CONTFREIGHT SHIPPING AGENCY (I) P. LTD, MUMBAI V. JT CIT CEN CIR 39, MUMBAI

ITA 4350/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9347 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 23-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: TUFAIL AHMED KHANDR
• Assessee Lawyers: HARSH SHAHAR
• Keywords: Tax effect

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL FBENCH M UMBAI , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAVISH SOOD, JUDICIAL MEMBER ./I.T.A./4350/MUM/2016, /ASSESSMENT YEAR: 2009-10 CONTFREIGHT SHIPPING AGENCY(I) PVT.LTD. UNIT NO.801, GODREJ COLISEUM, C-WING OFF SOMAIYA HOSPITAL ROAD, SION MUMBAI-400 022. PAN:AAACC 1594 L VS. THE DCIT CENTRAL CIRCLE-6(4), ROOM NO.1925, 19 TH FLOOR,AIR INDIA BUILDING, NARIMAN POINT, MUMBAI-400 021. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI TUFAIL AHMED KHAN-DR ASSESSEE BY: SHRI HARSH SHAH-AR / DATE OF HEARING: 31/08/2017 / DATE OF PRONOUNCEMENT: 27/09/2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) / PER RAJENDRA, AM - CHALLENGING THE ORDER,DATED 01.04.2016,OF THE CIT ( A)-54, MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,FUNCTIONING AS A SU B-AGENT OF M/S. HANJIN SHIPPING INDIA PVT.LTD.,FILED ITS RETURN OF INCOME,ON 29/09/2009,D ECLARING TOTAL INCOME AT RS.NIL.THE ASSESSING OFFICER(AO)COMPLETED THE ASSESSMENT U/S.1 43(3)OF THE ACT,ON 28/12/2011, DETERM -INING ITS INCOME AT RS.(-)88,24,967/-.DURING THE C OURSE OF HEARING BEFORE US,THE AUTHORISED REPRESENTATIVE(AR)STATED THAT CONSIDERING THE SMALL NESS OF TAX EFFECT THE ASSESSEE WOULD NOT LIKE TO PRESS GROUNDS NO.2-4 FOR THE YEAR UNDER CON SIDERATION.HENCE, SAME STAND DISMISSED. 3. EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANCE OF CONTRIBUTION OF RS.19.30 LAKHS TOWARDS GRATUITY FUND(GF)MAINTAINED BY LIFE INSURANCE CORPO RATION (LIC).DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT EXPENSES AMOUNTING TO RS.19,30,895/-WERE CLAIMED ON ACCOUNT OF CONTRIBUTION MADE TOWARDS GF.HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHETHER THE GF WAS APPROVED AND ALSO TO JUSTIFY THE ALLOWAB ILITY OF DEDUCTION AS PER THE PROVISIONS OF SECTION 40A(7) OF THE ACT.AS PER THE AO,THE ASSESSE E DID NOT BRING ANYTHING ON RECORD TO SHOW THAT THE GF WAS A RECOGNISED FUND WITHIN THE M EANING OF SECTION 40A(7) OF THE ACT. HE HELD THAT DEDUCTION CLAIMED BY THE ASSESSEE FOR A S UM OF RS.19.30 LAKHS HAD TO BE DISALLOWED. 4. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA)AND STATED THAT IT HAD SUBSCRIBED TO EMPLOYEES GROUP CUM LIFE ASSURANCE SCHEME WITH LIC,THAT IT HAD DULY EXECUTED A TRUST D EED,THAT THE ANNUAL SUBSCRIPTION WERE 4350/M/16-CONTFREIGHT SHIPPING AGENCY (I) PVT.LTD. 2 MADE TO GF BASED ON THE CONTRIBUTION REQUEST RECEIV ED FROM LIC, THAT THE ABOVE SCHEME WAS FILED WITH THE CIT-CENTRAL-III, MUMBAI FOR APPROVAL . AFTER CONSIDERING THE ASSESSMENT ORDER AND SUBMISSI ON ORDER,THE FAA HELD THAT TILL THE DATE OF DISPOSAL OF THE APPEAL THE GF HAD NOT BEEN APPRO VED BY THE CIT CONCERNED, THOUGH THE ASSESSEE HAD FILED AN APPLICATION FOR APPROVAL.HE R EFERRED TO SECTION 36(1) (V), 40A(7) AND 2 (5)OF THE ACT AND HELD THAT ANY GF COULD BE TREATED AS