Income Tax Appellate Tribunal - Chennai
Tamil Nadu State Transport Corporation ... vs Assessee on 22 August, 2014
आयकर अपील य अ धकरण, 'ए' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL"A" BENCH, CHENNAI
ी ए.मोहन अलंकामणी, लेखा सद य एवं ी वकास अव थी, या!यक सद य के सम"
BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER
AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER
आयकर अपील सं. / I.T.A. No. 1464/Mds/2014
नधा रण वष / Assessment Year : 2009-10
Tamil Nadu State The Asst. Commissioner
Transport Corporation Vs of Income Tax,
(Salem) Ltd., Company Circle,
12, Ramakrishna Road, SALEM
SALEM - 636 007
[PAN: AAACT 7678 J]
(अपीलाथ#/Appellant) ($%यथ#/Respondent)
अपीलाथ क ओर से / Appellant by : Shri G.Baskar, Advocate
यथ क ओर से / Respondent by : Shri Guru Bhashyam,JCIT
सन
ु वाई क तार ख / Date of hearing : 04-08-2014
घोषणा क तार ख / Date of Pronouncement : 22-08-2014
आदे श / O R D E R
PER VIKAS AWASTHY, J.M:
The appeal has been filed by the assessee against the order u/s.263 of Income Tax Act, 1961 (herein after referred to as 'the 2 ITA No. 1464/Mds/2014 Act') by the Commissioner of Income Tax, Salem, dated 28-03-2014 relevant to the Assessment Year (AY) 2009-10.
2. The assessee is a State Transport Corporation. The assessee filed its return of income for the AY.2009-10 on 28-09-2009 declaring loss of `38,53,07,482/-. In scrutiny assessment, the Assessing Officer vide order dt.16-11-2011 made addition of `1,34,33,665/- on account of "Damages for remittance to Pension Fund Trust" and office expenses of the Chairman and assessed the total income of the assessee as (-) `37,07,38,467/-. On 18-02-2014, the CIT, Salem issued notice u/s.263 to the assessee for the following reasons:
"I. PAYMENT OF PENSION FUND TRUST:
In the annual report for the F.Y.2008-09, it is seen from Schedule - 'T' under 'A Establishment Charges' (page-59) that the assessee has debited a sum of `15,59,87,294/- being contribution to Pension Fund Trust. However, in the Income Adjustment Statement, the assessee had added back a sum of `5,80,44,992/- being dis-allowance u/s.43B on account of non-remittance.
As per the provisions of Section 36(1)(iv), only sums paid by the way of the contribution towards recognized Provident Fund is to be allowed as deduction. In page 80 of the Annual Report under Sl.No.16(c), it is found that the payment is made to the Tamil Nadu State Transport Corporation Employees Pension Fund Trust, 3 ITA No. 1464/Mds/2014 Chennai. It was claimed by the assessee that this fund having PAN No.AAATT7566J was granted recognition by the Commissioner of Income Tax-VII, Chennai. The assessee therefore claimed that the payment was deductible. It can be seen from the records that the recognition was accorded by the CIT-VII, Chennai. As per the definition provided in Section 2(38), a 'recognized Provident Fund' means a Provident Fund which has been and continues to be recognized by the Chief Commissioner or Commissioner in accordance with the rules contained in part A of the Fourth Schedule'.
As per part-A of the fourth schedule, the employer is required to make an application for recognition to the CIT/CCIT having jurisdiction over him and obtain recognition. In this case the assessee was liable to apply for and obtain recognition from the CIT, Salem/CCIT, Trichy. However, no such application is made and thereby recognition not obtained as provided by the law. Consequently, the Provident Fund to which the assessee company has made the contribution remains un-recognized by the competent authorities. Thereby, the contribution of `15,59,87,294/- made by the assessee to the Tamil Nadu State Transport Corporation Employees Pension Fund Trust, Chennai cannot be claimed as deduction u/s.36(1)(iv).
Thus, the non-disallowance of an amount of `9,79,42,302 [`15,59,87,294 - `5,80,44,992] by the Assessing Officer at the time of framing the assessment was erroneous.
