ACIT, CHENNAI V. Continental Datagraphics Technical Services (India) Pvt. Ltd., CHENNAI

ITA 431/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6301 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 03-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 20-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAGADEVAN
• Assessee Lawyers: SRIRAMAN SESHADRI
• Section: 115JB; 37

Judgement Text

, .. , IN THE INCOME TAX APPELLATE TRIBUNAL , SMC D BENCH, CHENNAI . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NOS.431& 432/MDS/2017 ( / ASSESSMENT YEARS: 2012-13 & 2013-14) THE ACIT, CORPORATE CIRCLE 1(2), CHENNAI 34. VS M/S. CONTINENTAL DATAGRAPHICS TECHNICAL SERVICES (INDIA) PVT. LTD., 9A BLOCK, 3 RD FLOOR, DLF IT SEZ, 1/124, MOUNT POONAMALLEE ROAD, MANAPAKKAM, CHENNAI 600 089. PAN: AADCC8178R ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI SAGADEVAN, JCIT /RESPONDENT BY : SHRI SRIRAMAN SESHADRI, ADVOCATE /DATE OF HEARING : 04.07.2017 !' /DATE OF PRONOUNCEMENT : 22.08.2017 / O R D E R THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST T HE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEA LS)-1, CHENNAI BOTH DATED 01.12.2016 IN ITA NO.413/CIT(A)- 6/2015-16 & ITA NO.414/CIT(A)-1/2015-16 FOR THE ASSESSMENT YEAR S 2012-13 & 2013-14 RESPECTIVELY, PASSED U/S.250(6) R.W.S.143(3 ) OF THE ACT. 2. THE REVENUE HAS RAISED THE FOLLOWING IDENTICAL GROUNDS IN BOTH THE APPEALS:- 2 ITA NO. 431 & 432/MDS/2017 I. THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOW ANCE OF SOFTWARE USAGE EXPENSES WHILE COMPUTING THE BOOK PR OFIT U/S.115JB OF THE ACT, AMOUNTING TO RS.36,15,750/- & RS.38,26,021/- FOR THE ASSESSMENT YEARS 2012-13 & 2 013-14 RESPECTIVELY. II. THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLO WANCE TOWARDS PROVISION OF GRATUITY WHILE COMPUTING THE BOOK PROF IT U/S.115JB OF THE ACT, AMOUNTING TO RS.24,49,918/- & RS.19,49, 770/- FOR THE ASSESSMENT YEARS 2012-13 & 2013-14 RESPECTIVELY . 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF TECHNICA L PUBLICATION SERVICES, ENGINEERING DESIGN SERVICES & IT ENABLED SERVICES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEARS 2012- 13 & 2013-14 ON 26.09.2012 & 29.10.2013 ADMITTING TOTAL INCOME OF R S.19,06,230/- & RS.22,47,410/- RESPECTIVELY. INITIALLY THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND FINAL ASSESSMENT ORDERS WER E PASSED U/S.143(3) OF THE ACT FOR BOTH THE ASSESSMENT YEARS ON 05.02.2016, WHEREIN THE LD.AO DISALLOWED THE PROVISION OF GRATU ITY AND SOFTWARE 3 ITA NO. 431 & 432/MDS/2017 USAGE DEBITED IN PROFIT AND LOSS ACCOUNT WHILE COMP UTING THE BOOK PROFIT U/S 115JB OF THE ACT. 4. IN THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS , IT WAS OBSERVED BY THE LD.AO, THAT THE ASSESSEE HAS DEBITE D IN ITS P&L ACCOUNT, PROVISION FOR GRATUITY AND PROVISION FOR S OFTWARE. THE CLAIM OF THE ASSESSEE WAS THAT BOTH THE PROVISIONS WERE N OT CONTINGENT IN NATURE BUT WAS ACTUALLY PAYABLE BY THE ASSESSEE. T HE LD.AO REJECTED THE CLAIM OF THE ASSESSEE AND