APPROVED GF ONLY WHEN SAME HAD BEEN APPROVED BY THE PCCIT/CCIT/PCIT/CIT,THAT THE ASSESS EE HAD SUBMITTED AND APPLIACTION FOR APPROVAL OF ITS GF,THAT MERE FILING OF APPLICATION WOULD NOT MEET THE REQUIREMENT AS STIPULATE -ED U/S.2(5) OF THE ACT. FINALLY,HE UPHELD THE ORDE R OF THE AO. 5. BEFORE US,THE AR ARGUED THAT THE ASSESSEE HAD ALRE ADY MADE AN APPLICATION, THAT THE GRANTING OF APPROVAL WAS BEYOND ITS CONTROL, THAT P AYMENT WAS PAID TO LIC AS DIRECTED BY IT, THAT THERE WAS NO DOUBT ABOUT INCURRING OF EXPENDIT URE TOWARDS GF. HE RELIED UPON THE CASES OF BITONI LAMPS LTD.(277ITR396) AND BARODA GUJARAT GRAMIN BANK (ITA/1479/AHD./2010- AY.06-07)DTD6.8.2010.THE DEPARTMENTAL REPRESENTATIV E (DR) SUPPORTED THE ORDER OF THE FAA. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE WAS MAKING PAYMENT TO LIC TOWARDS EMPLOYEE S GROUP CUM LIFE ASSURANCE SCHEME AFTER CREATING A TRUST DEED,THAT IT HAD MADE AN APP LICATION TO THE CIT FOR APPROVAL.THUS,THERE IS NO DOUBT THAT PAYMENTS HAD BEEN MADE BY THE ASSE SSEE TO LIC IN A PARTICULAR SCHEME.THE GRANTING OF APPROVAL FOR A GF IS NOT IN THE HANDS O F THE ASSESSEE. IT COULD ONLY MAKE AN APPLICATION AND DEPOSIT THE MONEY.WE FIND THAT IN T HE CASE OF BARODA GUJARAT GRAMIN BANK SIMILAR ISSUE HAD ARISEN AND THE TRIBUNAL REFERRING TO THE CASE OF BITONI LAMPS LTD. (SUPRA), HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. WE ARE REPRODUCING THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL AND IT READS AS UNDER :- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-VI, BARODA DATED 08- 01-2010 FOR ASSESSMENT YEAR 2006-07 ON THE FOLLOWIN G GROUND: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF CONTRIBUTION MADE TO GROUP GRATUITY SCHEME OF LIC OF INDIA, BEING AN UNAPPROVED FUND U/S 40A(7) O F THE ACT. 2. THE AO OBSERVED THAT CONTRIBUTION TOWARDS GRATUI TY OF LIC OF RS.26,53,000/- WAS CLAIMED U/S 40 A(7) OF THE IT ACT.IT WAS STATED BY THE ASSE SSEE THAT APPLICATION FOR RECOGNITION OF GROUP GRATUITY SCHEME WAS PENDING FOR APPROVAL BEFO RE THE INCOME TAX AUTHORITIES. ACCORDINGLY, CLAIM OF PAYMENT OF RS.26,53,000/- TO LIC WAS NOT ALLOWABLE U/S 40A (7) OF THE IT ACT. IT WAS SUBMITTED THAT CONTRIBUTION TO LIC T OWARDS GRATUITY WAS ALLOWABLE IN THE LIGHT OF THE DECISION OF HONBLE PUNJAB & HARYANA HIGH CO URT IN THE CASE OF CIT VS BITONI LAMPS LTD. 277 ITR 396. THE AO HOWEVER, HELD THAT GRATUIT Y LIABILITY CANNOT BE ALLOWED WHEN THE ASSESSEE DID NOT HAVE ANY APPROVED GRATUITY FUND. T HE CLAIM WAS ACCORDINGLY DISALLOWED. SAME SUBMISSIONS WERE MADE BEFORE THE LEANED CIT(A) . THE LEARNED CIT(A) CONSIDERING THE ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF CRYSTA L SOLVENT PVT. LTD. (ITA NO.655/ AHD/ 4350/M/16-CONTFREIGHT SHIPPING AGENCY (I) PVT.LTD. 3 2005) ALLOWED THE APPEAL OF THE ASSESSEE IN WHICH I T WAS HELD THAT DISALLOWANCE U/S 40 A(7) OF THE IT ACT CANNOT BE MADE ON THE GROUND OF ABSENCE OF APPROVAL OF GRATUITY FUND AS THE DEDUCTION WAS NOT CLAIMED ON ACCOUNT OF ANY PROVISI ON. 3. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT APPROVAL OF THE COMMISSIONER OF INCOME TAX WAS NOT OBTAINED. THEREF ORE, CONTRIBUTION TOWARDS GRATUITY CANNOT BE ALLOWED AS DEDUCTION U/S 40A (7) OF THE I T ACT. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND ALSO RELIED UPON THE ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF NEW BHARAT ENGINEERING WORKS (JAM) LTD. VS ITO 44 TTJ (AHD) 522. THE LEARN ED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE MADE A CLAIM ON ACTUAL EXPENSES INCURRED UNDER THE HEAD GRATUITY CONTRIBUTION. THEREFORE, PROVISIONS OF SECTION 40A (7) OF THE ACT WOULD NOT APPLY IN THE MATTER. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL AVAILABLE ON RECORD. SECTION 40A (7) OF THE IT ACT PROVIDES THAT SUBJECT TO PROVISIO N OF CLAUSE (B), NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY PROVISION MADE BY THE ASS ESSEE FOR PAYMENT OF GRATUITY TO HIS EMPLOYER ON THEIR RETIREMENT OR ON TERMINATION OF T HEIR EMPLOYMENT FOR ANY REASON. IT IS CLEAR FROM THE ABOVE PROVISION THAT SECTION 40A (7) OF TH E IT ACT WOULD APPLY IN RESPECT OF THE PROVISION ONLY. HOWEVER, IN THE CASE OF THE ASSESSE E, THE ASSESSEE CLAIMED DEDUCTION OF THE EXPENDITURE ON ACCOUNT OF ACTUAL EXPENSES CLAIMED U NDER THE HEAD GRATUITY CONTRIBUTION. ITAT AHMEDABAD BENCH IN THE CASE OF NEW BHARAT ENGI NEERING WORKS (JAM) LTD. (SUPRA) HELD DISALLOWANCE UNDER S. 40A(7) GRATUITY ACT UAL PAYMENT OF FUNDS TO LIC AND NOT MERE PROVISION NOT HIT BY S. 40A(7) CIT VS GUJA RAT MACHINE TOOLS (ITA 666/AHD/1985) FOLLOWED. HONBLE PUNJAB & HARYANA HIGH COURT IN T HE CASE OF CIT VS BITONI LAMPS LTD. 144 TAXMAN 33 HELD THAT SECTION 40A(7) OF THE INCO ME-TAX ACT, 1961 BUSINESS DISALLOWANCE GRATUITY ASSESSMENT YEAR 1979-80 ASSESSEE-COMPANY CLAIMED DEDUCTION UNDER SECTION 40A(7) (B) (I) ON ACCOUNT OF GRATUITY ACTUALLY DEPOSITED IN FUND CREATED BY IT WHETHER SUCH A CLAIM COULD ONLY HAVE BEEN DISALLOWE D IF IT HAD BEEN PROVED THAT GRATUITY, IN RESPECT OF WHICH SAID PAYMENT HAD BEEN MADE, HAD NO T BECOME PAYABLE DURING PREVIOUS YEAR HELD, YES WHETHER IN ABSENCE OF SUCH A CASE MAD E OUT BY REVENUE, TRIBUNAL WAS RIGHT IN HOLDING THAT GRANT OF APPROVAL OF GRATUITY FUND WAS NOT RELEVANT FOR PURPOSE OF INSTANT CASE AS SAID DEDUCTION WAS NOT BEING CLAIMED ON ACCOUNT OF ANY PROVISION AND AMOUNT OF GRATUITY WAS AN ALLOWABLE DEDUCTION HELD, YES. 5.CONSIDERING THE ABOVE ASPECTS,WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITION. THERE IS NO MERIT IN THE DEPARTMENTAL APPEAL. SAME IS ACCORDINGLY DISMISSED. 6. AS A RESULT, THE DEPARTME NTAL APPEAL IS DISMISSED. IN THE CASE OF BITONI (SUPRA) THE HONBLE PUNJAB & HARYANA HIGH COURT HAD HELD THAT IF PAYMENTS TOWARDS FUNDS WERE MADE NO DISALLOWANCE SH OULD BE MADE EVEN IF APPROVAL WAS PENDING.CONSIDERING THE ABOVE AND RESPECTFULLY FOLL OWING THE ABOVE REFERRED TWO CASES WE DECIDE GROUND 4-6 IN FAVOUR OF THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS P ARTLY ALLOWED. . ORDER PRONOUNCED IN TH E OPEN COURT ON 27 TH SEPTEMBER, 2017. 27 , 2017 SD/- SD/- ( /RAVISH SOOD) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 27.09 .2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 4350/M/16-CONTFREIGHT SHIPPING AGENCY (I) PVT.LTD. 4 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR F BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.