II. REIMBURSEMENT RECEIVABLE TOWARDS FREE PASSES: In Page No.64 of the Annual Report under Schedule-X, being 'Notes to and forming part of the accounts', under 1A, it is mentioned that the reimbursement towards passes issued to physically handicapped, freedom fighters etc. is not recognized as income. Further as per page 4 ITA No. 1464/Mds/2014 No.75 under S.No.12(b), it is mentioned that a sum of `7,62,92,000/- is receivable; a claim having being made to the State Government as per a fixed formula and was under process. Since the assessee follows mercantile system of accounting, the assessee is liable to admit this amount as income, which is not done in this case. Therefore, the income to this extent is understated in the accounts. The Assessing Officer did not consider this amount while completing the assessment.
For the reasons stated above, I am of the view that the Assessing Officer has not appreciated / examined the facts of the case properly and also has completed the assessment in a manner contrary to the provisions of law. Thus, there is under assessment of income due to errors committed by the Assessing Officer and the order is both erroneous and prejudicial to the interest of revenue. I, therefore propose to pass appropriate order thereon u/s.263 as the circumstances of the case justify. You are hereby given an opportunity to represent your case and state your objections, if any to the proposed action".
3. The CIT vide impugned order held that the assessee has wrongly claimed deduction u/s.36(1)(iv) for contribution towards Pension Fund Trust as the said fund is not approved by the jurisdictional Commissioner or the Chief Commissioner of Income Tax. On reimbursements of free passes issued by assessee, the CIT held that the claim of the assessee cannot be accepted as the assessee is following mercantile system of accounting. The assessee is admitting income from reimbursement of free passes 5 ITA No. 1464/Mds/2014 in the year of receipt and not in the year of making claim. The assessee cannot follow hybrid system of accounting.
4. Shri G.Baskar, appearing on behalf of the assessee submitted that the assessee has erred in invoking the provisions of section 263 in respect of contribution towards the Employees Pension Fund Trust, as well as, reimbursement of free passes issued to physically handicapped, freedom fighters, etc., The ld.Counsel submitted that the assessee has contributed a sum of `15,59,87,294/- towards Pension Fund Trust. The Trust namely, Tamil Nadu State Transport Corporation Employees Pension Fund Trust, Chennai is recognized by the CIT-VII, Chennai. The said fund has been set up for all the employees of the Tamil Nadu State Transport Corporation providing services in various districts of the state of Tamil Nadu. The ld.Counsel placed on record a copy of the Trust Deed dt.16-12-2000, wherein, all the twelve State Transport Corporations operating in different district of the State are signatories to the Trust. The ld.Counsel further submitted that there is no need to form separate trust in every district as contributions are made to common trust, duly recognized by the CIT. In order to support his contentions, the ld.Counsel for the assessee draw support from the decision of co-ordinate bench of 6 ITA No. 1464/Mds/2014 the Tribunal in the case of Stanmore (Anamallay) Estates Ltd., Vs. ITO reported as 1 ITD (Mad) 519.
On the issue of reimbursement of free passes, the ld.Counsel submitted that the assessee is issuing free passes to physically handicapped, freedom fighters etc. Thereafter, it is filing claim for reimbursement before the Department of Social Welfare. In the year of receipt of reimbursements, the assessee is offering the amount for tax. Though, the assessee is following mercantile system of accounting, in the case of reimbursements of free passes, the assessee is not sure as to whether its entire claim or the partial claim would be accepted by the Social Welfare Department. Therefore, in notes to the accounts, the assessee is specifically mentioning about the claims. The assessee has been following this practice consistently for the past several years and the department has been accepting this method of accounting of reimbursement claims. This is for the first year that the Revenue has raised objection on the issue.
5. Shri Guru Bhashyam, appearing on behalf of the Revenue vehemently opposed the grounds raised by the assessee. The ld.DR submitted that the assessee was supposed to get approval 7 ITA No. 1464/Mds/2014 of the fund from the jurisdictional Commissioner or Chief Commissioner of Income Tax. The assessee is having its head office at Salem and is filing its return of income in the jurisdictional range of CIT, Salem. Therefore, the assessee ought to have taken approval of jurisdictional Commissioner to set up pension fund. To support his contentions, the ld.DR placed reliance on the judgment of Hon'ble Madras High Court in the case of CIT Vs. Kattabomman Transport Corporation Ltd., reported as 268 ITR 507 (Madras) and the judgment of the Hon'ble Patna High Court in the case of CIT Vs. Mica Trading Corporation of India reported as 229 ITR 268 (Patna). As regards the issue of reimbursement of free passes, the ld.DR vehemently supported the findings of CIT.