DISALLOWED T HE EXPENDITURE FOR COMPUTING BOOK PROFIT UNDER SECTION 115JB OF TH E ACT. ON APPEAL, THE LD.CIT(A) GRANTED RELIEF TO THE ASSESSE E BY OBSERVING AS UNDER:- 9. PROVISION FOR GRATUITY: I HAVE CAREFULLY PERUSE D THE FACTS IN ISSUE, SUBMISSIONS MADE BY THE APPELLANT AND MATERI AL ON RECORD. THE LIABILITY TO PAY GRATUITY IS A STATUTORY LIABIL ITY AND THE SAME HAS ALSO BEEN ASCERTAINED ON AN ACTUARIAL BASIS. THE HO N'BLE BOMBAY HIGH COURT IN THE CASE OF ECHJAY FORGINGS PVT. LTD (2001) 251 ITR 15 (BOM) HAS HELD THAT WHERE THE ASSESSEE HAS MADE THE PROVISION FOR GRATUITY ON THE BASIS OF ACTUARIAL CALCULATIONS , THE SAME CANNOT BE SAID TO BE A PROVISION FOR OTHER THAN AN ASCERTA INED LIABILITY AS PROVIDED FOR UNDER EXPLANATION-1 TO SEC 115JB(2). I N THE APPELLANT'S CASE ALSO' THE PROVISION HAS BEEN MADE BASED ON ACT UARIAL VALUATION. THEREFORE, THE SAME CANNOT BE DISALLOWED IN COMPUTI NG THE BOOK PROFIT U/S 115JB. FURTHER, BY VIRTUE OF THE DECISIO NS OF THE HON'BLE APEX COURT IN THE CASE BHARAT EARTH MOVERS (SUPRA) AND THE DECISIONS OF SEVERAL HIGH COURTS DIRECTLY RELATING TO THE ISSUE ON HAND, IT IS NOW SETTLED THAT PROVISION FOR GRATUITY MADE ON THE BASIS OF ACTUARIAL VALUATION CANNOT BE CONSIDERED AS AN U NASCERTAINED LIABILITY SO AS TO ADD IT BACK TO BOOK PROFITS UNDE R SECTION 115JB. THE 4 ITA NO. 431 & 432/MDS/2017 ACTION OF THE AO IN ADDING BACK PROVISION FOR GRATU ITY TO BOOK PROFITS WHILE MAKING COMPUTATION UNDER SECTION 115JB IS THE REFORE NOT SUSTAINABLE. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. 12. PROVISION FOR SOFTWARE USAGE : I HAVE CAREFULL Y PERUSED THE FACTS IN ISSUE, SUBMISSIONS MADE BY THE APPELLANT AND MAT ERIAL ON RECORD. BASED ON FACTS AND DOCUMENTS SUBMITTED, IT IS EVIDE NT THAT OUT OF TOTAL SOFTWARE USAGE COSTS OF INR 36,15,750 INCURRED IN T HE SUBJECT AY, THE APPELLANT HAS RECEIVED ACTUAL INVOICES AMOUNTING TO I NR 20,83,150 AND THE BALANCE AMOUNT OF INR 15,32,600 HAS BEEN AC CRUED BASED ON THE PATTERN OF COSTS INCURRED IN THE PREVIOUS MO NTHS. THE FACT IS THAT THE ENTIRE COST OF INR 36,15,750 HAS BEEN ALLO WED AS EXPENDITURE UNDER SECTION 37 WHILE COMPUTING INCOME UNDER THE NORMAL PROVISIONS OF THE ACT. THEREFORE THE ENTIRE SOFTWARE COST OF INR 36,15,750 CANNOT BE CONSIDERED AS UNASCERTAINED OR CONTINGENT PROVISION FOR THE PURPOSE OF COMPUTATION OF BOOK PR OFITS UNDER SECTION 115JB. THUS THE ACTION OF THE AO IN TREATIN G THE SOFTWARE USAGE COSTS AMOUNTING TO INR 36,15,750 AS CONTINGEN T IN NATURE IS NOT IN LINE WITH THE FACTS ON HAND AND ACCORDINGLY THE AO IS DIRECTED TO DELETE SUCH ADDITION MADE TO BOOK PROFITS. THIS GROUND OF APPEAL IS ALLOWED. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE REVENU E IS IN APPEAL BEFORE THIS BENCH OF THE TRIBUNAL. 