ACIT CIRCLE 1, SALEM V. M/s tamilnadu state transport corporation (salem) ltd, Salem

ITA 482/CHNY/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9585 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 12-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S BHARATH
• Assessee Lawyers: G BASKAR
• Section: 37(1); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , , ! BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NOS. 482 & 484/CHNY/2018 / ASSESSMENT YEARS : 2003-04 & 2007-08 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -1, SALEM. VS. M/S. TAMIL NADU STATE TRANSPORT CORPORATION (SALEM) LTD., NO. 12 RAMAKRISHNA ROAD, SALEM 636 007. [PAN: AAACT 7678J] ( / APPELLANT) ( '#% /RESPONDENT ) REVENUE BY : SHRI. S. BHARATH, CIT ASSESSEE BY : SHRI. G. BASKAR, ADVOCATE - /DATE OF HEARING : 20.11.2018 - /DATE OF PRONOUNCEMENT : 27.11.2018 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE REVENUE FILED THESE APPEALS AGAINST THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-7, SALEM IN IT A NOS. 64/2008- 09 & 203/2009 , BOTH DATED 30.11.2017 FOR ASSESSMEN T YEARS 2003-04 & 2007-08, RESPECTIVELY. :-2-: ITA NOS. 482 & 484/CHNY/2018 2. M/S. TAMIL NADU STATE TRANSPORT CORPORATION (SAL EM) LTD., THE ASSESSEE, A GOVERNMENT TRANSPORT COMPANY CARRYING O N A BUSINESS OF RUNNING BUSES FOR THE TRANSPORT OF TRAVELLING PUBLI C. WHILE MAKING THE ASSESSMENT FOR ASSESSMENT YEAR 2003-04, THE ASSESSI NG OFFICER, INTER ALIA, DISALLOWED DAMAGES FOR REMITTANCE OF PENSION FUND TRUST PAID BY THE ASSESSEE AT RS. 95,88,351/- HOLDING THAT THE DA MAGES PAID BY THE ASSESSEE FOR THE DELAYED PAYMENTS OF CONTRIBUTION I S NOT COMPENSATORY BUT DAMAGES IN THE NATURE OF PENALTY. AGGRIEVED, T HE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). 3. BEFORE THE CIT(A), THE ASSESSEE PLEADED THAT TH E NOMENCLATURE DAMAGE USED IN ACCOUNT HEAD REPRESENT INTEREST @ 9.5% CHARGED FOR THE DUES PENDING TO BE REMITTED TO PENSION FUND TRU ST, BASED ON THE INTEREST RATE ON PROVIDENT FUND ACCUMULATIONS DECLA RED BY THE CENTRAL GOVERNMENT. THE INTEREST RATE IS ONLY COMPENSATORY IN NATURE FOR THE INTEREST LOSS FACED BY THE PENSION FUND TRUST FOR N ON-REMITTANCE OF DUES TO THE TRUST BY THE CORPORATION. SO FAR THE GOVERN MENT HAS NOT QUANTIFIED ANY PENAL PART FOR THE SAME AND RELIED ON THE SUPREME COURT DECISION IN THE CASE OF SWADESHI COTTON MILLS CO., VS CIT 233 ITR 199 WHEREIN IT WAS HELD THAT THE AUTHORITY UNDER THE INCOME TAX ACT, 1961 (THE ACT) IRRESPECTIVE OF THE NOMENCLATURE GIVEN TO THE IMPOSTS IN THE STATUE WHETHER TERMED PENALTY OR DAMAGES OR OTHERWISE, HAS TO FIND OUT WH ETHER IT IS :-3-: ITA NOS. 482 & 484/CHNY/2018 COMPENSATORY OR PENAL IN NATURE IN ORDER TO ALLOW C OMPENSATORY PART AS DEDUCTION UNDER SECTION 37(1) OF THE ACT. THE COURT FURTHER HELD THAT THE AMOUNT OF DAMAGES FOR THE DELAYED PAYMENT OF CO NTRIBUTION UNDER SECTION 14B OF THE EMPLOYEES PROVIDENT FUND ACT, C OMPRISES BOTH THE ELEMENT OF PENAL LEVY AS WELL AS COMPENSATORY PAYME NT AND THAT IS FOR THE AUTHORITY UNDER THE ACT TO DECIDE THE EXTENT TO WHICH IT IS COMPENSATORY. 