Income Tax Appellate Tribunal - Chennai
Acit, Chennai vs Tamil Nadu Warehousing Corporation ... on 4 January, 2019
आयकर अपील य अ धकरण, 'बी' यायपीठ, चे नई।
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH: CHENNAI
ी एन.आर.एस. गणेशन, या यक सद य एवं
ी इंटूर रामा राव, लेखा सद य के सम'
BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER
आयकर अपील सं./ITA No.367/Chny/2017
नधा(रण वष( /Assessment Year: 2009-10
The Asst. Commissioner of- Vs. M/s.Tamil Nadu-
Income Tax, Warehousing
Corporate Circle-3(1), Corporation Ltd.,
New Block, 4th Floor, No.82, Anna Salai,
121, M.G.Road, Guindy,
Nungambakkam, Chennai-600 032.
Chennai-600 034.
[PAN: AAACT 2474 Q]
(अपीलाथ+/Appellant) (,-यथ+/Respondent)
आयकर अपील सं./ITA Nos.305 & 306/Chny/2017
नधा(रण वष( /Assessment Years: 2009-10 & 2012-13
M/s.Tamil Nadu Warehousing- Vs. The Asst. Commissioner -
Corporation Ltd., of Income Tax,
No.82, Anna Salai, Corporate Circle-3(1),
Guindy, New Block, 4th Floor,
Chennai-600 032. 121, M.G.Road,
Nungambakkam, Chennai-
600 034.
[PAN: AAACT 2474 Q]
(अपीलाथ+/Appellant) (,-यथ+/Respondent)
Department by : Ms.Sri Shanmuga Priya, JCIT
Assessee by : Mr.M.Viswanathan, CA
सुनवाई क/ तार ख/Date of Hearing : 10.12.2018
घोषणा क/ तार ख /Date of Pronouncement : 04.01.2019
ITA No.367/Chny/2017
&
ITA Nos.305 & 306/Chny/2017
:- 2 -:
आदे श / O R D E R
PER INTURI RAMA RAO, ACCOUNTANT MEMBER:
These are appeals filed by the Revenue as well as the assessee company, directed against different Orders of the learned Commissioner of Income Tax (Appeals)-13, Chennai, dated 22.11.2016 for the assessment year 2009-10 & dated 29.11.2016 for the AY 2012-13.
2. At the outset, there is a delay of 4 days in filing of the present appeal. The Revenue has filed a petition for condonation of delay stating that the delay had occurred as the records of the case inadvertently got mixed up with other files. Thus, the Revenue was prevented by sufficient cause for the delay in filing of the appeal has been caused on account of reasons which are beyond the control of the AO. Thus, it is prayed that the delay in filing of the present appeal to be condoned. On the other hand, ld. AR had no objections for condonation of delay. Under these circumstances, we condoned the delay and admitted the appeal.
3. Since the common issues are involved in all these appeals, we proceed to dispose of the same vide this common order.
4. Brief facts of the case are that the appellant is a corporation established under Warehousing Corporation Act, 1962. It is formed for the purpose of construction and letting of godowns and warehouses for storage and processing for facilitating and marketing the commodities. ITA No.367/Chny/2017
& ITA Nos.305 & 306/Chny/2017 :- 3 -:
The return of income for the AY 2009-10 was filed on 30.09.2009 declaring income of Rs.46,07,880/- same was revised on 25.12.2009 at a total income of Rs.46,07,880/- and the same was again revised on 14.09.2010 at a total income of Rs.6,47,672/-. Against the said return of income, the assessment was completed by the Asst. Commissioner of Income Tax, Company Circle-III(I), Chennai, [hereinafter called as 'Assessing Officer' (in short "AO")], vide order dated 16.12.2011 passed u/s.143(3) of the Income Tax Act accepting the returned income.