6. We have heard the submissions made by the representatives of both the sides and have perused the orders of the authorities below. We have also examined the decisions on which the respective sides have placed reliance and the documents placed on record by the ld.Counsel for the assessee in the form of Paper Book. The first issue raised in appeal is with regard to contributions made by the assessee towards Pension Fund Trust. The assessee has contributed a sum of `15.60 Crores (approximately) towards Tamil Nadu State Transport 8 ITA No. 1464/Mds/2014 Corporation Employees Pension Fund Trust, Chennai. The CIT is of the opinion that since the Trust is not approved by the jurisdictional Commissioner or Chief Commissioner, the contributions made by the assessee are not towards approved pension fund. A bare reading of section 36(1)(iv) makes is amply clear that the sum should be contributed by the employer towards a recognized provident fund or approved superannuation funds subject to such limits as may be prescribed for recognizing provident fund or approving the superannuation fund. The section does not lay down any specific condition that the fund should be approved by the jurisdictional Commissioner or Chief Commissioner only.
In the present case, the assessee is contributing in the Pension Fund Scheme jointly floated by twelve State Transport Corporations operating in different districts of the state of Tamil Nadu. All the State Transport Corporations are signatories to the Trust Deed for setting up of joint State Transport Employees Pension Fund Scheme. It is not in dispute that the said fund has been recognized by the CIT-VII, Chennai. Once the assessee is contributing towards recognized fund, the assessee is entitled to get the benefit for the contributions made to the said fund. 9 ITA No. 1464/Mds/2014
7. The case of the assessee is supported by the decision of the co-ordinate bench of the Tribunal in the case of Stanmore (Anamallay) Estates Ltd., Vs. ITO (supra). In the said case, the assessee-company along with other four sister companies created a joint gratuity fund for the exclusive benefit of its employees under on irrevocable trust. The CIT in proceedings u/s.263 raised similar objection that the assessee is not contributing towards fund approved by the jurisdictional Commissioner. The co-ordinate bench of the Tribunal held that contributions to approved gratuity fund being a common fund set by the assessee-company along with sister companies cannot be dis-allowed on the ground that it was not exclusive fund for the assessees' employees. The Revenue has placed reliance on the decision rendered by the jurisdictional High Court in the case of CIT Vs. Kattabomman Transport Corporation Ltd., (supra) and CIT Vs. Mica Trading Corporation of India (supra). We find that in both the above said cases, the facts are entirely different from the case in hand. Therefore, the ratio laid down by the Hon'ble High Courts in aforesaid cases cannot be applied in the present case. Accordingly, this ground of appeal of the assessee is allowed. 10 ITA No. 1464/Mds/2014
8. The second issue on which the assessee has assailed the order of CIT(Appeals) is with regard to reimbursement of free passes. The assessee is crediting the amounts received from the Government on account of issuance of passes in the year of receipt. The objection raised by the Revenue is that, since the assessee is following mercantile system of accounting, the assessee should offer to tax, reimbursement amount in the year of claim itself. A perusal of the records does not make it clear, whether the assessee is issuing free passes as per the scheme of Department of Social Welfare, Government of Tamil Nadu or Welfare Scheme formulated by its own and is thereafter claiming reimbursement from the Social Welfare Department. The moot point which has to be looked into for including the income in tax net is, 'When does the income crystalises'? In case the assessee is issuing free passes to physically handicapped, freedom fighters etc., under the scheme of Government, the assessee is assured to get the reimbursement of the amount on the issuance of passes itself. In case the claim of the assessee is subject to scrutiny by Social Welfare Department, the income crystalises after the claim of the assessee is approved by the competent authority. The Assessing Officer is directed to look into this issue and thereafter, pass necessary orders in accordance with law.
11 ITA No. 1464/Mds/2014
9. For the reasons recorded above, the appeal of the assessee is partly allowed.
Order pronounced on Friday, the 22nd August, 2014 at Chennai.
Sd/- Sd/-
(ए. मोहन अलंकामणी) ( वकास अव थी)
(A. MOHAN ALANKAMONY) (VIKAS AWASTHY)
लेखा सद य / ACCOUNTANT MEMBER या!यक सद य /JUDICIAL MEMBER
चे#नई/Chennai,
$दनांक/Dated: 22nd August, 2014
TNMM
आदे श क त'ल(प अ)े(षत/Copy to:
1. अपीलाथ /Appellant 2. यथ /Respondent
3. आयकर आय*
ु त (अपील)/CIT(A) 4. आयकर आय*
ु त/CIT
5. (वभागीय त न/ध/DR 6. गाड फाईल/GF