DCIT, Corporate Circle-1(2), Bhubaneswar V. Paradeep Phosphates Limited, Bhubaneswar

ITA 63/CTK/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3454 (ITAT-CUTTACK)
• Duration Of Justice: 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Appeal Filed On: 16-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAAD KIDWAI
• Assessee Lawyers: A K SABAT
• Keywords: Business expenditure; Difference of opinion; Commercial expediency; Change of opinion
• Section: 143(3); 37(1); 147; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI N.S.SAINI, AM & SHRI PA V AN KUMAR GADALE, JM . / ITA NO S . 48&49 /CTK/201 8 ( [ [ / ASSESSMENT YEAR S : 20 10 - 2011 & 2014 - 2015 ) PARADE EP PHOSPHATES LIMITED 5 TH FLOOR, BAYAN BHAWAN, PT. JAWAHARLAL NEHRU MARG, BHUBANESWAR - 751001 VS. ACIT, CORPORATE CIRCLE - 1(2), BHUBANESWAR ./ ./ PAN/GIR NO. : A A BCP 3276 D ( / APPELLANT ) .. ( / RESPONDENT ) AND . / ITA NO. 63 /CTK/201 8 ( [ [ / ASSESSMENT YEARS : 2014 - 2015 ) D CIT, CORPORATE CIRCLE - 1(2), BHUBANESWAR VS. PARADEEP PHOSPHATES LIMITED 5 TH FLOOR, BAYAN BHAWAN, PT. JAWAHARLAL NEHRU MARG, BHUBANESWAR - 751001 ./ ./ PAN/GIR NO. : A ABCP 3276 D ( / APPELLANT ) .. ( / RESPONDENT ) [ /AS SESSEE BY : SHRI A.K.SABAT, AR /REVENUE BY : SHRI SAAD KIDWAI, CIT DR / DATE OF HEARING : 21 / 0 8 /201 8 / D ATE OF PRONOUNCEMENT 27 / 0 8 /201 8 / O R D E R PER SHRI PA V AN KUMAR GADALE, JM : TH E ASSESSEE HAS FILED TWO APPEALS I.E. ITA NO.48&49/CTK/2018 AND THE REVENUE HAS FILED AN APPEAL I.E. ITA NO. 63/CTK/2018 AGAINST THE ORDER PASSED BY THE CIT(A) - 1, BH UBANESWAR IN I.T. APPEAL NOS.0138/16 - 17 & 0225/16 - 17, ALL DATED 06.11.2017 FOR THE ASSESSMENT YEAR 2010 - 2011 & 2014 - 2015. 2. SINCE THE ISSUES IN THESE APPEALS ARE COMMON, THEY ARE HEARD TOGETHER AND DISPOSED OFF BY THIS CONSOLIDATED ORDER. FOR THE SAKE OF ITA NO S . 48,49&63 /CTK/201 8 2 CONVENIENCE WE SHALL TAKE UP THE FACTS AND GROUNDS RAISED IN ASSESSEES APPEAL I.E. ITA NO. 48/CTK/2018 FOR THE ASSESSMENT YEAR 2010 - 2011, WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : - 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, T HE ORDER PASSED BY THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE - 1(2), BHUBANESWAR ('LD. AO') U/S 147 READ WITH SECTION 143(3) OF THE INCOME - TAX ACT, 1961 ('ACT') AND UPHELD BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - I, BHUBANES WAR (HERE - IN - AFTER REFERRED TO AS 'LD. CIT(APPEALS)') IS CONTRARY TO THE PROVISIONS OF LAW AND ERRONEOUS ON THE FACTS OF THE CASE AND LIABLE TO BE QUASHED. 2(A) THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE PROCEEDINGS INITIATED U/S 147 OF THE ACT BY THE LD. AO IS ERRONEOUS, BAD IN LAW AND LIABLE TO BE QUASHED. 2(B) THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. AO WAS NOT JUSTIFIED AND ERRED IN REOPENING THE ASSESSMENT BASED ON MERE CHANGE OF OPINION ON SAME FACTS. 