Subsequently, a notice u/s.148 of the Act dated 03.04.2013 was issued proposing to re-assess the total income by recording the following reasons:
The assessee had provided Rs.3,74,93,000/- towards Pay arrears which was only a contingent liability as on 31.03.2009 as it was materialized only on 01.06.2009 by the Government order ITO 236 Finance (Pay Cell) dated 07.06.2009. In view of the Supreme Court decision in 245 ITR 428 in the case of M/s.Bharat Earth Movers vs. CIT the said expenditure is nor allowable during the year under consideration and not disallowing the same has resulted in the income being under assessed to that extent.
It was noticed that the assessee had made a provision for leave encashment for Rs.1,92,68,602/-, out of which the assessee had not paid Rs.1,44,24,477/- before the due date for filing the return as detailed below:
Provision made for leave encashment Rs.1,92,68,602 Less: Leave encashment paid during the year Rs. 36,29,232 Paid before the due date for filing the return Rs. 12,14,893 Rs. 48,44,125 Amount disallowable u/s.43B of the Act but not disallowed u/s.43B Rs.1,44,24,477/-. Non disallowance of the provision of leave encashment amounting to Rs.1,44,24,477/- has resulted in the income being under assessed to that extent. It also noticed that the tax leviable u/s.115JB is more than the tax leviable under normal provision of the I.T.Act as detailed below which was not considered while completing the assessment:-
Profit as per Profit & Loss account Rs.3,37,50,530
Add: (i) Provision for bad debts Rs. 14,32,305
(ii) Provision for arrears Rs.3,74,93,000
(as it is not ascertainable as on 31.03.2009
and it materializes only on 01.06.2009 as per
G.O.Ms.No.236 Finance (Pay Cell) dated 1.6.2009)
-------------------
Book Profit for Section 115JB Rs. 7 26,75,833
-------------------
ITA No.367/Chny/2017
&
ITA Nos.305 & 306/Chny/2017
:- 4 -:
5. After receipt of the said notice u/s.148, the appellant filed a letter dated 16.04.2010 seeking the reasons for issuance of notice u/s.148 and the AO vide letter dated 14.06.2013 had intimated the reasons to the appellant for issuance of notice u/s.148. The objections were also filed and the same were disposed by the AO and thereafter, the AO had proceeded with framing the Assessment Order after issuing the notice u/s.143(2). While doing so, the AO has made disallowance on account of provision for arrears of salary of Rs.3,74,93,220/-, provision for leave encashment of Rs.1,44,24,677/-, while computing taxable income under normal provisions of Income Tax Act, as well as, while computing the tax liability u/s.115JB on the book profits. The brief facts leading to the above addition is as under:
6. During the course of re-assessment proceedings, the AO found that the provision for leave encashment of Rs.1,92,68,602/- was made, out of which, a sum of Rs.1,56,39,570/- was outstanding as on 31.03.2013. It is further found that out of the outstanding amount as on 31.03.2013, a sum of Rs.12,14,893/- was paid before the due date for filing the return of income, the Assessing Officer was of the opinion that the balance amount of Rs.1,44,24,677/- was not allowable in view of the provisions of Sec.43B(f) of the Income Tax Act, 1961. The AO had not accepted the explanation made by the appellant that the same is allowable in the light of the decision of the Hon'ble Kolkata High Court in the case of Exide ITA No.367/Chny/2017 & ITA Nos.305 & 306/Chny/2017 :- 5 -:
Industries Ltd. & Anr. v. Union of India 292 ITR 470 and the decision of the ITAT in the assessee's own case as the Department filed an appeal in the Hon'ble Supreme Court.
7. As regards to the provision for arrears of salary, it was stated that it was based on the Govt. Order No.236 dated 07.06.2009. Though, the Govt. Order was issued in the year 2009, since the appellant corporation is following mercantile system of accounting, the provision for arrears pertaining to this accounting year relevant to the assessment year under consideration is eligible for deduction. It was submitted before the AO that since the liability is crystallized during the previous year relevant to the assessment year under consideration, the same should be allowed as deduction on the provisions basis since it is not a contingent liability in view of the decision of the Hon'ble Supreme Court in the case of Bharat Earth movers v. CIT 245 ITR 428. This contention was rejected by the Assessing Officer and brought to tax the sum of Rs.3,74,93,220/-.