4. THE LD CIT(A) CONSIDERED THE PLEA ETC AND HELD T HAT THE ASSESSEE HAS SUBMITTED THAT IT IS ONLY THE INTEREST COMPONEN T @9.5% FOR THE DUES AND THERE IS NO PENALTY INVOLVED. IN ABSENCE OF ANY FINDING BY AO TO ESTABLISH THAT THERE IS A PENALTY COMPONENT. RESPEC TFULLY FOLLOWING THE APEX COURTS DIRECTIONS ON THIS ISSUE DISCUSSED, SU PRA, THE LD CIT(A) DIRECTED THE A.O. TO TREAT THE ABOVE EXPENDITURE AS COMPENSATORY IN NATURE AND ALLOW THE DEDUCTION UNDER SECTION 37(1) AND ALLOWED THE APPEAL . 5. AGGRIEVED AGAINST THE ORDER OF THE LD CIT(A), TH E REVENUE FILED THIS APPEAL WITH THE FOLLOWING GROUNDS OF APPEAL: (I) THE LEARNED CIT(A) FAILED TO APPRECIATE THE AS SESSMENT ORDER FRAMED BY THE AO WITH REGARD TO DAMAGES ON PENSION FUND TRUST. (II) THE LEARNED CIT(A) ERRED IN ALLOWING THE ASSES SEES APPEAL WITH REGARD TO PAYMENT OF DAMAGES TO PENSION FUND TRUST AS THE ASSESSEE HAD NOT PROVED BEYOND DOUBT THAT THE EXPENDITURE IN CURRED WAS PURELY COMPENSATORY IN NATURE DURING THE ASSESSMENT AND RE MAND REPORT PROCEEDINGS BEFORE THE AO. (III) THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED T HE ASSESSMENT ORDER AND REMAND REPORT WHILE DECIDING THE ASSESSEES CLA IM WHICH HE FAILED TO DO SO - :-4-: ITA NOS. 482 & 484/CHNY/2018 (IV) THE LEARNED CIT(A) FAILED TO CONSIDER THAT IN CIT VS. ANGLO FRENCH TEXTILES LTD. (254 ITR 314 (2002) THE MADRAS HIGH C OURT HELD THE QUESTION IS AS TO WHETHER THE DAMAGES PAID BY THE A SSESSEE UNDER SECTION 14B OF THE EMPLOYEES PROVIDENT FUNDS AND M ISCELLANEOUS PROVISIONS ACT FOR THE DELAYED PAYMENT OF CONTRIBUT ION OF PROVIDENT FUND IS DEDUCTIBLE IN COMPUTING THE INCOME THE BUSINESS OF THE ASSESSEE. THE SUPREME COURT IN THE CASE OF SWEDESHI COTTON MILLS CO. LTD. VS.CIT (1998) 233 ITR 199 (SC) HAS HELD THAT THE AUTHORITY UNDER THE INCOME- TAX ACT, IRRESPECTIVE OF THE NOMENCLATURE GIVEN TO THE IMPOSTS IN THE STATUTE WHETHER TERMED AS PENALTY OR DAMAGES OR OTH ERWISE HAS TO FIND OUT WHETHER IT IS COMPENSATORY OR IN PENAL IN NATUR E, IN ORDER TO ALLOW THE COMPENSATORY PART AS DEDUCTION UNDER SECTION 37 (1) OF THE INCOME- TAX ACT. THE COURT FURTHER HELD THAT THE AMOUNT OF DAMAGES FOR THE DELAYED PAYMENT OF CONTRIBUTION UNDER SECTION 14B O F THE EMPLOYEES PROVIDENT FUNDS AND MISCELLANEOUS PROVISION ACT, 19 52, COMPRISES BOTH ELEMENT OF PENALTY LEVY AS WELL AS COMPENSATORY PAY MENT AND THIS IS FOR THE AUTHORITY UNDER THE ACT TO DECIDE THE EXTENT TO WHICH IT IS COMPENSATORY. HAVING REGARD TO THE LAW LAID DOWN BY THE APEX COURT, THE ORDER OF THE TRIBUNAL IN HOLDING THAT THE AMOUN T OF DAMAGES PAID TO BE ALLOWED AS DEDUCTION EVEN WITHOUT EXAMINING THE EXTENT TO WHICH THE SAME CAN BE REGARDED AS COMPENSATORY, IS NOT AN ORD ER WHICH IS IN ACCORDANCE WITH LAW. (V) FOR THE ABOVE REASONS, IT IS PRAYED THAT THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS) BE CANCELLED AND THE ORDER OF THE ASSESSING OFFICER BE RESTORED. THE LD. DR PRESENTED THE CASE AND ARGUED ON THE LIN ES OF GROUNDS OF APPEAL. 