3(A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE LD. CIT (APPEALS) GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF PROVISION FOR DIMINUTION IN VALUE OF GOI FERTILISER BONDS AMOUNTING TO RS. 56,33,75,052/ - MADE BY THE LD. AO IGNORING THE MERITS OF THE CASE. 3(B) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THAT THE GOI FERTILIZER BONDS, BEING IN LIEU OF CASH SUBSIDY, IS CURRENT ASSET IN THE HANDS OF THE APPELLANT AND DIMINUTION IN VALUE OF THE SAME IS A REVENUE LOSS ALLOWABLE AS DEDUCTION UNDER THE PROVISIONS OF THE ACT. 3(C) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) HAS MIS - APPRECIATED THE FACTS AND HAS ERRED IN HOLDING THAT THE LOSS PROVIDED IN THE BOOKS WAS A NOTIO NAL LOSS WHICH COULD NOT BE CONSIDERED TO HAVE ACCRUED AS PER THE MERCANTILE METHOD OF ACCOUNTING. 3(D) THAT CASE LAW RELIED UPON BY THE LD. CIT (APPEALS) IS DISTINGUISHABLE ON FACTS AND IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. AO ERRED IN LEVYING INTEREST U/S 234C OF THE ACT AT RS. 10,74,519/ - ON THE ASSESSED INCOME IGNORING THE FACT THAT THE SAME IS LEVIED ON THE RETURNED INCOME. ITA NO S . 48,49&63 /CTK/201 8 3 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. AO WAS NOT JUSTIFIED AND GROSSLY ERRED IN LEVYING INTEREST U/S 234D OF THE ACT AT RS. 2,47,51,264/ - 3 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAG ED IN THE BUSINESS OF MANUFACTURING & TRA DING OF FERTILIZE R. THE ORIGINAL ASSESSMENT U/S.143(3) OF THE ACT WAS COMPLETED ON 28.02.2014 ON A TOTAL INCOME OF RS.2295,87,92,190/ - . THE SAID INCOME WAS MODIFIED TO RS.115,57,95,426/ - WHILE GIVING EFFECT TO THE ORDER OF CIT(A). THEREAFTER THE AO REASSES SED THE TOTAL INCOME AT RS.171,91,70,480/ - MAKING AN ADDITION OF RS.56,33,75,052/ - ON ACCOUNT OF DIMINUTION IN VALUE OF GOI FERTILISER BONDS AND PASSED ORDER U/S.143(3)/147 OF THE ACT, DATED 31.03.2016. 4. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE FILED A N APPEAL BEFORE THE CIT(A). IN THE APPELLATE PROCEEDINGS, THE LD. AR OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AO. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FINDINGS OF THE AO, HAS DISMISSED THE APPEAL OF ASSESSEE. 5 . AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 6. LD. AR BEFORE US SUBMITTED THAT THE CIT(A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE AO ON ACCOUNT OF DIMINUTION IN VALUE OF GOI FERTILISER BONDS AND SUBMI TTED THAT THE ISSUE IS COVERED BY THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 - 2010 IN ITA NO.560/CTK/2013 , ORDER DATED 27.04.2018. 7. PER CONTRA, LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORITIES. ITA NO S . 48,49&63 /CTK/201 8 4 8. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. W E FIND THAT THE DISPUTED ISSUE IN RESPECT OF DIMINUTION IN VALUE OF GOI FERTILISER BONDS AS ENVISAGED BY THE LD. AR OF THE ASSESSEE HAS BEEN DEALT BY THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 - 2010 IN ITA NO. 560/CTK/2013, ORDER DATED 27.04.2018, WHEREIN THE TRIBUNAL AT PARA 19 TO 21 AT PAGE 12 TO 14 HAS OBSERVED AS UNDER: - 19. IN RESPECT TO GROUND NO.4, THE AO IN RESPONSE TO THE QUESTIONNAIRE, CALLED FOR THE A SSESSEE TO FURNISH A WORKING OF PROVISION FOR DIMINUTION OF GOI FERTILIZER BONDS OF RS.46,86,09,535/ - AND WHY SUCH PROVISION SHOULD NOT BE ADDED BACK TO THE TOTAL INCOME. THE ASSESSEE SUBMITTED THAT SINCE THE BONDS WERE ISSUED AGAINST SUBSIDY, WHICH IS IN LIEU OF CASH ANY DIMINUTION IN THE VALUE OF BONDS IS AN ALLOWABLE BUSINESS EXPENSES. THE AO WAS NOT SATISFIED WITH THE SUBMISSIONS OF ASSESSEE AND MADE THE ADDITION. ON APPEAL, THE CIT(A) HAS CONFIRMED THE ACTION OF AO. 20. BEFORE US, LD.AR SUBMITTED THAT THE ASSESSEE HAS TO PURCHASE THE GOVERNMENT OF INDIA FERTILIZERS BONDS AS THIS AMOUNT COULD NOT BE PAID TO THEM AND BONDS WERE DISCLOSED UNDER CURRENT ASSETS. LD. AR REFERRED TO ANNUAL REPORT WHERE THE SAME HAS BEEN REFLECTED UNDER OTHER CURRENT ASSETS AN D ALSO RELIED ON THE JUDICIAL DECISION IN SIMILAR CASE AND REFERRING TO THE PAPER BOOK AND PRAYED FOR ALLOWING THE APPEAL. CONTRA, LD. DR RELIED ON THE ORDER OF CIT(A). 21. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS CLAIMED THE LOSS IN DIMINUTION OF GOVERNMENT OF INDIA FERTILIZER BONDS. THE LD. AR SUBMITTED THAT THESE BONDS WERE ISSUED BY THE GOVERNMENT OF INDIA IN LIEU THE PAYMENTS TO BE RECEIVED BY THE ASSESSEE AND THEY ARE DISCLOSED IN THE BALANCE SHEET AND AL SO THE LOSS HAS BEEN CLAIMED. THEREFORE, DUE TO DIMINUTION IN VALUATION OF BONDS THE CLAIM HAS BEEN CONSIDERED. THE LD. AR SUPPORTED HIS ARGUMENTS WITH THE DECISION OF THE TRIBUNAL DCM SHRIRAM CONSOLIDATED LTD., ITA NO.1447 & 1836/DEL/2012, ORDER DATED 20. 05.2015, WHICH HAS BEEN CONFIRMED BY THE HONBLE HIGH COURT IN DCM SHRIRAM CONSOLIDATED LTD. VS. CIT, ITA NO.939/2015, DATED 14.12.2015. WE FIND THAT THE TRIBUNAL IN CASE OF DCM SHRIRAM CONSOLIDATED LTD., IN ITA NO.1447 & 1836/DEL/2012 FOR THE ASSESSMENT Y EAR 2008 - 09, ORDER DATED 20.05.2015, HAS HELD AS UNDER : - 9. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, AT THE VERY OUTSET, WE NOTE THAT UNDISPUTEDLY THE ASSESSEE ITA NO S . 48,49&63 /CTK/201 8 5 COMPANY WAS FORCED AND COMPELLED BY THE GOVERNMENT OF INDIA TO RECEIVE FERTILIZER'S BOND S IN LIEU OF FERTILIZER SUBSIDY BY THE GOVERNMENT OF INDIA. IT IS ALSO PERTINENT TO NOTE THAT THE ASSESSEE WAS ENTITLED TO RECEIVE FERTILIZER SUBSIDY IN CASH BUT DUE TO SHORTAGE OF FUNDS WITH THE GOVERNMENT OF INDIA AN ALTERNATIVE WAY WAS CREATED AND THE A SSESSEE COMPANY WAS COMPELLED TO RECEIVE FERTILIZER'S BONDS IN LIEU OF CASH FERTILIZERS SUBSIDY. IN THIS SITUATION, WE HOLD THAT THE ASSESSEE COMPANY RIGHTLY SHOWED THESE BONDS AS 'OTHER CURRENT ASSETS' (PRAYED) UNDER THE HEAD 'CURRENT ASSETS, LOANS AND AD VANCES'. IN THE CASE OF PATNAIK & COMPANY (SUPRA) THE APEX COURT EXPLICITLY HELD THAT WHERE THE INVESTMENTS WERE MADE UNDER COMMERCIAL EXPEDIENCY FOR THE PURPOSE OF CARRYING ON THE ASSESSEE'S