8. Being aggrieved by the above additions, an appeal was preferred before the Ld.CIT(A). The Ld.CIT(A) confirmed the action of the AO in disallowing the provision for arrears of salary of Rs.3,74,93,220/- on the ground that liability towards arrears of salary had accrued or arisen to the appellant only after issue of Govt. Order in the month of June, 2009, which is beyond the accounting year. As regards, the addition on account of provision for leave encashment, the Ld.CIT(A) granted the relief ITA No.367/Chny/2017 & ITA Nos.305 & 306/Chny/2017 :- 6 -:
following the decision of the Co-ordinate Bench of this Tribunal in the assessee's own case in ITA No.323/Mds/2016 for the AY 2008-09.
9. As regards to addition to the book profits u/s.115JB, the Ld.CIT(A) deleted the addition in respect of the provision for leave encashment.
Thus, the Ld.CIT(A) partly allowed the appeal.
10. Being aggrieved by that part of the order of the Ld.CIT(A) which is against the assessee, the assessee corporation is in appeal in ITA N0.305/Chny/2017. The revenue is in appeal being aggrieved by the directions of the CIT(A) deleting the addition in respect of provision for leave encashment in ITA No.367/Chny/2017.
Assessee's appeal in ITA No.305/Chny/2017 for the AY 2009-10.
11. The assessee raised the following grounds of appeal:
1. The order passed by the Commissioner of Income-Tax, Appeals-13 is contrary to law and against the facts of the case.
2. The appellant Corporation had claimed that the provisions for Arrear of Salary to the extent of Rs.3,74,93,220/- is allowable while computing the income under the "Normal provisions of the Act" as well as under the provisions of Sec.155JB in computing the book profit.
3. In the appeal order, the CIT(A-13) has held that the liability towards arrears of salary is accrued or arisen to the assessee only on passing of the Government order, which is beyond the end of the Financial year and that the liability towards pay arrears arose only in the FY 2009-2010 and not in FY 2008-2009 relevant to the assessment year 2009-2010.
4. The observation of the CIT(A -13) is not fully correct and the CIT(A-13) has failed to appreciate the fact that the Interim amount of pay arrear was announced by the Government of Tamilnadu in the FY 2008-2009 itself and the final announcement is an event though occurred after balance sheet date but information was available on or before the date on which the financial statements were approved. Even as per Accounting Standard followed by the assessee liability provided is justified.
5. It is, therefore, prayed that the Hon'ble ITAT may kindly consider the facts and allow our claim.ITA No.367/Chny/2017
& ITA Nos.305 & 306/Chny/2017 :- 7 -:
12. The only grievance of the appellant in these grounds of appeal relates to the disallowance of provision for pay arrears. The undisputed facts of the case that the provisions towards arrears of salary was made based on the Govt. order dated 07.06.2009 which is beyond the accounting year under consideration. The appellant is a corporate entity and therefore, is bound to follow mercantile system of accounting as mandated under the provisions of the Companies Act, 1956. Under mercantile system of accounting, if the liability for the expenses has arisen in the accounting year, the same should be allowed as an expenditure. In the present case, there is uncertainty as regards to the incurring of the liability, in as much as, there was no approval of the Government for payment of increased wages during the period under consideration. The fact that the Government had approved the increase of salary in the subsequent year is a material fact to determine the whether the liability had accrued or not. The Hon'ble Telangana & AP High Court while dealing with an identical issue in the case of CIT v. KCP Ltd., reported in 409 ITR 436 held that the liability for increased wages did not accrue before the date of the Arbitrator Award. The relevant extracts Para 51 of the judgments are as under:
