ACIT, CHENNAI V. TamilNadu Small Idnustries Corporation Ltd., CHENNAI

ITA 607/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4368 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 24-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 10-03-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G SEETHARAMAN
• Assessee Lawyers: U ANJANEYALU
• Keywords: Business income; Diversion of income
• Section: 43B; 37(1); 147; 37

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER I.T.A. NO S . 3 07, 413, 414 AND 415 /MDS/2017 ASSESSMENT YEAR S :20 0 9 - 1 0 , 10 - 11, 11 - 12 & 2012 - 13 TAMILNADU SMALL INDUSTRIES CORPORATION LIMITED, THIRU - VI - KA INDUSTRIAL ESTATE GUINDY, CHENNAI 600 032. [PAN: A A A C T 1 2 39K ] VS. THE ASSISTANT COM MISSIONER OF INCOME TAX , CO RPORATE CIRCLE III ( 1), CHENNAI . ( / APPELLANT ) ( / RESPONDENT ) I.T.A. NO S . 334, 606 AND 607 /MDS/2017 ASSESSMENT YEAR S :2009 - 10, 10 - 11 & 2011 - 12 THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(1), CHENNAI. VS. TAMILNADU SMALL INDUSTRIES CORPORATION LIM ITED, THIRU - VI - KA INDUSTRIAL ESTATE GUINDY, CHENNAI 600 032. ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI G. SEETHARAMAN, C.A. / RESPONDENT BY : SHRI U. ANJANEYALU, CIT / DATE OF HEARING : 24 . 05 .201 7 / DATE OF P RONOUNCEMENT : 09 .0 6 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH E S E CROSS APPEAL S FILED BY THE ASSESSEE AS WELL AS REVENUE ARE DIRECTED AGAINST DIFFERENT ORD ER S OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 1 3 , CHENNAI DATED 29 . 1 1 .201 6 AND 05.12.2016 RELEVANT TO THE I.T.A. NO.3 07/M/17 & ORS 2 ASSESSMENT YEAR S 20 0 9 - 1 0 , 2010 - 11 AND 2011 - 12 . THE ASSESSEE HAS ALSO FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A) 13, CHENNAI DATED 05.12 .2016 FOR THE ASSESSMENT YEAR 2012 - 13. SINCE ALL THE APPEALS ARE PERTAINING TO SAME ASSESSEE AND SOME COMMON GROUNDS HAVE BEEN RAISED, ALL THE APPEALS WERE HEARD TOGETHER AND BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF BREVITY. 2. THE FIRST G ROUND RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10 RELATES TO REOPENING OF THE ASSESSMENT UNDER SECTION 147 OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. AT THE TIME OF HEARING, BY MAKING ENDORSEMENT IN THE GROUNDS OF APPEAL THAT TH E GROUND IS NOT PRESSED , THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE SAID GROUND IS NOT PRESSED AND ACCORDINGLY, THE SAME STANDS DISMISSED AS NOT PRESSED. 3. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10 IS THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF PROVISION MADE FOR VI PAY COMMISSION ARREARS. 3.1 IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOTICED FROM THE NOTES TO ACCOUNTS FILED BY THE ASSESSEE THAT THE ASSESSEE HAS CREA TED A PROVISION TOWARDS ARREARS OF SALARY CONSEQUENT TO THE IMPLEMENTATION OF THE VI PAY COMMISSION RECOMMENDATION AS PER THE G . O . NO. 2234 [PAY CELL] I.T.A. NO.3 07/M/17 & ORS 3 DATED 06.06.200 9 AND GOMS. NO. 25 0 FINANCE (BPE) DEPARTMENT DATED 17.06.200 9 AMOUNTING TO . 