BUSINESS, THEN, THE LOSSES SUFFERED BY THE ASSESSEE ON THE SALE OF SUCH INVESTMENTS MUST BE REGARDED AS REVENUE LOSS BECAUSE THE INVESTMENT DID NOT BRINGING AN ASSET OF CAPITAL NATURE AND IN THESE CIRCUMSTANCES OF THE CASE, THE LOSSES SUFFERED BY THE ASSESSEE SHOULD BE TREATED AS REVENUE LOSS AND NOT A CAPITAL LOSS. WE , FURTHER RESPECTFULLY TAKE COGNIZANCE OF THE JUDGMENT OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. D.S. BISHT AND SONS (SUPRA), WHEREIN IT WAS HELD THAT WHEN THE ASSESSEE HAD NO OPTION BUT TO SUBSCRIBE THE SECURITIES IF IT WANTED TO CONTINUE TO DO BUSINESS WITH THE GOVERNMENT DEPARTMENTS, THEN THE INVESTMENTS WERE THUS, NECESSARILY BY WAY OF COMMERCIAL EXPEDIENCY FOR THE PURPOSE OF CARRYING ON THE BUSINESS. THE HONBLE DELHI HIGH COURT AFF IRMING THE ABOVE DECISION OF THE TRIBUNAL IN THE CASE OF DCM SHRIRAM CONSOLIDATED LTD. VS. CIT, ITA NO.939/2015, DATED 14.12.2015, HAS HELD AS UNDER : - 4. THE FIRST ISSUE THAT ARISES FOR CONSIDERATION IS WHETHER THE ASSESSEE COULD HAVE CLAIMED LOSS FOR T HE DIMINUTION IN VALUE OF FERTILIZER BONDS AGAINST THE SALE OF FERTILIZERS. 5. THE ASSESSMENT ORDER ITSELF SHOWS THAT IN ITS BOOKS, THE ASSESSEE CATEGORIZED THE BONDS UNDER THE HEAD CURRENT INVESTMENT ASSETS. IN THAT VIEW OF THE MATTER, THE DIMINISHING VALUE OF THE BONDS NOT BEING HELD AS LONG TERM INVESTMENT WAS IN THE NATURE OF A REVENUE LOSS AND COULD HAVE BEEN CLAIMED AS SUCH BY THE ASSESSEE. THE STAND OF THE REVENUE THAT THIS WAS ONLY A NOTATIONAL LOSS AND ALLOWABLE, IS NOT TENABLE SINCE BONDS HELD AS STOCK - IN - TRADE CAN BE VALUED AT MARKET RATE OR COST WHICHEVER IS LESS. WE ARE IN AGREEMENT WITH THE RATIO LAID DOWN BY THE TRIBUNAL AS WELL AS THE HONBLE DELHI HIGH COURT. ACCORDINGLY, WE FIND MERIT IN THE ARGUMENTS OF THE LD. AR OF THE ASSESSEE DUL Y SUPPORTED BY THE JUDICIAL DECISION AND THEREFORE, WE SET ASIDE THE ORDER OF LOWER AUTHORITIES AND DIRECT THE AO TO DELETE THE ADDITION AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. ITA NO S . 48,49&63 /CTK/201 8 6 WE RESPECTFULLY FOLLOW THE JUDICIAL PRECE DENCE AND DIRECT THE AO TO DELETE THE ADDITION MADE ON ACCOUNT OF DIMINUTION IN VALU E OF GOI FERTILISER BONDS. 9. WE FURTHER MAKE IT CLEAR THAT OUT OF GROUND S OF APPEAL NOS.1 TO 3, THE ASSESSEE HAS ARGUED ON THE GROUND NO.3(A) ONLY IN RESPECT OF DIMINUTION IN VALUATION OF GOI FERTI LISER BONDS, WHICH WE HAVE DECIDED IN FAVOUR OF THE ASSESSEE . FURTHER EXCEPT GROUND NO.3(A) , OTHER GROUNDS ARE TREATED AS NOT PRESSED AND ACCORDINGLY THE SAME ARE DISMISSED. 10 . IN RESPECT OF GROUND NOS.4 & 5, WITH REGARD TO LEVY OF INTEREST U/S.234C & 234 D OF THE ACT, WHICH IS CONSEQUENTIAL, THEREFORE, THE AO IS DIRECTED ACCORDINGLY. 11 . THUS, THE APPEAL OF THE ASSESSEE I.E ITA NO.48/CTK/2018 FOR THE ASSESSMENT YEAR 2010 - 2011 IS PARTLY ALLOWED. 