"The liability to pay tax, under the Income Tax Act, is with respect to amounts received and payments made in the previous year which, under Section 3(1) of the Income-tax Act, refers to a period of 12 months. An assessee that follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed. (Kedarnath Jute Mfg. Co. Ltd.). Under the Income-tax Act, income charged to tax is the income that is received or is deemed to be received in the previous year relevant to the year for which assessment is made or on the income that accrues or arises, or is deemed to accrue or arise during such year. (Godhra Electricity Co. Ltd.). If an income accrues within a particular year, it is liable to be assessed in the succeeding year. (A. Gajapathy Naidu). The scheme of the Income-tax Act is that income-tax is assessed and paid in the next ITA No.367/Chny/2017 & ITA Nos.305 & 306/Chny/2017 :- 8 -:
succeeding year upon the results of the year before. It is the income of the previous year which is brought to tax in the succeeding year, which is called the year of assessment. (C.I.T v. National Syndicate [1961] 41 ITR 225 (SC); [1961] AIR 1961 SC 398 and Indian Iron & Steel Co. Ltd. v. Commissioner of Income-tax) [1943] 11 ITR 328 (PC). The income of the assessee should be determined according to the provisions of the Income-tax Act in consonance with the method of accountancy regularly employed by the assessee. The method of accounting regularly employed by the assessee helps computation of income, profits and gains under Section 28 of the Act, and the taxability of that income under the Income-tax Act must be determined. (State Bank of Travancore15). Entries in the books of accounts are not determinative or conclusive, and the matter should be examined on the touchstone of the provisions contained in the Income-tax Act (Kedarnath Jute Mfg. Co. Ltd.); Tuticorin Alkali Chemicals & Fertilizers Ltd., Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC); [1978] 4 SCC 358; United Commercial Bank v. CIT [1999] 240 ITR 355 (SC); [1999] 8 SCC 338; Taparia Tools Ltd.). The previous year, for which the liability to tax is to be determined, would not undergo a change based on the Accounting Standards issued by the Institute of Chartered Accountant of India".
13. Finally, it held that after referring to various precedents on the subject that since the Arbitrator Award made on 11.07.1983 which is beyond the previous year liability for increase in wages had not accrued during the year under consideration. Similarly, in the present case also the approval for increase in wages was accorded by the government. In the subsequent previous year, it cannot be held that the liability had accrued during the previous year under consideration. Hence, we do not find any merit in the grounds of appeal filed by the assessee.
14. In the result, the appeal filed by the assessee in ITA No.305/Chny/2017 is dismissed.
Revenue's appeal in ITA No.367/Chny/2017 for the AY 2009-10:
15. In the Revenue's appeal, the Revenue raised the following grounds:
1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case.
2.1 The Id.CIT(A) erred in deleting disallowance on claim of provision for leave salary of Rs.1,44,24,677/- ignoring the fact that the payments were not made before the due date of ITA No.367/Chny/2017 & ITA Nos.305 & 306/Chny/2017 :- 9 -:
filing of return of income as per the provisions of section 43B(f) of the Income Tax Act, 1961.
2.2 The learned CIT(A) ought to have followed the later decision of the Hon'ble Chennai Tribunal in the case of M/s.Wardex Pharmaceuticals Limited decided in ITA No.2146 & 2147/Mds/2014, dated 11.9.2015 wherein the Hon'ble Tribunal held that the Hon'ble Courts have no occasion to consider the provisions of section 43B(f) as introduced by Finance Act, 2001 and decided the issue in favour of the Department.
2.3 The ld.CIT(A) erred in not following the decision of the Hon'ble Kerala High Court in the case of M/s.South Indian Bank Limited reported in 45 Taxmann.com 428 as it is the only decision after the stay granted by the Hon'ble Supreme Court on the decision of the Calcutta High Court in the case of M/s. Exide Industries Limited (292 ITR 470)(Pending in SLA (Civil) No. C.C. 12060) wherein the Hon'ble Calcutta High Court questioned the validity of section 43B(f).
3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT (A) may be set aside and that of the Assessing Officer restored.
16. The Revenue is on appeal in ITA No.367/Chny/2017 being aggrieved by directions of learned CIT(Appeals) granting the relief in respect of the addition made on account of the provision for leave encashment of Rs.1,44,24,677/-.