259.16 LAKHS DURING THE PERIOD 01.01.2007 TO 31.03.2009 IN THE ACCOUNT FOR THE YEAR 2008 - 09. THE ASSESSING OFFICER WAS OF THE OPINION THAT A PROVISION CANNOT BE CREATED WITHOUT DEBITING THE PROFIT AND LOSS ACCOUNT AND SINCE THE SAME BEING IN THE NATURE O F PROVISION, THE SAME IS NOT ALLOWED AS DEDUCTION AND THEREFORE, THE AMOUNT OF .259.16 LAKHS DEBITED TO THE PROFIT AND LOSS ACCOUNT WAS DISALLOWED AND BROUGHT TO TAX. 3.2 THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND SUBMITTED THAT DURING THE YEAR, THE ASSESSEE HAS CREATED A PROVISION OF .4,50,00,000/ - FOR THE ARREARS OF SALARY PAYABLE BASED ON THE ESTIMATED LIABILITY ON IMPLEMENTATION OF VI PAY COMMISSION RECOMMENDATIONS. IT IS A NORMAL BUSINESS PRACTICE TO CREATE A PROVISION FOR AN ASCERTAINED LIABILITY AND IS AN ALLOWABLE EXPENDITURE AS PER THE PROVISIONS OF THE ACT. IT WAS FURTHER SUBMITTED BEFORE THE LD. CIT(A) THAT THE PROVISION FOR EXPENDITURE IS A LIABILITY THAT CAN BE MEASURED ONLY BY USING A SUBSTANTIAL DEGREE OF ESTIMATI ON. A PROVISION IS RECOGNIZED WHEN AN ENTERPRISE HAS A PRESENT OBLIGATION RESULTING FROM A PAST EVENT. IT MAY REQUIRE OUTFLOW OF RESOURCES TO SETTLE THE OBLIGATION AND A RELIABLE ESTIMATE MAY BE MADE OF THE AMOUNT OF THE OBLIGATION. IF THESE PARAMETERS ARE NOT SATISFIED, NO PROVISION FOR EXPENDITURE IS TO BE ALLOWED AS DEDUCTION UNDER SECTION 37 OF THE ACT. BY RELYING ON VARIOUS CASE LAW, THE I.T.A. NO.3 07/M/17 & ORS 4 AR OF THE ASSESSEE HAS PLEADED BEFORE THE LD. CIT(A) TO DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 3.3 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AS WELL AS FACTS OF THE CASE, THE LD. CIT(A) HAS OBSERVED THAT THE LIABILITY TOWARDS ARREARS OF SALARY WAS ACCRUED TO THE ASSESSEE ONLY ON PASSING OF THE GO COUNTED ONLY AFTER THE CLOSURE OF THE FINANCIAL YEAR AND HENCE NOT ALLOWABLE AS DEDUCTION IN THE PROFIT AND LOSS ACCOUNT AND ACCORDINGLY DISMISSED THE GROUND RAISED BY THE ASSESSEE. 3.4 ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AND BY REITERATING THE SUBMISSIONS AS MADE BEFORE THE LOWER AUTHORITY, THE LD. COUNSEL FOR THE ASSESSEE HAS PLEADED THAT THE DISALLOWANCE MADE SHOULD BE DELETED. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 3.5 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAI LABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. AGAINST THE ORDERS OF THE GOVERNMENT OF TAMIL NADU, THE ASSESSEE HAS MADE PROVISION FOR PAYMENT OF VI PAY COMMISSION ARREARS. IT WAS THE CONTENTION OF THE ASSESSEE THAT IT IS AN ASCERTAINED LIABILITY AND THEREFORE, IT IS AN ALLOWABLE EXPENDITURE. IT WAS THE CONTENTION OF THE REVENUE THAT THE GO IN QUESTION WAS ISSUED BEYOND THE END OF THE FINANCIAL YEAR, AND THERE IS NO LIABILITY THAT HAS ACCRUED AND I.T.A. NO.3 07/M/17 & ORS 5 BECOME PAYABLE BY THE ASSESSEE. ON PERUSAL OF THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW, THE ASSESSEE HAS NOT FURNISHED COMPLETE DETAILS WITH REGARD TO THE PAYMENT OF ARREARS DURING THE RELEVANT FINANCIAL YEAR FOR WHICH THE PROVISION WAS CREATED. UNDER THESE CIRCUMSTANCES, WE DIRECT THE AS SESSEE TO FILE COMPLETE DETAILS WITH REGARD TO PAYMENT OF ARREARS ACTUALLY PAID IN THE RELEVANT FINANCIAL YEAR AND OTHER DETAILS AS MAY BE REQUIRED FOR VERIFICATION BEFORE THE ASSESSING OFFICER AND THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE SAME AND D ECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY OF HEARING TO THE ASSESSEE. THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 3.6 IN THE RESULT, THE APPEAL IN I.T.A. NO. 307/MDS/2017 IS PARTLY ALLOWED FOR STAT ISTICAL PURPOSES. 4. THE NEXT GROUND RAISED IN THE APPEALS OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2010 - 11, 2011 - 12 AND 2012 - 13 IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE ON ACCOUNT OF NOMINATION CHARGES PAID TO THE GOVERNMENT. 4.1 THE ASSESSEE H AS DEBITED AN AMOUNT OF . 