5. AT THE OUTSET, THE LD.AR SUBMITTED THAT THE ISSU E WITH RESPECT TO PROVISION MADE FOR GRATUITY IS COVERED BY THE DECIS ION OF THE HONBLE BOMBAY HIGH COURT WHICH WAS FOLLOWED BY THE LD.CIT( A). IT WAS THEREFORE ARGUED THAT NO INTERFERENCE IS REQUIRED I N THE DECISION OF THE LD.CIT(A). FURTHER IT WAS SUBMITTED THAT THE L D.AO HAD ALLOWED THE SOFTWARE USAGE COST OF RS.36,15,750/- AS DEDUCT ION IN THE NORMAL COMPUTATION OF PROFIT. THEREFORE, THE SAME TREATMENT HAS TO 5 ITA NO. 431 & 432/MDS/2017 BE GIVEN WHILE COMPUTING THE BOOK PROFIT U/S.115JB OF THE ACT. HENCE, IT WAS ARGUED THAT THE ORDER OF THE LD.CIT(A ) IS APPROPRIATE AND THEREFORE NO INTERFERENCE IS REQUIRED IN HIS DE CISION ON THE ISSUE. THE LD.DR ON THE OTHER HAND ARGUED IN SUPPORT OF TH E ORDERS OF THE LD.AO AND PLEADED TO SUSTAIN THE SAME. 6. I HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIAL AVAILABLE ON RECORD. PROVISION FOR GRATUI TY IS AN EXPENDITURE THAT HAS TO BE INCURRED BY THE ASSESSEE AT THE TIME OF RETIREMENT OF ITS EMPLOYEES OR DISCONTINUANCE OF SERVICE. THIS EX PENDITURE IS INEVITABLE TO THE ASSESSEE. FURTHER, THOUGH THE PA YMENT OF GRATUITY IS MADE AT THE TIME OF DISCONTINUANCE OF SERVICE OF THE EMPLOYEE OR HIS RETIREMENT, IT RELATES TO THE ENTIRE PERIOD OF THE SERVICE OF THE EMPLOYEE. THEREFORE, TAKING IN TO ACCOUNT OF THE M ATCHING CONCEPT THE EXPENSES HAS TO BE SPREAD OVER THE PERIOD OF TH E EMPLOYMENT OF THE ASSESSEES EMPLOYEE. HENCE, ACTUARIAL VALUATIO N IS A SCIENTIFIC AND APPROPRIATE METHOD TO VALUE THE EXPENDITURE ATT RIBUTABLE TO THE EMPLOYEE DURING THE RELEVANT PREVIOUS YEAR, THOUGH IT IS PAID ONLY AT THE TIME OF DISCONTINUANCE / RETIREMENT OF THE EMPL OYEE. THE HONBLE BOMBAY HIGH COURT IN THE CASE CITED BY THE LD.CIT(A) HAS ALSO RECOGNIZED THESE ASPECTS AND HELD THAT PROVISI ON MADE FOR GRATUITY ON THE BASIS ACTUARIAL CALCULATIONS HAS TO BE TREATED AS AN 6 ITA NO. 431 & 432/MDS/2017 EXPENDITURE ATTRIBUTABLE FOR THE RELEVANT PREVIOUS YEAR AND NOT SIMPLY AS CONTINGENT LIABILITY. THE LD.CIT(A) HAS ONLY FOLLOWED THE DECISION OF THE BOMBAY HIGH COURT ON THIS ISSUE. T HEREFORE I DO NOT FIND IT NECESSARY TO INTERFERE WITH HIS ORDER. ON THE ISSUE WITH RESPECT TO THE SOFTWARE USAGE COST, THE LD.AO HAS A LLOWED IT AS EXPENDITURE WHILE COMPUTING THE PROFIT OF THE ASSES SEE UNDER THE NORMAL PROVISIONS OF THE ACT. THEREFORE, I ALSO DO NOT FIND ANY REASON AS TO WHY THE SAME TREATMENT SHOULD NOT BE G IVEN WHILE COMPUTING THE PROFIT OF THE ASSESSEE U/S.115JB OF T HE ACT. THE LD.DR HAS ALSO NOT BROUGHT TO MY NOTICE ANY PROVISI ONS U/S.115JB OF THE ACT, WHEREIN SUCH EXPENSES IS DISALLOWED WHI LE COMPUTING THE BOOK PROFIT OF THE ASSESSEE UNDER THE ACT. FURTHER , THERE IS NO FINDING IN THE ORDER OF THE LD.AO THAT EXPENSES INC URRED ON SOFTWARE USAGE ARE CONTINGENT IN NATURE OR IT IS A PROVISION MADE IN THE BOOKS OF ACCOUNTS. THEREFORE I DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) ON THIS ISSUE ALSO. 7. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED ON THE 22 ND AUGUST, 2017 AT CHENNAI. SD/- ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER 7 ITA NO. 431 & 432/MDS/2017 #$ /CHENNAI, %& /DATED 22 ND AUGUST, 2017 RSR & () *) /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. - ( )/CIT(A) 4. - /CIT 5. )./ 0 /DR 6. / /GF