6. PER CONTRA, THE LD. AR SUBMITTED A COPY OF ORD ER GIVING EFFECT TO CIT(A) ORDER PASSED BY THE ACIT, CIRCLE -1, SALEM FOR ASSESSMENT YEAR 2011-12 DATED 15.11.2017, WHEREIN, THE AO HELD AS U NDER: :-5-: ITA NOS. 482 & 484/CHNY/2018 3. ACCORDINGLY, THE CASE WAS POSTED FOR HEARING AN D THE ASSESSEE WAS ASKED CC FURNISH NECESSARY DOCUMENTS AND EVIDENCES IN SUPPORT OF THEIR CLAIM. IN RESPONSE, THE ASSESSEE APPEARED AND REPRE SENTED THAT THE DAMAGES PAID FOR REMITTANCE TO PENSION FUND TRUST I S NOTHING BUT INTEREST @ 9.5% ON THE DELAYED PAY PENT MONTHLY CONTRIBUTION AND THE PAYMENTS WERE COMPENSATORY IN NATURE AND NOT A PENALTY IN SU PPORT, THE ASSESSEE COMPANY HAD FURNISHED GOVERNMENTS ORDER, DETAILS O F INTEREST PAID AND DETAILED EXPLANATION IN THIS REGARD. CONSIDERING T HE REPLY FURNISHED, THE ASSESSEES CLAIM OF DAMAGES FOR REMITTANCE IF PENSI ON FUND TRUST FOR RS 2,35,91,384/ IS ALLOWED. FURNISHING A COPY OF INTEREST RATE DECLARED BY PENS ION FUND ACCUMULATION SINCE 1952 TO 2014, THE AR SUBMITTED T HAT SINCE THE AO HAS ALREADY DECIDED THE NATURE OF THIS PAYMENT IE. , THE DAMAGES PAID BY IT IN ASSESSMENT YEAR 2011-12, IS COMPENSATORY I N NATURE, THIS APPEAL MAY BE ALLOWED. 7. WE HEARD THE RIVAL SUBMISSIONS AND FIND MERIT IN THE SUBMISSIONS MADE BY THE LD. AR, SUPRA, AND HENCE, DO NOT FIND A NY MERIT IN THE SUBMISSION OF THE REVENUE. THE APPEAL GROUNDS OF T HE REVENUE ARE DISMISSED. ITA NO. 484/CHNY/2018: 8. WHILE MAKING THE ASSESSMENT FOR ASSESSMENT YEAR 2007-08, THE ASSESSING OFFICER ADDED MACT PROVISIONS OF RS. 1,56 ,25,446/- TO THE :-6-: ITA NOS. 482 & 484/CHNY/2018 LOSS AND COMPLETED THE ASSESSMENT. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) ALLOWED THE A PPEAL. 9. AGGRIEVED AGAINST THE ORDER OF THE LD. CIT(A), T HE REVENUE FILED THIS APPEAL WITH THE FOLLOWING GROUNDS OF APPEAL: (I) THE CIT(A) FAILED TO CONSIDER THE FACT THAT TH E AO HAD CORRECTLY DISALLOWED THE MACT PROVISIONS MADE DURING THE YEAR . ANY PROVISIONS CREATED DURING THE YEAR IS TO BE ADDED TO THE NET P ROFIT IN THE COMPUTATION STATEMENT AND THE EXPENDITURE ACTUALLY INCURRED SHOULD BE REDUCED FROM THE PROFIT ARRIVED. HOWEVER, THE ASSES SEE HAD NOT ADDED THE PROVISION MADE DURING THE YEAR IN THE INCOME CO MPUTATION STATEMENT. (II) THE LEARNED CIT(A) HAS FAILED TO APPRECIATE TH E FINDING DEPICTED ON PAGE 49-G OF THE 35TH ANNUAL REPORT REFERRING TO TH E PROVISION OF RS.135.40 LAKHS FOR THE PAYMENT TOWARDS MACT CLAIMS . (III) THE LEARNED CIT(A) HAS FAILED TO APPRECIATE A S PER PAGE NO.35 & 46 OF THE 35 ANNUAL REPORT RETIED UPON BY THE ASSESSEE . THE PROFIT & LOSS ACCOUNT WAS NOT FOUND DEBITED TOWARDS MLACT CLAIMS / PROVISIONS. (IV) THE LEARNED CIT(A) ALSO FAILED TO APPRECIATE A ND GIVE A FINDING ON THE VARIOUS