24,75 CRORES TOWARDS NOMINATION CHARGES. AGAINST THE QUERY RAISED BY THE ASSESSING OFFICER, BY FILING COPY OF ORDER OF THE GOVERNMENT IN G.O. NO. 33 DATED 13.03.2009 AND FILING COPY OF THE VOUCHER DATED 11.08. 201 0 FOR THE SAID AMOUNT EVIDENCING I.T.A. NO.3 07/M/17 & ORS 6 PAYMENT MADE BY THE ASSESSEE, THE ASSESSEE HAS SUBMITTED THAT THE ENTIRE NOMINATION CHARGES PROVIDED HAS BEEN DISCHARGED BEFORE 30.09.201 0 AND PLEADED THAT THE NOMINATION CHARGES PAID BY THE ASSESSEE SHOULD BE ALLOWED. A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING VARIOUS CASE, THE ASSESSING OFFICER HAS OBSERVED THAT THE NOMINATION CHARGES PAID BY THE ASSESSEE TO THE STATE GOVERNMENT IS AN APPLICATION OF ITS INCOME AND CANNOT BE ALLOWED AS DEDUCTION U NDER SECTION 37(1) OF THE ACT AND ACCORDINGLY, DISALLOWED THE SAME AND BROUGHT TO TAX. 4.2 ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF NOMINATION CHARGES MADE BY THE ASSESSING OFFICER AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE. 4.3 AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE REVENUE ALSO PREFERRED AN APPEAL FOR THE DELETING THE DISALLOWANCE OF NOMINATION CHARGES FOR THE ASSESSMENT YEAR 2009 - 10. 4.4 WE HAVE HEARD RIVAL CONTENTIONS. THE POINT AT ISSUE IS WHETHER THE NOMINATION CHARGES PAID TO THE GOVERNMENT OF TAMIL NADU IS AN ALLOWABLE DEDUCTION UNDER SECTION 37 OF THE ACT OR NOT. BY FOLLOWING THE DECISIONS IN THE CASE OF TAMILNADU STATE MARKETING CORPORATION LTD. V. ACIT IN I.T.A. NO. 1367/MDS/2012 OTHERS VIDE ORDE R DATED 30.10.2012 AS WELL AS IN THE CASE OF TAMIL NADU MEDICINAL PLANT FARMS HERBAL MEDICINE CORPORATION LTD. V. ACIT I.T.A. NO.3 07/M/17 & ORS 7 DATED 18.03.2016 AND ALSO BY FOLLOWING VARIOUS DECISIONS OF THE HIGH COURTS, THE LD. CIT(A) HAS HELD THAT THE NOMINATION CHARGES PAID BY THE ASSESSEE IS A N ALLOWABLE EXPENSES AND THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE VIDE HIS ORDER DATED 29.11.2016 FOR THE ASSESSMENT YEAR 2009 - 10, AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. IN THE RECENT DECISION IN THE CAS E OF TAMIL NADU MEDICINAL PLANT FARMS HERBAL MEDICINE CORPORATION LTD. V. ACIT, THE COORDINATE BENCHES OF THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS A N UNDISPUTED FACT THAT THE ASSESSEE COMPANY WAS INCORPORATED IN THE YEAR 1983 AS A WHOLLY OWNED ENTERPRISE OF THE GOVERNMENT OF TAMILNADU. THE MAIN OBJECT OF THE GOVERNMENT UNDERTAKING IS DEVELOPMENT OF MEDICINAL PLANTS AND MANUFACTURING SIDDHA, AURVEDHA A ND UNANI MEDICINES AND SUPPLYING THE SAME TO THE INSTITUTIONS UNDER THE CONTROL OF THE DIRECTOR OF INDIAN MEDICINES AND HOMEOPATHY. THE MAJOR CLIENTS OF THE ASSESSEE ARE ONLY GOVERNMENT DEPARTMENTS, ORGANIZATIONS UNDER THE CONTROL OF THE DIRECTOR OF INDIAN MEDICINES AND HOMEOPATHY. IN THIS SCENARIO THE GOVERNMENT OF TAMILNADU HAS NOMINATED THE ASSESSEE AS ITS SOLE PROCUREMENT AGENCY FOR PROCURING VARIOUS INDIAN MEDICINES TO THE GOVT., INSTITUTIONS UNDER THE CONTROL OF THE DIRECTOR OF INDIAN MEDICINES HOMEOP ATHY DEPARTMENT. IN SUCH SITUATION, THE GOVERNMENT HAD DECIDED TO LEVY NOMINATION CHARGES @ 10% ON THE TOTAL SUPPLIES MADE BY THE ASSESSEE TO THE GOVERNMENT DISTRICT SIDDHA MEDICAL OFFICES / GOVERNMENT MEDICAL INSTITUTIONS. ACCORDINGLY, THE ASSESSEE COMPAN Y HAS PAID DURING THE RELEVANT ASSESSMENT YEAR RS.66,70,475/ - AS NOMINATION CHARGES TO THE GOVERNMENT OF TAMILNADU AND CLAIMED IT AS DEDUCTION WHILE COMPUTING ITS INCOME. THE REVENUE IS OF THE VIEW THAT SUCH EXPENSES CANNOT BE ALLOWED AS DEDUCTION UNDER SE CTION 37(1) OF THE ACT. WE DO NOT SUBSCRIBE TO THIS VIEW OF THE REVENUE. THOUGH THE ASSESSEE GOVERNMENT UNDERTAKING HAS TO FUNCTION WITH AN ELEMENT OF PROFIT AS ITS MOTIVE, IT CANNOT BE SAID THAT THE ASSESSEES FUNDAMENTAL MOTIVE IS TO MAKE PROFIT. THE ASSE SSEE COMPANY IS VESTED WITH VARIOUS RESPONSIBILITIES CONFINED BY ITS PROMOTERS BEING GOVERNMENT OF TAMILNADU AND HAS TO NECESSARILY SUPPLEMENT TO THE ACTIVITIES OF THE GOVERNMENT FOR BENEFITING THE PUBLIC AT LARGE. IN SUCH ENDEAVOR, IT IS ASSIGNED WITH THE RESPONSIBILITY OF DEVELOPING MEDICINAL PLANTS AND MANUFACTURING SIDDHA, AAYURVEDHA AND UNANI MEDICINES AND SUPPLYING THE SAME TO THE INSTITUTIONS UNDER THE CONTROL OF DIRECTOR OF INDIAN MEDICINES AND I.T.A. NO.3 07/M/17 & ORS 8 HOMEOPATHY. ALL THE CLIENTS OF THE ASSESSEE ARE ONLY GO VT. DEPARTMENTS, ORGANIZATIONS AND INSTITUTIONS. FURTHER ONLY BY THE GRACE OF THE GOVERNMENT, THE ASSESSEE IS ABLE TO GENERATE INCOME BY SUPPLYING THE MEDICINES TO THE GOVT. ORGANIZATIONS. IN THE PROCESS, THE GOVT., ALSO INCURS EXPENDITURE FOR PROMOTING TH E ASSESSEE GOVERNMENT UNDERTAKINGS INTEREST DUE TO WHICH IT HAS LEVIED 10% AS NOMINATION CHARGES FROM THE TURNOVER OF THE ASSESSEE WHICH IS QUIT NOMINAL. THIS LEVY OF 10% CANNOT BE CONSIDERED TO BE ABNORMAL TO JUSTIFY THE THEORY OF COLOURABLE DEVICE. IN TH ESE CIRCUMSTANCES, IT IS APPARENT THAT UNLESS THE ASSESSEE PAYS 10% NOMINATION CHARGES TO THE GOVERNMENT, IT WILL NOT BE IN A POSITION TO EARN THE INCOME. MOREOVER, IT IS PERTINENT TO MENTION THAT THE GOVERNMENT HAS GOT AMPLE POWERS TO REDUCE THE PROCUREME NT PRICE OF THE MEDICINES SUPPLIED BY THE ASSESSEE TO THE GOVERNMENT INSTITUTIONS WHICH WILL YET BRING DOWN THE PROFIT OF THE ASSESSEE. CONSIDERING THESE FACTS, IT IS EVIDENT THAT THE PRINCIPLES OF DIVERSION OF INCOME BY OVERRIDING TITLE WILL BE APPLICABLE IN THE CASE OF THE ASSESSEE AND ACCORDINGLY, THE 10% OF NOMINATION FEE HAS TO BE NECESSARILY EXCLUDED FROM THE REVENUE EARNED BY THE ASSESSEE. FOR THE ABOVE STATED REASONS, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 4.5 BY FOLLOWING THE ABOVE DECISI ON OF THE TRIBUNAL, THE LD. CIT(A) HAS RIGHTLY OBSERVED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND HELD THAT THE NOMINATION CHARGES PAID BY THE ASSESSEE IS AN ALLOWABLE EXPENSES UNDER SECTION 37 OF THE ACT. THE LD. DR COULD NOT CONTRO VERT THE ABOVE FINDINGS OF THE TRIBUNAL. THUS, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND ACCORDINGLY, THE COMMON GROUND RAISED BY THE ASSESSEE IN ITS APPEAL FOR THE ASSESSMENT YEARS 2010 - 11, 2011 - 12 AND 2012 - 13 IS ALLOWED AND THE ONLY GROUND RAISED BY THE REVENUE IN ITS APPEAL FOR THE ASSESSMENT YEAR 2009 - 10 IS DISMISSED. 5. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2010 - 11 IS WITH REGARD TO CONFIRMATION OF ADDITION OF INTEREST INCOME. I.T.A. NO.3 07/M/17 & ORS 9 5.1 DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO RECONCILE THE TDS CLAIMED WITH THE INTEREST RECEIPTS. ON PERUSAL OF THE DETAILS, THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE HAS RECEIVED A GROSS RECEIPTS OF .8,09,61,959/ - AGAINST WHIC H IT HAS CLAIMED AN AMOUNT OF .2,14,36,182/ - . VIDE NOTICE DATED 22.03.2013, THE ASSESSEE WAS INFORMED TO JUSTIFY THE CLAIM FOR DEBITING .2,14,36,182/ - AGAINST THE NET INTEREST RECEIPT OF .5,95,25,277/ - . THE ASSESSEE HAS SUBMITTED THAT OUT OF .2,14,36,1 82/ - , .20,32,225/ - [10,66,823+56,017+9,09,385] REFERS THE WITHDRAWALS OF WRONG CREDIT MADE WITHDRAWN AND THE BALANCE OF .1,93,91,429/ - RELATES TO THE PREVIOUS YEAR (OSR OF 2008 - 09) WRONGLY CLASSIFIED IN 2009 - 10 INTEREST ACCOUNT WITHDRAWN. FURTHER, THE AS SESSEE HAS SUBMITTED THAT THE AMOUNT OF .2,14,36,182/ - IS NOT RELEVANT TO THE YEAR UNDER CONSIDERATION AND HENCE IS REDUCED FROM THE RECEIPTS FOR THE YEAR UNDER CONSIDERATION. HOWEVER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS NOT SUBMITTED ANY DETAILED REASONING/EVIDENCE TO JUSTIFY ITS ACTION OF REDUCING ITS TAXABLE RECEIPTS. FURTHER, THE ASSESSEE HAS ALSO NOT SUPPLIED WITH THE EVIDENCE THAT THE SAID DEBIT CONSTITUTED ANY BALANCE SHEET ENTRY AND THE FACT THAT THE RECEIPT WHICH IS OTHERWISE THE TAXABLE RECEIPT, WAS OFFERED FOR TAXATION IN ANY EARLIER YEAR AND THUS, AN ADJUSTMENT ENTRY WAS PASSED IN THE CURRENT YEAR. THE RECEIPTS ON ACCOUNT OF INTEREST ON WHICH TDS WAS DEDUCTED AND CREDITED FOR WHICH THE ASSESSEE HAS CLAIMED IN THE YEAR UNDER CONSIDERATION AND DETAILS BELOW ARE TOTALLED, IT SHALL SHOW THAT THE I.T.A. NO.3 07/M/17 & ORS 10 ASSESSEE HAS RECEIVED DURING THE YEAR UNDER CONSIDERATION RECEIPTS AMOUNTING TO .10,79,10,239/ - AND HAS CLAIMED TDS AMOUNTING TO .62,67,646/ - . IT CAN BE SAFELY SAID THAT ALL THE RECEIPT S ON WHICH THE CREDIT FOR TDS OF .62,67,646/ - HAS BEEN CLAIMED PERTAIN TO THE PERIOD 01.04.2009 TO 31.03.2010 AND HENCE THE SAID RECEIPTS HAVE ACCRUED AND RECEIVED TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THEREFORE, IN VIEW OF THE PROVISIONS O F THE SECTION 199 OF THE ACT, AN AMOUNT OF .10,79,10,239/ - WAS REQUIRED TO BE BROUGHT TO TAX. HOWEVER, SINCE THE ASSESSEE HAS ALREADY CREDITED ITS PROFIT AND LOSS ACCOUNT BY .8,09,61,959/ - , THE ASSESSING OFFICER HAS DISALLOWED THE BALANCE AMOUNTING TO .2,69,48,280/ - [ .10,79,10,239 .8,09,61,959] AND BROUGHT TO TAX. 5.2 THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). THE ACTUAL CLAIM OF THE ASSESSEE IS WITH REGARD TO THE TOTAL ENHANCEMENT IN THE INCOME ON ACCOUNT OF DISALLOWANCE OF REDUCTION INCOME CLAIMED BY THE ASSESSEE AND INTEREST INCOME BROUGHT TO TAX WAS .4,83,84,462/ - [ .2,69,48,280 + 2,14,36,182]. BEFORE THE LD. CIT(A), THE ASSESSEE HAS SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECEIVED INTER E ST OF .2,14,36,182/ - RELATING TO EARLIER ASSESSMENT YEARS. THIS INTEREST WAS ALREADY SHOWN AS INCOME IN THE RESPECTIVE ASSESSMENT YEARS ON ACCRUAL BASIS AND KEPT IN THE OUTSTANDING INTEREST RECEIVABLE ACCOUNT . ON RECEIPT OF THIS INTEREST, THE ASSESSEE HAS WR ONGLY CREDITED TO THE CURRENT I.T.A. NO.3 07/M/17 & ORS 11 YEAR INTEREST RECEIVED ACCOUNT INSTEAD OF OUTSTANDING INTEREST RECEIVABLE ACCOUNT . BY FILING COPY OF THE LEDGER ACCOUNT, THE ASSESSEE HAS SUBMITTED BEFORE THE LD. CIT(A) THAT AFTER NOTICING THE MISTAKE IN THE YEAR END, THE ASSESSEE HAS RECTIFIED THE MISTAKE BY DEBITING THE INTEREST RECEIVED ACCOUNT BY .2,14,36,182/ - AND CREDITED THE SAME TO THE OUTSTANDING INTEREST RECEIVABLE ACCOUNT . IT WAS ALSO THE SUBMISSION OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS ADDED .2,69,48,280/ - TO THE INT E REST INCOME BEING THE DIFFERENCE BETWEEN THE INTEREST RECEIPT S AS PER THE 26AS STATEMENT AND THE BOOKS. IT WAS ALSO SUBMITTED THAT IN THE 26AS STATEMENT VERIFIED BY THE ASSESSING OFFICER T THE TIME OF ASSESSMENT, THE PERSONS WHO HAD DEDUCTED TDS HAD MADE VARIOUS MISTAKE AND ALL THESE MISTAKES WERE RECTIFIED BY THEM AND AS PER THE NEW 26AS STATEMENT THE TOTAL INTEREST RECEIVED WAS ONLY .6,73,04,729/ - AGAINST THE INTEREST RECEIPT OF .6,52,84,462/ - SHOWN IN THE BOOKS. THUS, THE ONLY DIFFERENCE OF .20,20,267/ - WAS DUE TO DEDUCTION OF TDS ON PAYMENT BASIS INSTEAD OF ACCRUAL BASIS AND PLEADED THAT THE DISALLOWANCE MADE ON THIS ACCOUNT SHOU LD BE DELETED. 5.3 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED AS UNDER: THE ASSESSEE HAS REDUCED AMOUNT OF RS.2,14,36,182/ - FROM THE INTEREST RECEIPT. THE AO HAS ADDED THIS AMOUNT AS DURING THE ASSESSMENT PROCEEDING S, THE ASSESSEE HAS NOT SUBMITTED ANY DETAILED REASONING / EVIDENCE TO JUSTIFY HIS ACTION OF REDUCING HIS TAXABLE RECEIPTS. DURING THE APPEAL PROCEEDINGS, THE APPELLANT CONTENDED BEFORE THE APPELLATE AUTHORITY THAT THE ASSESSEE HAS RECEIVED INTEREST OF RS. 2,14,36,182/ - RELATING TO EARLIER AY. THIS INTEREST WAS I.T.A. NO.3 07/M/17 & ORS 12 ALREADY SHOWN AS INCOME IN RESPECTIVE ASSESSMENT YEARS ON ACCRUAL BASIS AND KEPT IN 'OUTSTANDING INTEREST RECEIVABLE ACCOUNT'. ON RECEIPT OF THIS INTEREST THE APPELLANT HAD WRONGLY CREDITED THIS INTER EST TO INTEREST RECEIVED ACCOUNT INSTEAD OF OUTSTANDING INTEREST RECEIVABLE ACCOUNT. IN THE YEAR END, IT HAS NOTICED THE MISTAKE AND RECTIFIED THE SAME BY TRANSFERRING THE SAME TO THE OUTSTANDING INTEREST RECEIVABLE ACCOUNT. HOWEVER, THE APPELLANT HAS NOT PRODUCED ANY EVIDENCE THAT THE SAID DEBIT CONSTITUTED ANY BALANCE SHEET ENTRY AND THE FACT THAT THE RECEIPT WHICH IS OTHERWISE A TAXABLE RECEIPT WAS OFFERED FOR TAXATION IN ANY EARLIER YEAR. ACCORDINGLY, THE CONTENTION SUBMITTED BY WAY OF WRITTEN SUBMISSIO N AS ABOVE IS NOTHING BUT MERE ADJUSTMENT ENTRY. HENCE, THE CONTENTION OF THE APPELLANT IS REJECTED AND THE AO BRINGING TO TAX AN AMOUNT OF RS.2,14,36,182/ - IS CONFIRMED. 5.4 ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AND REITERATE D THE SUBMISSIONS AS MADE BEFORE THE AUTHORITIES BELOW. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 5.5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AGAINST THE DISALLOWANCE OF .4,83,84,462/ - , WITH REGARD TO THE INTEREST INCOME OF .2,14,36,182/ - , IT WAS THE SUBMISSIONS OF THE ASSESSEE THAT OUT OF .2,14,36,182/ - , .20,32,225/ - [10,66,823+56,017+9,09,385] REFERS THE WITHDRAWALS OF WRONG CREDIT MADE WITHDRAWN AND THE BALANCE OF .1,93,91,429/ - RELATES TO THE PREVIOUS YEAR (OSR OF 2008 - 09) WRONGLY CLASSIFIED IN 2009 - 10 INTEREST ACCOUNT WITHDRAWN. FURTHER, THE ASSESSEE HAS SUBMITTED THAT THE AMOUNT OF .2,14,36,182/ - IS NOT PERTAINING TO THE YEAR UNDER CONSIDERATION AND HENCE THE SAME WAS REDUCED FROM THE RECEIPTS FOR THE YEAR UNDER CONSIDERATION. HOWEVER, THE ASSESSEE HAS NOT SUBMITTED ANY DETAILED REASONING/EVIDENCE TO JUSTIFY ITS ACTION OF REDUCING ITS TAXABLE RECEIPTS. FURTHER, THE ASSESSEE HAS ALSO NOT SUPPLIED WITH THE EVIDENCE THAT THE SAID DEBIT CONSTITUTED ANY I.T.A. NO.3 07/M/17 & ORS 13 BALANCE SHEET ENTRY AND THE FACT THAT THE RECEIPT WHICH IS OTHERWISE THE TAXABLE RECEIPT, WAS OFFERED FOR TAXATION IN ANY EARLIER YEAR AND THUS, MERELY SUBMITTED THAT AN ADJUSTMENT ENTRY WAS PASSED IN THE CURRENT YEAR. FURTHER, THE ASSESSEE HAS RECEIVED RECEIPTS AMOUNTI NG TO .10,79,10,239/ - AND HAS CLAIMED TDS AMOUNTING TO .62,67,646/ - . ALL THE RECEIPTS ON WHICH THE CREDIT FOR TDS OF .62,67,646/ - HAS BEEN CLAIMED PERTAIN TO THE PERIOD 01.04.2009 TO 31.03.2010 AND HENCE THE SAID RECEIPTS HAVE ACCRUED AND RECEIVED BY TH E ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THEREFORE, IN VIEW OF THE PROVISIONS OF THE SECTION 199 OF THE ACT, AN AMOUNT OF .10,79,10,239/ - WAS REQUIRED TO BE BROUGHT TO TAX. HOWEVER, SINCE THE ASSESSEE HAS ALREADY