS THAT THE ASSESSEE S HOULD BE IN A POSITION TO FURNISH THE NAME WISE BREAK UP DETAILS OF THE OUTST ANDING BALANCE. IN OUR VIEW, I.T.A. NO. 410 & 344/COCH/2010 5 THE COLLECTIVE NAME STAFF WELFARE SCHEME IS AKIN TO THE COLLECTIVE NAME SUNDRY CREDITORS. ACCORDINGLY THE STAFF WELFARE SCHEME CAN ONLY BE TAKEN AS A LIABILITY (CREDITORS) ACCOUNT, I.E., THE AMOUNT PAYABLE TO EA CH OF THE EMPLOYEES WHO HAVE CONTRIBUTED TO THE SAID SCHEME. INSTEAD OF KEEPING THE ACCOUNT IN EACH OF THE EMPLOYEE NAME, THE ASSESSEE HAS AGGREGATED THEM AND SHOWN AS UNDER A COLLECTIVE NAME. THE LD CIT(A) HAS NOTED THAT THE ASSESSEE PA YS THE ACCUMULATED AMOUNT OUTSTANDING IN THE NAME OF THE RETIRING EMPLOYEES A LONG WITH THE INTEREST ACCRUED THERE ON AT THE TIME OF RETIREMENT. IT IS ALSO SUB MITTED THAT THE ASSESSEE IS DEDUCTING TDS FROM SUCH INTEREST PAYMENTS. IT IS O NLY POSSIBLE TO IDENTIFY THE ACCUMULATED BALANCE IN THE NAME OF EACH OF THE EMPL OYEE AND PAY THE SAME ONLY IF THE SUB-LEDGER OF THE STAFF WELFARE SCHEME IS AVA ILABLE. HENCE, IN OUR VIEW, THE STAFF WELFARE SCHEME A/C CAN ONLY BE TAKEN AS A C REDITOR ACCOUNT AND NOT AS WELFARE SCHEME ACCOUNT AS DEFINED IN SEC. 2(24)(X) OF THE ACT. ACCORDINGLY, WE AGREE WITH THE FINAL DECISION REACHED BY THE LD CIT (A) ON THIS ISSUE. CONSISTENT WITH THE VIEW TAKEN IN ASSESSMENT YEAR 2 004-05, WE AGREE WITH THE DECISION REACHED BY LD CIT(A) ON THIS ISSUE. ACCORDINGLY WE UPHOLD THE RELIEF GRANTED BY LD CIT(A) ON THIS ISSUE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSES SEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 01-06-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 1 ST JUNE, 2012 GJ COPY TO: 1. M/S. MUTHOOT FIANNCE (P) LTD., MUTHOOT CHAMBERS, BANERJEE ROAD, ERNAKULAM. I.T.A. NO. 410 & 344/COCH/2010 6 2. M/S. MUTHOOT FINANCE (P) LTD., M.G.ROAD, ERNAKUL AM. 3. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1(3), ERNAKULAM. 4. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1(2, ERNAKULAM. 5. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOC HI. 6. THE COMMISSIONER OF INCOME-TAX, KOCHI. 7. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 8. GUARD FILE . BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN