M/s Panihati Rubber Limited , Kolkata V. D.C.I.T.,Circle-7(2), Kolkata

ITA 589/KOL/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0044 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 25-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUPRIYA PAUL
• Assessee Lawyers: ARIHANT JAIN
• Keywords: Commercial expediency
• Section: 40A(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.589/KOL/2019 ASSESSMENT YEAR: 2012-13 M/S PANIHATI RUBBER LTD., 36, B.T. ROAD,KAMARHATI, KOLKATA-700 058 [ PAN NO. AABCP 9146 Q ] / V/S . DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 7(2),AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE,KOLKATA-700 069 /APPELLANT .. /RESPONDENT HEARING THROUGH VIDEO CONFERENCING /BY APPELLANT SHRI ARIHANT JAIN, AR /BY RESPONDENT SHRI SUPRIYA PAUL, ADDL. CIT-DR /DATE OF HEARING 14-01-2021 /DATE OF PRONOUNCEMENT 11-02-2021 /O R D E R THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 26.02.2019 OF THE COMMISSIONER OF INCOME-TAX (APPEA LS)-18, KOLKATA [HEREINAFTER REFERRED TO AS CIT(A)]. 2. THE ASSESSEE IN THIS APPEAL HAS AGITATED THE ADD ITION OF 29,63,309/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE U /S 40A(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) IN RESPECT OF DEDUCTION C LAIMED BY THE ASSESSEE U/S 35DDA(1) READ WITH SECTION RULE 6DD OF THE INCOME T AX RULE, 1962. 3. THE BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT T HE ASSESSEE HAD A FACTORY AT 36, B.T. ROAD, KOLKATA-56. THERE WAS A PROLONGED LABOUR STRIKE FROM 19.08.2010 IN THE ITA NO.589/KOL/2019 ASSESSMENT YEAR 2 012-13 M/S PANIHATI RUBBER. LTD. VS DCIT CIR-7(2), K OL. PAGE 2 FACTORY AND DISCUSSIONS AT TRIPARTITE LEVEL WAS DON E BETWEEN THE LABOUR UNION, THE MANAGEMENT AND DEPUTY / ASST. LABOUR COMMISSIONER, BARACKPORE, GOVT. OF WEST BENGAL. THE SETTLEMENT WAS DONE ON 25.06.2011 AND A VOLUNTARY SEPARATION SCHEME WAS FINALIZED. AS PER THE SAID SETTLEMENT THE KEY I SSUE WAS IN VIEW OF HUGE FINANCIAL LOSS OF THE ASSESSEES FACTORY DUE TO UNVIABLE PROD UCTS, CHANGED RAILWAY PROCUREMENT POLICY, LABOUR DISPUTE, STEEP RISE IN INPUT PRICE, RED CATEGORY POLLUTION STATUS OF FACTORY. THE MANAGEMENT PROPOSES TO RELOCATE THE FA CTORY TO RUBBER PARK AT DOMJUR, HOWRAH TO SET UP A MODERN FACTORY AND THE LABOUR DI SPUTES WERE SETTLED ON THE FOLLOWING TERMS:- ALL EMPLOYEES SHALL ACCEPT VOLUNTARY SEPARATION OF SERVICES AND SUBMIT THEIR APPLICATION TO THE MANAGEMENT WHICH SHALL SCR UTINIZE THE SAME AND ACCEPT, IF FOUND ACCEPTABLE; THE MANAGEMENT WOULD MAKE THE FOLLOWING PAYMENTS:- VS BEEN FITS TO PERMANENT WORKERS @ 30 DAYS WAGES / SALARY LAST DRAWN. THE TRAINEE WORKERS SHALL BE PAID BENEFITS @ 45 DAY S STIPEND / WAGES LAST DRAWN. IT WAS DECIDED THAT EMPLOYEES WOULD APPLY FOR VOLUN TARY SEPARATION SCHEME (VSS) IN PRESCRIBED FORM AND THE COMPANY SHA LL PAY ALL THE BENEFITS UNDER THE SAID SCHEME WITHIN 31.07.2011. ACCORDINGLY, A JOINT MEETING BETWEEN THE MANAGEMENT OF THE ASSESSEE & REPRESENTATIVES OF PANIHATI RUBBER LTD., EMPLOYEES UNION WAS HELD ON 26 TH JUNE 2011 AND IT WAS SETTLED THAT THE DUES OF THE LABOURERS W ILL BE PAID IN CASH AS THE LABOUERS DID NOT HAVE BANK ACCOUNTS. AS SUCH OWING TO THE ABOVE UNAVOIDABLE CIRCUMSTANCE S AND CONSIDERING THE BUSINESS EXPEDIENCY THE ASSESSEE-COMPANY HAD TO UND ER COMPULSION WITH NO OTHER ALTERNATIVES, PAY THE VSS BENEFITS TO ITS LABOURERS IN CASH.THE ASSESSEE-APPELLANT HAS MADE PAYMENT OF 29,63,309/- UNDER THE VSS SCHEME. AS PER THE PROVIS ION OF SECTION 35DDA(1) THE ASSESSEE WAS ENTITLED FOR THE DEDUCTIO N OF 1/5 TH OF THE AMOUNT PAID AS VOLUNTARY RETIREMENT BENEFITS FOR EACH OF THE CONSE CUTIVE PREVIOUS YEAR IN WHICH THE EXPENDITURE WAS ACTUALLY INCURRED. THE ASSESSEE CLA IMED 5,92,661/- BEING 1/5 TH OF THE ITA NO.589/KOL/2019 ASSESSMENT YEAR 2 012-13 M/S PANIHATI RUBBER. LTD. VS DCIT CIR-7(2), K OL. PAGE 3 VSS EXPENDITURE ACTUALLY INCURRED OF 29,63,309/- U/S 35DDA(1) OF THE ACT. HOWEVER, LD. ASSESSING OFFICER (IN SHORT AO') DURI NG THE ASSESSMENT PROCEEDINGS DISALLOWED THE ENTIRE VSS OF 29,63,309/-. 4. AGGRIEVED BY THE SAID ORDER OF THE ASSESSING OFF ICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD.CIT(A), BUT REMAINED UNSUCCESS FUL. 5. BEFORE THIS TRIBUNAL, THE LD. COUNSEL FOR THE AS SESSEE HAS SUBMITTED THAT THE PAYMENT IN CASH WAS MADE TO THE EMPLOYEES / LABOURE R OUT OF COMPULSION AS THE FACTORY OF THE ASSESSEE HAS BEEN STOPPED DUE TO LAB OUR STRIKE. THE CASH PAYMENT OF MORE THAN 50,000/- WAS MADE TO THE LABOURERS SO THAT THE BUSI NESS OF THE ASSESSEE MAY BE RESUMED. THEREFORE, THE SAME WAS OUT OF COMP ULSION AND COMMERCIAL EXPEDIENCY. HOWEVER RECIPIENTS / LABOURERS WERE IDE NTIFIABLE AND THE PAYMENT MADE TO THEM TOWARDS THE BENEFIT UNDER VSS COULD BE EASILY VERIFIED FROM THE RELEVANT DOCUMENTS. THAT THERE WAS NO INTENTION OF THE ASSES SEE TO CIRCUMVENT THE PROVISION OF SECTION 40A(3) OF THE ACT. IT HAS BEEN FURTHER CONT ENDED BY THE LD. COUNSEL FOR THE ASSESSEE THAT AT THE MOST DISALLOWANCE COULD HAVE M ADE OF THE AMOUNT OF ALLOWANCE CLAIMED BY THE ASSESSEE U/S 35DDA(1) OF THE ACT FOR THE YEAR UNDER CONSIDERATION. THE DISALLOWANCE MORE THAN THE EXPENDITURE CLAIMED COULD NOT HAVE BEEN MADE BY THE AO UNDER ANY CIRCUMSTANCES. THE LD. DR ON THE OTHER HAND HAS RELIED UPON THE FINDING OF THE LOWER AUTHORITIES AND HAS SUBMITTED THAT THE ASSESSEE HAD NOT FURNISHED THE REQUISITES DETAILS BEFORE THE AO. THE LD. AR HO WEVER, HAS SUBMITTED THAT ALL THE DETAILS WERE FURNISHED BEFORE THE LD. CIT(A), HOWEV ER, THE LD. CIT(A) REJECTED THE CONTENTIONS RAISED BY THE ASSESSEE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO GON E THROUGH THE RECORD. AS PER THE SUBMISSION OF THE ASSESSEE, SINCE THE LABOUR WA S ON STRIKE AND THERE WAS A SETTLEMENT ARRIVED BETWEEN THE ASSESSEE-COMPANY AND THE LABOURERS UNDER