CREDITED ITS PROFIT AND LOSS ACCOUN T BY .8,09,61,959/ - , THE ASSESSING OFFICER HAS DISALLOWED THE BALANCE AMOUNTING TO .2,69,48,280/ - [ .10,79,10,239 .8,09,61,959] AND BROUGHT TO TAX THE DIFFERENCE BETWEEN THE BOOKS AND AS PER AS26. SINCE THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE THAT THE SAID DEBIT CONSTITUTED ANY BALANCE SHEET ENTRY AND THE FACT THAT THE RECEIPT WHICH IS OTHERWISE A TAXABLE RECEIPT LIABLE FOR TAXATION, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. WE FIND THAT BEFORE THE ASSESSING OFFICER T HE ASSESSEE HAS NOT FURNISHED ANY DETAILS WITH SUITABLE EXPLANATION FOR REDUCING THE TAXABLE INTEREST RECEIPTS OR FILED ANY EVIDENCE THAT THE INTEREST ACQUIRED PERTAINING TO EARLIER ASSESSMENT YEARS AND WRONGLY CREDITED IN THE CURRENT YEAR ACCOUNT. UNDER T HESE FACTS AND CIRCUMSTANCES, WE DIRECT THE ASSESSEE TO FILE COMPLETE DETAILS WITH PROPER JUSTIFICATIONS I.T.A. NO.3 07/M/17 & ORS 14 ALONG WITH RECONCILIATION OF ITS ACCOUNTS AS PER AS26 BEFORE THE ASSESSING OFFICER AND THE ASSESSING OFFICER IS ALSO DIRECTED TO VERIFY AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITIES OF BEING HEARD TO THE ASSESSEE. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6. THE NEXT COMMON GROUND RAISED BY THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF PROVISIONS FOR LEAVE SALARY FOR THE ASSESSMENT YEARS 2010 - 11 AND 2011 - 12. THE ASSESSEE HAS CLAIMED AN AMOUNT OF .42.46 LAKHS AND .38.29 LAKHS ON ACCOUNT OF LEAVE SALARY FOR THE ASSESSMENT YEARS 2010 - 11 AND 2011 - 12 R ESPECTIVELY. SINCE THE AMOUNT BEING DEBITED TO THE PROFIT AND LOSS ACCOUNT WAS NOT ACTUALLY PAID IN THE RELEVANT FINANCIAL YEARS, THE ASSESSING OFFICER DISALLOWED THE SAME AND BROUGHT TO TAX. 6.1 ON APPEAL, BY FOLLOWING THE DECISION IN THE CASE OF EXIDE INDUSTRIES LTD. V. UOI 292 ITR 470 (CAL) , T HE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW THE PROVISION FOR LEAVE SALARY AND ALLOWED THE GROUND RAISED BY THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS. 6.2 ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL FOR BOTH THE ASSESSMENT YEARS AND THE LD. DR HAS SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN NOT FOLLOWING THE DECISION IN THE CASE OF SOUTH INDIAN BANK LTD. I.T.A. NO.3 07/M/17 & ORS 15 V. CIT 45 TAXMANN.COM 428 (KERALA) AS IT WAS THE ONLY DECISION AFTER THE STAY G RANTED BY THE HON BLE SUPREME COURT ON THE DECISION OF THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF M/S. EXIDE INDUSTRIES LTD. 292 ITR 470) (PENDING IN SLA(CIVIL) NO. C.C. 12060), WHEREIN THE HON BLE CALCUTTA HIGH COURT HAS QUESTIONED THE CONSTITUTIONAL VALIDITY OF SECTION 43B(F) OF THE ACT AND THEREFORE, PLEADED THAT THE ORDER OF THE LD. CIT(A) ON THIS ISSUE SHOULD BE REVERSED. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). 6 .3 WE HAVE HEARD B OTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WITH EFFECT FROM 01.04.2002, CLAUSE (F) HAS BEEN ADDED IN SECTION 43B OF THE INCOME TAX ACT , WHICH PROVIDES THAT DEDUCTION OF PROVISION OF EARNED LEAVE O F EMPLOYEES MADE BY THE ASSESSEE SHALL NOT BE ALLOWED AS DEDUCTION IN COMPUTING THE BUSINESS INCOME OF THE ASSESSEE PROVIDED SUCH SUM IS ACTUALLY PAID. IF SAME IS NOT PAID IN THE YEAR OF PROVISIONING , SAME SHALL BE ALLOWED SUBSEQUENTLY IN THE YEAR OF PAYME NT. THE HON BLE CALCUTTA HIGH COURT IN EXIDE INDUSTRIES LTD. VS. UNION OF INDIA, 292 ITR 470 HAS STRUCK DOWN THE SECTION 43B(F) OF THE ACT BEING ARBITRARY, UNCONSCIONABLE AND DE HORS THE FACTS APEX