PROVISIONS MADE BY THE ASSESSEE AGGREGATING TO RS.22.39 CRORES AS PER THE BREAK UP FILED THE DEPUTY GENERAL MANAGE R. (V) THUS, THE CIT(A) HAS ERRED TO ARRIVE AT THE FIN DING OF THE FACT WITH REGARD TO THE ALLOWABILITY OF MACT PROVISIONS, WHIC H WERE DISALLOWED BY THE ASSESSING OFFICER, MORE PARTICULARLY, WHEN THE CIT(A) CO-TERMINATES WITH THE POWERS OF THE ASSESSING OFFICER. (VI) THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED TH E REMAND REPORT OF THE ASSESSING OFFICER WHILE DECIDING THE ASSESSEES CLAIM WHICH HE FAILED TO DO SO. (VII) FOR THE ABOVE REASONS, IT IS PRAYED THAT THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) BE CANCELLED AND THE ORDER OF THE ASSESSING OFFICER BE RESTORED. :-7-: ITA NOS. 482 & 484/CHNY/2018 THE LD. DR PRESENTED THE CASE ON THE LINES OF GROUN DS OF APPEAL. PER CONTRA, THE LD. AR TOOK US TO THE COPIES OF RELEVAN T PORTION IN THE PAPER BOOK. 10. WE HEARD THE RIVAL SUBMISSIONS. THE ORDER OF T HE LD. CIT(A) IS EXTRACTED AS UNDER: 6. I HAVE PERUSED THE ASSESSMENT ORDER & THE SUBM ISSIONS MADE BY THE ASSESSEE. THE APPELLANT HAS FILED DETAILS OF P AYMENTS MADE TO CLAIMANTS ON THE BASIS OF VARIOUS JUDGEMENTS AND ST ATUTORY LIABILITY. IN THE ASSESSMENT ORDER, THE A.O. HAS NOT DISCUSSED ELABOR ATELY REGARDING THE ADDITION MADE ON MACT PROVISION. THE ASSESSMENT O RDER IS JUST A SINGLE PAGE ORDER AND NOTHING IS DISCUSSED OR ELABORATED F OR THE ADDITION MADE. THE ASSESSMENT ORDER IS VERY SKETCHY AND NON SPEAKI NG TO SAY THE LEAST. THE AO HAS NOT BOTHERED TO CARRY OUT PROPER INVESTI GATION AT THE TIME OF ASSESSMENT PROCEEDINGS OR AT THE TIME OF SENDING TH E REMAND REPORT. IN THE ABSENCE OF ANY CONCRETE MATERIAL IN THE ASSESSM ENT ORDER, I AM CONSTRAINED TO ACCEPT THE ARGUMENT OF THE ASSESSEE AND ALLOW ALL THE GROUNDS OF APPEAL OF THE ASSESSEE. 7. IN THE RESULT THE APPEAL IS ALLOWED. FROM THE ABOVE, IT IS CLEAR THAT THE FACTS AND CIR CUMSTANCES ASSOCIATED WITH THIS IS ISSUE NEITHER BROUGHT OUT BY THE ASSES SING OFFICER NOR BY THE LD CIT(A). IN THE FACTS AND CIRCUMSTANCES, WE DEEM IT FIT TO REMIT THIS ISSUE BACK TO THE AO FOR A FRESH EXAMINATION. THE ASSESSEE SHALL LAY RELEVANT MATERIALS IN SUPPORT OF ITS CONTENTION BEF ORE THE AO AND COMPLY WITH THE REQUIREMENTS OF THE AO IN ACCORDANCE WITH LAW. THE AO IS FREE TO CONDUCT APPROPRIATE ENQUIRY AS DEEMED FIT, BUT HE SHALL FURNISH :-8-: ITA NOS. 482 & 484/CHNY/2018 ADEQUATE OPPORTUNITY TO THE ASSESSSEE ON THE MATERI AL ETC TO BE USED AGAINST IT AND DECIDE THE MATTER IN ACCORDANCE WIT H LAW. 11. IN THE RESULT, THE REVENUES APPEAL IN ITA NO. 482/CHNY/2018 IS DISMISSED AND ITS APPEAL IN ITA NO. 484/CHNY/2018 I S TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON TUESDAY, THE 27 TH DAY OF NOVEMBER, 2018 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER /CHENNAI, 2 /DATED: 27 TH NOVEMBER, 2018 JPV -'3454 /COPY TO: 1. %/ APPELLANT 2. '#% /RESPONDENT 3. 7 ) (/CIT(A) 4. 7 /CIT 5. 4' /DR 6. : /GF