WHICH THE PART PAYMENT OF THEIR VSS BENEFITS WERE MADE IN CAS H OUT OF COMPULSION SO THAT THE OPERATION OF THE FACTORY MAY BE RESUMED. THE CO-ORD INATE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI DALJIT SINGH VS. ACIT, CIRCLE-40 KOLKATA IN ITA NO.769/KOL/2018 VIDE ORDER DATED 03.04.2019 HAS EXTENSIVELY DISCUSSED AB OUT THE SCOPE OF THE DISALLOWANCE ITA NO.589/KOL/2019 ASSESSMENT YEAR 2 012-13 M/S PANIHATI RUBBER. LTD. VS DCIT CIR-7(2), K OL. PAGE 4 WHICH CAN BE MADE U/S 40A(3) OF THE ACT, AND AFTER RELYING UPON VARIOUS CASE LAWS INCLUDING THE DECISION OF THE CO-ORDINATE JAIPUR BE NCH IN THE CASE OF A. DAGA ROYAL ARTS VS. INCOME TAX OFFICER, WARD-2(2), JAIPUR ITA NO.1065/JP/2016 VIDE ORDER DATED 15.05.2018 IN WHICH FURTHER RELIANCE HAS BEEN PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. INCOME TAX OFFICER LUDHIANA ETC. (1991) AIR 2109, HAS HELD THAT THE RULE 6DD WHICH PROVIDES FOR EXCEPTIONS U/S 40A(3) OF THE ACT AGAINST APPLIC ABILITY OF SEC. 40A(3) OF THE ACT, IS NOT EXHAUSTIVE ENOUGH TO VISUALIZE ALL KINDS OF BUS INESS EXPEDIENCY IN ALL POSSIBLE SITUATIONS AND IT IS FOR THE APPROPRIATE AUTHORITY TO DECIDE REGARDING GENUINE BUSINESS EXPEDIENCY. IT HAS BEEN FURTHER HELD THAT RULE MUST BE INTERPRETED IN A MANNER SO AS TO ADVANCE AND NOT TO FRUSTRATE THE OBJECT OF THE LEGI SLATURE. THAT PRIMARY OBJECT OF ENACTING SECTION 40A(3) OF THE ACT WAS TWO FOLDS. F IRSTLY, PUTTING A CHECK ON TREATING TRANSACTIONS WITH A MIND TO EVADE THE LIABILITY TO TAX ON INCOME EARNED OUT OF SUCH TRANSACTIONS AND SECONDLY, TO INCULCATE THE BANKING HABITS AMONGST THE BUSINESS COMMUNITY. THAT THE GENUINENESS OF THE TRANSACTION AND IT BEING FREE FROM VICE OF ANY DEVICE OF EVASION OF TAX IS RELEVANT CONSIDERATION WHICH COULD BE EXAMINED BEFORE INVOKING RIGOURS OF SECTION 40A(3) OF THE ACT. THE ABOVE STATED LEGAL POSITION IS FULLY APPLICABLE IN THE FACTS OF THE PRESENT CASE. THERE IS NO DOUBT ABOUT THE GENUINENESS OF THE TRANSACTIONS. PAYMENTS TO THE EMPLOYEES / LABOU RERS WERE MADE OUT OF COMPULSIONS BY THE ASSESSEE. THEREFORE, WE ARE OF THE VIEW THIS IS NOT A FIT CASE OF TO APPLY RIGOURS OF SECTION 40A(3) OF THE ACT. THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES IS, THEREFORE, DELETED. IN THE RESULT , THE APPEAL OF THE ASSESSEE STANDS ALLOWED . ORDER PRONOUNCED IN OPEN COURT ON 11/02/2021 SD/- SD/- ( ') () ') (J.SUDHAKAR REDDY) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER *DKP-SR.PS * - 11/02/2021 / KOLKATA ITA NO.589/KOL/2019 ASSESSMENT YEAR 2 012-13 M/S PANIHATI RUBBER. LTD. VS DCIT CIR-7(2), K OL. PAGE 5 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT- M/S PANIHATI RUBBER LTD., 36, B.T.ROAD, KAMARHATI, KOL-58 2. /RESPONDENT-DCIT, CIR-7(2), AAYAKAR BHAWAN, P-7,CHO WRINGHEE SQUARE KOLKATA-700 069 3. - . / CONCERNED CIT 4. . - / CIT (A) 5. / ))- , - /DR, ITAT, KOLKATA 6. 3 / GUARD FILE. BY ORD ER/ , /TRUE COPY/ -,