COURT DECISION IN THE CASE OF BHARAT EARTH MOVERS 245 ITR 428. HOWEVER, THE R EVENUE HAS PREFERRED AN APPEAL AGAINST THE ORDER OF HON BLE I.T.A. NO.3 07/M/17 & ORS 16 CALCUTTA HIGH COURT AND THE H ON BLE S UPREME C OURT HAS STAYED IT VIDE ITS ORDER DATED 08/05/2009 AS UNDER : - PENDING HEARING AND FINAL DISPOSAL OF THE CIVIL APPEAL, DEPARTMENT IS RESTRAINED FROM RECOVERING PENALTY AND INTEREST WHICH HAS ACCRUED TILL DATE. IT IS MADE CLEAR THAT AS FAR AS THE OUTSTANDING INTEREST DEMAND AS OF DATE IS CONCERNED, IT WOULD BE OPEN TO THE DEPARTMENT TO RECOVER THAT AMOUNT IN CASE CIVIL APPEAL OF THE D EPARTMENT IS ALLOWED. WE FURTHER MAKE IT CLEAR THAT THE ASSESSEE WOULD, DURING THE PENDENCY OF THIS CIVIL APPEAL, PAY TAX AS IF SECTION 43B(F) IS ON THE STATUTE BOOK BUT AT THE SAME TIME IT WOULD BE ENTITLED TO MAKE A CLAIM IN ITS RETURNS. 6 .4 AS PER TH E STAY GRANTED BY THE HON BLE SUPREME COURT, THE CORRECT POSITION OF LAW IS THAT WE SHOULD READ THE STATUTE AS IF THOSE PROVISIONS ARE THERE ON THE STATUTE BOOK. THIS TRIBUNAL BEING A QUASI - JUDICIAL AUTHORITY AS TO DECIDE THE APPEAL ONLY BASED ON THE PROVI SIONS OF SECTION 43B (F) OF THE ACT. IN OTHER WORDS, THE PROVISIONS OF SECTION 43B(F) CANNOT BE IGNORED SINCE THE JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD. WAS STAYED BY THE HON BLE APEX C OURT. THEREFORE, THE CLAIM OF THE ASS ESSEE COULD BE ALLOWED ONLY IF IT IS ACTUALLY PAID ON THE DUE DATE FOR FILING THE RETURN OF INCOME. IT IS NOT THE CASE OF THE ASSESSEE THAT THE AMOUNT CLAIMED AS LEAVE ENCASHMENT WAS PAID BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME. OUR VIEW IS FUR THER STRENGTHENED BY DECISION OF THE HON BLE KERALA H IGH C OURT WHEREIN , IT WA S HELD WHILE CONSIDERING IDENTICAL FACTS AND CIRCUMSTANCES IN CASE OF SOUTH INDIAN BANK LIMITED V CIT 45 TAXMANN.COM 428 (KERALA) AS UNDER: 6. THEN COMING TO THE SECOND ISSUE, IT PERTAINS TO THE PROVISION MADE FOR LEAVE ENCASHMENT AND THE DISALLOWANCE CLAIMED WAS UNDER SECTION 43B (F). AS ALREADY STATED ABOVE, THE OPINION OF THE CIT (APPEALS) WAS SET ASIDE BY THE I.T.A. NO.3 07/M/17 & ORS 17 TRIBUNAL IN THE LIGHT OF THE STAY ORDER OF THE JUDGMENT OF THE HIG H COURT OF CALCUTTA IN EXCIDE INDUSTRIES CASE (SUPRA) AND THE SLP STATED ABOVE IS STILL PENDING. THEREFORE, THE OPINION OF THE TRIBUNAL SO FAR AS DISALLOWANCE CLAIMED IN RESPECT OF LEAVE ENCASHMENT UNDER SECTION 43B(F) OF THE ACT, AS ON TODAY, THE PROVISIO N SEEMS TO BE IN FORCE IN THE LIGHT OF THE STAY ORDER GRANTED BY THE APEX COURT IN THE SLP. THEREFORE, AS LONG AS SECTION 43B (F) IS ON STATUTE, THE SAID DISALLOWANCE IS JUSTIFIED . 6 .5 SINCE THE PROVISIONS MADE BY ASSESSEE OF LEAVE ENCASHMENT REMAINS TO BE PAID, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) W AS INCORRECT TO DIRECT THE ASSESSING OFFICER TO ALLOW THE PROVISION FOR LEAVE SALARY. THUS, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER AND ALLOW THE GRO UND RAISED BY THE REVENUE FOR BOTH THE ASSESSMENT YEARS . 7 . IN THE RESULT, THE APPEAL S FILED BY THE ASSESSEE IN I.T.A. NO . 307 AND 413/MDS/2017 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND I.T.A. NOS. 414 & 415/MDS/2017 ARE ALLOWED. T HE APPEAL FILED B Y THE REVENUE IN I.T.A. NO. 334/MDS/2016 IS DISMISSED AND I.T.A. NOS. 606 AND 607/MDS/2017 ARE ALLOWED. ORDER PRONOUNCED ON THE 9 TH JUNE, 201 7 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 0 9 . 0 6 .201 7 VM/ - I.T.A. NO.3 07/M/17 & ORS 18 / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.