12 . NOW, WE SHALL TAKE UP APPEAL OF THE ASSESSEE IN ITA NO. 49/ CTK/2018 FOR THE ASSESSMENT YEAR 2014 - 2015, WHEREIN THE ASSESSEE HAS ARGUED ON THE ISSUE OF DISALLOWANCE OF PROVISION FOR DIMINUTION IN VALUE OF GOI FERTILISER BONDS. WE HAVE ALREADY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE WHILE DECIDING THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2010 - 2011 IN ITA NO.48/CTK/2018, WHEREIN RELYING ON THE EARLIER ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE HAVE DIRECTED THE AO TO DELETE THE ADDITION MADE ON ACCOUNT OF DIMINUTION IN VALUE OF G OI FERTILISER BONDS. ACCORDINGLY, ALLOW THE GROUND RAISED BY THE ASSESSEE IN THE PRESENT ITA NO S . 48,49&63 /CTK/201 8 7 APPEAL ON ACCOUNT OF PROVISION FOR DIMINUTION IN VALUE OF GOI FERTILISER BONDS AND DIRECT THE AO TO DELETE THE SAME. 13 . THUS, APPEAL OF THE ASSESSEE FOR ASSESSMENT Y EAR 2014 - 2015 IN ITA NO.49/CTK/2018 IS ALLOWED. 14 . NOW, WE SHALL TAKE UP THE APPEAL OF REVENUE FOR THE ASSESSMENT YEAR 2014 - 2015 IN ITA NO.63/CTK/2018, WHEREIN THE REVENUE HAS RAISED THE FOLLOWING GROUNDS : - 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS ON FACTS AND IN LAW. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, ID. CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.2,84,34,453/ - , WHICH WAS MADE BY THE AO HOLDING THAT THE SAID AMOUNT OF EXPENSES INCURRED IN RUNNING OF A SCHOOL, CLAIM ED BY THE ASSESSEE IS NOT ALLOWABLE U/S. 40A(9) OF THE I.T. ACT. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, ID.CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.2,84,34,453/ - INCURRED BY THE ASSESSEE IN RUNNING OF A SCHOOL WHICH IS NOT INCIDENTAL TO THE BUSINESS OF THE ASSESSEE COMPANY. 3. THE APPELLANT CRAVES TO ALTER, AMEND OR ADD ANY OTHER GROUND THAT MAY BE CONSIDERED NECESSARY IN COURSE OF THE APPEAL PROCEEDINGS. 15 . LD. DR SUBMITTED THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF SCHOOL EXPENSES AND SUPPORTED THE ORDER OF AO. 16 . ON THE OTHER HAND , LD. A R RELIED ON THE ORDER OF CIT(A) AND THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2010 - 2011 IN ITA NO.289/CTK/2014, ORDER DATE D 04.08.2017. 17 . WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE SOLE DISPUTED ISSUE INVOLVED IN THE APPEAL OF REVENUE AS ENVISAGED BY LD. DR IS WITH REGARD TO DISALLOWANCE OF SCHOOL EXPENSES INCURRED BY THE ASSESSEE. WE FOUND THI S ISSUE HAS ALREADY BEEN DECIDED ITA NO S . 48,49&63 /CTK/201 8 8 BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2010 - 2011 IN ITA NO.289/CTK/2014, ORDER DATED 04.08.2017, WHEREIN THE OBSERVATION OF THE TRIBUNAL AT PARA 19 TO 26, READS AS UNDER : - 19. IN GROUND NO.2 OF THE APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,74,85,684/ - UNDER SCHOOL EXPENSES. 20. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER DISALLOWED RS.1,74,85,684/ - U/S.40A(9) OF THE ACT BEING AMOUNT PAID TO DAV SCH OOL BY THE ASSESSEE FOR RUNNING THE SCHOOL IN THE PLANT PREMISES. THE ASSESSEE BEFORE THE ASSESSING OFFICER SUBMITTED THAT PAYMENT OF DAV SCHOOL MANAGEMENT WAS NEITHER FALLING UNDER SETTING UP NOR FORMATION OF NOR UNDER AS CONTRIBUTION TO ANY FUND/T RUST ETC, AND, THEREFORE, THE SAME WAS ALLOWABLE AS BUSINESS EXPENDITURE WHICH WAS NOT ACCEPTED BY THE ASSESSING OFFICER. ACCORDING TO THE ASSESSING OFFICER, THE CLAIM WAS COVERED UNDER THE PROVISIONS OF SECTION 40A(9) OF THE ACT AND, ACCORDINGLY DISALLOW ED THE SAME. 21. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED AS UNDER: IN THIS REGARD IT MAY BE MENTIONED HERE THAT, THE LEARNED AO ON IRRELEVANT CONSIDERATIONS AND PRESUMPTIONS HAS DISALLOWED/ ADDED AN AMOUNT OF RS. 1,74,85,684/ - TOWARDS SCHOOL EXPENSES BY INVOKING SEC 40A (9) OF THE IT ACT IN HOLDING THAT THE SAME IS NOT ELIGIBLE AS EXPENSES . THE AFORESAID AMOUNT OF RS. 1,74,85,684/ - IS FOR THE WELFARE OF EMPLOYEES BEING THE EXPENSES OF THE SCHOOL (DAV SCHOOL), WHICH HAS BEEN ESTABLISHED WITHIN THE PLANT PREMISES AND ALL THE EXPENSES ARE WHOLLY MET BY THE COMPANY DURING THE YEAR AND HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THEREFORE OUGHT TO BE FULLY ALLOWABLE AS DEDUCTION U/S.37 OF THE ACT. IN THIS REGARD, WE WOULD HUMBLY S UBMIT THAT, FOR THE WELFARE OF THE EMPLOYEES, A SCHOOL HAS BEEN ESTABLISHED WITHIN THE PLANT PREMISES AND THE SCHOOL IS MANAGED BY DAV. ALL THE EXPENSES OF THE SCHOOL ARE MET DIRECTLY BY THE COMPANY. IT MAY BE MENTIONED HERE THAT, DURING THE AY 2010 - 11, AN AMOUNT OF RS 1,74,85,684/ - HAS BEEN BOOKED TOWARDS SCHOOL EXPENSES. SINCE THE ENTIRE EXPENSES HAD BEEN INCURRED FOR THE STAFF WELFARE, THE SAME IS AN ALLOWABLE BUSINESS EXPENDITURE. SECTION 40A(9) PROVIDES THAT 'NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER TOWARDS THE SETTING UP OR FORMATION OF, OR AS CONTRIBUTION TO, ANY FUND, TRUST, COMPANY, ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS, SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860 (21 OF ITA NO S . 48,49&63 /CTK/201 8 9 1860), O R OTHER INSTITUTION FOR ANY PURPOSE, EXCEPT WHERE SUCH SUM IS SO PAID, FOR THE PURPOSES AND TO THE EXTENT PROVIDED BY OR UNDER CLAUSE (IV) 58A [OR CLAUSE (IVA)] OR CLAUSE (V) OF SUB - SECTION (1) OF SECTION 36, OR AS REQUIRED BY OR UNDER ANY OTHER LAW FOR TH E TIME BEING IN FORCE.' SINCE, PAYMENT TO DAV SCHOOL MANAGEMENT IS NEITHER FALLING UNDER 'SETTING UP' NOR UNDER 'FORMATION OF' NOR UNDER 'AS CONTRIBUTION TO' ANY FUND /TRUST ETC, THE SAME IS OUTSIDE THE PURVIEW OF SEC 40 A (9) OF THE IT ACT. ALTHOUGH THE A FORESAID FACT WAS APPRECIATED BY THE LD. AO IN THE ASSESSMENT ORDER, BUT DISALLOWED THE EXPENSES ON A FLIMSY GROUND. WITHOUT CONSIDERING THE BASIC CRITERIA LAID DOWN IN THE SEC 40 A (9) I.E. 'TOWARDS THE SETTING UP OR FORMATION OF, OR AS CONTRIBUTION TO, A NY FUND, TRUST ENTIRE AMOUNT OF SCHOOL EXPENSES U/S 40 A (9). THAT THE AFORESAID AMOUNT OF RS. 1,74,85,684/ - BEING THE AMOUNT INCURRED DURING THE YEAR FOR THE SCHOOL (DAV SCHOOL) DOES NOT FALL UNDER THE AMBIT OF PROVISIONS OF SECTION 40A(9) OF THE I.T ACT AND THEREFORE THE SAID DISALLOWANCE U/S 40A (9) OF THE ACT IS LEGALLY UNTENABLE. IN THIS REGARD RELIANCE CAN BE PLACED ON THE CASE OF CIT VS MADRAS REFINERY LIMITED [(2004) 266 ITR 170(MAD)], WHERE THE HIGH COURT ADJUDICATED THAT THE EXPENDITURE INCURRED FOR PUBLIC WELFARE WAS IN RELATION TO PROMOTING THE BUSINESS IN THE LOCAL COMMUNITY, THEREBY WAS INCURRED FOR THE PURPOSE OF BUSINESS. IT MAY BE MENTIONED HERE THAT THE HON'BLE ITAT DELHI BENCH IN THE CASE OF CIT V GUJARAT GUARDIAN LTD [2006] 152 TAXMAN 37 (DELHI) (MAG) HELD THAT SCHOOL EXPENSES CAN NOT BE DISALLOWED U/S 40 A (9) OF THE IT ACT, COPY OF THE AFORESAID JUDGEMENT ALONG WITH DETAIL OF SCHOOL EXPENDITURE IS ENCLOSED AND MARKED AS ANNEXURE - 9 FOR YOUR KIND CONSIDERATION.' 22. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) CONFIRMED THE DISALLOWANCE BY OBSERVING AS UNDER: I HAVE CONSIDERED THE MATTER CAREFULLY. THE APPELLANT'S SUBMISSIONS ARE THAT THE AMOUNTS SPENT IN RUNNING THE SCHOOL IS BUSINESS EXPENDITURE SINCE THE SCHOOL IS RU N FOR STAFF WELFARE. THE APPELLANT IS ENTITLED TO LOOK AFTER WELFARE OF ITS EMPLOYEES WHICH HELPS IN RUNNING THE BUSINESS SMOOTHLY AND ALSO TO RAISE PROFIT AND PRODUCTIVITY. HOWEVER, THE STAFF WELFARE CANNOT BE AN EXCUSE TO JUSTIFY RUNNING OF A SCHOOL OR C OLLEGE AND CLAIMING EXPENDITURE AS BUSINESS EXPENSES. THERE HAS TO BE A REASONABLE BASIS FOR EXPENDITURE ON STAFF WELFARE ACTIVITY. UNDER THE GUISE OF STAFF WELFARE ACTIVITIES, THE EMPLOYER COULD NOT TAKE OVER EVERY ASPECT OF AN EMPLOYEE'S PRIVATE LIFE AND DAY - TO - DAY EXISTENCE. RUNNING OF A SCHOOL HAS BECOME A BUSINESS IN ITSELF. IN VIEW OF THE ITA NO S . 48,49&63 /CTK/201 8 10 SAME, THE EXPENDITURE INCURRED IN RUNNING OF A SCHOOL IS NOT BUSINESS EXPENDITURE AND HENCE THE AO IS CORRECT IN DISALLOWING THE SAME, THE ADDITION OF RS.1,74,85,68 4/ - MADE BY THE AO IS CONFIRMED. 23.LD A.R. RELIED ON THE DECISION OF DELHI BENCHES OF THE TRIBUNAL IN THE CASE OF DCIT VS. GUJARAT GUARDIAN LTD., (2006) 152 TAXMAN 37 (DEL) (MAG), WHEREIN, THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS.10 LAKHS TOWARDS CONTRIBUTION TO A SCHOOL AND THE ASSESSING OFFICER DISALLOWED THE SAME U/S.40A(9) OF THE ACT, WHICH BARS DEDUCTION OF CONTRIBUTION MADE BY AN EMPLOYER TO ANY FUND, TRUST, ETC, FOR THE BENEFIT OF EMPLOYEES. ON APPEAL, THE CIT(A) ALLOWED THE DEDUCTION BY F OLLOWING THE DECISION OF THE DELHI BENCHES OF THE TRIBUNAL IN THE CASE OF MODI RUBBER LTD VS IAC(IT APPEAL NOS.6227 (DELHI) OF 1986 AND 142 (DEL) OF 1987 DATED 29.1.1993. ON FURTHER APPEAL, THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT(A). 24. FURTHE R, LD A.R. RELIED ON THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS N.RADHAKRISHNAN, (2000) 243 ITR 284 (KER) WHERE THE ASSESSEE A PUBLIC SECTOR UNDERTAKING ENGAGED IN THE MANUFACTURE AND SALE OF CERTAIN CHEMICALS CLAIMED IN THE ASSESSMENT YEAR 1985 - 86, DEDUCTION FOR PAYMENT OF RS.5,34,406/ - MADE TO FACT SCHOOL WHERE CHILDREN OF ITS EMPLOYEES WERE STUDYING BY WAY OF REIMBURSEMENT OF THE SCHOOLS PROPORTIONATE EXPENDITURE ON THE GROUND THAT THE SAME WAS ALLOWABLE UNDER SECTION 40A(10) AND SE CTION 37(1) OF THE ACT AS EXPENDITURE WAS INCURRED FOR WELFARE OF THE EMPLOYEES AND FOR BUSINESS PURPOSES. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE CLAIM OBSERVING THAT THE PAYMENT HAD NO DIRECT RELATION WITH THE BUSINESS ACTIVITY OF THE ASSESSEE AND WAS MORE OR LESS IN THE NATURE OF A DONATION. THE CIT (A) CONFIRMED THE DISALLOWANCE. ON APPEAL, THE TRIBUNAL ACCEPTED THE ASSESSEES CLAIM ON THE GROUND THE SAID CONTRIBUTION WAS FOR BUSINESS PURPOSES. ON FURTHER APPEAL, HONBLE HIGH COURT HELD THAT T HE EXPENDITURE MET BY THE ASSESSEE WAS WHOLLY AND EXCLUSIVELY FOR THE WELFARE OF ITS EMPLOYEES AND ALSO FOR CARRYING ON BUSINESS OF THE ASSESSEE COMPANY MORE EFFICIENTLY BY HAVING A CONTENDED LABOUR FORCE. IT WAS NEITHER A DONATION COVERED UNDER SECTION 4 0A(9) NOR A CAPITAL IN NATURE NOT COVERED BY SECTION 37(1) OF THE ACT.. HENCE, THE TRIBUNAL WAS JUSTIFIED IN ALLOWING THE ABOVE EXPENDITURE TOWARDS CONTRIBUTION FOR THE RUNNING OF THE FACT SCHOOL, AS AN EXPENDITURE FOR THE SMOOTH FUNCTIONING OF THE BUSINE SS OF THE ASSESSEE AND AN EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE WELFARE OF THE EMPLOYEES OF THE ASSESSEE AND THUS, ALLOWABLE UNDER SECTION 37(1) AS WELL AS SECTION 40A(10) OF THE ACT. 25. LD D.R. THOUGH RELIED ON THE ORDERS OF LOWER AUTHORITIES B UT COULD NOT CITED ANY CONTRARY DECISIONS BEFORE US. 26. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING MATERIALS AVAILABLE ON RECORD, WE FIND THAT THE ISSUE AT HAND IS SQUARELY COVERED BY THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF ITA NO S . 48,49&63 /CTK/201 8 11 N .RADHAKRISHNAN QUOTED ABOVE. RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THE ORDERS OF LOWER AUTHORITIES AND DELETE THE DISALLOWANCE OF RS.1,74,85,684/ - MADE U/S.40A(9) OF THE ACT AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 18 . WE FOUND THAT THE D ISPUTED ISSUE IN THE PRESENT APPEAL OF REVENUE IS SIMILAR TO THE DECISION OF THE TRIBUNAL QUOTED ABOVE. THEREFORE, WE RESPECTFULLY FOLLOW THE JUDICIAL PRECEDENCE AND DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE . ACCORDINGLY, APPEAL OF THE REVENUE IS DISMISSED. 19 . IN THE RESULT, APPEAL OF THE ASSESSEE I.E ITA NO.48/CTK/2018 IS PARTLY ALLOWED AND ITA NO.49/CTK/2018 IS ALLOWED AND THE APPEAL OF REVENUE I.E. ITA NO.63/CTK/2018 IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 27 / 0 8 / 201 8 . SD/ - ( N.S.SAINI ) S D/ - ( PAVAN KUMAR GADALE ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER CUTTACK ; DATED 27 / 0 8 /201 8 . . / PKM , SENIOR PRIVATE SECRETARY / COPY OF THE ORDER F ORWARDED TO : / BY ORDER, ( SENIOR PRIVATE SECRETARY ) , / ITAT, CUTTACK 1. / THE APPELLANT - 2. / THE RESPONDENT - 3. ( ) / THE CIT(A), 4. / CIT 5. , , / DR, ITAT, CUTTACK 6. [ / GUARD FILE. //TRUE COPY//