17. The only issue in the present appeal whether the CIT(Appeals) is justified in deleting addition made on account of provision for leave encashment though actually not paid during the previous year relevant to the assessment year under consideration. The provisions of Sec.43B(f) mandates that the expenditure for leave encashment is allowable only on actual payment basis. In the present case, it is undisputed fact that the only provision made towards liability for leave encashment. This issue was considered by the coordinate bench of this tribunal in the case of M/s.Wardex Pharmaceuticals Ltd., in ITA Nos.2146 & 2147/Mds/2014 for the AYs 2007-08 & 2008-09, wherein it was held as under: ITA No.367/Chny/2017
& ITA Nos.305 & 306/Chny/2017 :- 10 -:
4. We have considered the rival submissions on either side and also perused the material available on record. Leave encashment liability was subject matter of adjudication before the Apex Court in Bharat Earth Movers Ltd. (supra). The Apex Court found that the leave encashment liability is not a contingent liability. This judgment of the Apex Court was followed by the Madras High Court in Panasonic Home Appliances (supra). This Tribunal in the case of Indian Overseas Bank (supra), by following the judgment of the Apex Court in Bharat Earth Movers Ltd. (supra) and the judgment of Madras High Court in Panasonic Home Appliances (supra), allowed the claim of the assessee. In fact, the CIT(A) has followed the decision of this Tribunal in Indian Overseas Bank (supra). We find that the Parliament by Finance Act, 2001, with effect from 1.4.2002 introduced sec.43B(f) which reads as follows:
"CERTAIN DEDUCTIONS TO BE ONLY ON ACTUAL PAYMENT 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of--
..............................
(f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him:
Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under subsection (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return:"
5. The Apex Court and the High Court have no occasion to consider the provisions of sec. 43B(f) as introduced by Finance Act, 2001. In view of sec.43B(f)of the Act, this Tribunal is of the considered opinion that the provision for leave encashment cannot be allowed. Accordingly, the order of the CIT(A) is set aside and that of the Assessing Officer is restored.
18. Respectfully, following the decision of the coordinate bench of this tribunal, we reverse the findings of the ld.CIT(A) on this issue and allow the appeal filed by the revenue.
19. In the result, appeal filed by the revenue in ITA No.367/Chny/2017 is allowed.
ITA No.367/Chny/2017
& ITA Nos.305 & 306/Chny/2017 :- 11 -:
Assessee's appeal in ITA N.306/Chny/2017 for the AY 2012-13:
20. The appellant raised the following grounds of appeal:
1. The order of the CIT(A-13) is contrary to law and facts of the case.
2. The appellant Corporation had actually added the provisions for service tax to the extent of Rs.88,56,229/-in the computation statement filed for the assessment year 2008-09.
3. Out of the provisions made, the appellant corporation had paid Rs.18,28,080/- in the FY 2008-09 (relevant to AY 2009-10), Rs.8,48,715/- was paid in the FY 2009-10 (relevant to the assessment year 2010-11) and the corporation had reversed the service tax to the extent of Rs.57,52,050/- in the FY 2010-11 (relevant to the assessment year 2011-12) and credited the same to the Profit and Loss Account and offered for taxation.
4. The CIT(A) has failed to consider the fact that if any amount is reversed in any subsequent years, the same amount cannot be taxed in the year in which the amount is credited to the profit and loss account and that the appellant Corporation could not make such a claim in the respective assessment years merely by oversight.
5. The CIT(A) has also omitted to take into account the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Dinesh Kumar Goel (2011) 197 Taxman 175 (33 ITR 10).
6. For the above grounds and any other grounds that may be adduced at the time of appeal hearing, the claim of the appellant that the said sum of Rs.57,52,050/- being reversal of amount doubly assessed be deleted. Similarly, the balance amount paid Rs.4,63,609/- (Rs.62,15,659 minus Rs.57,52,050) which was paid out of provisions disallowed earlier may kindly be allowed. Thus total amount claimed in the computation to the extent of Rs.62,15,659/- disallowed by AO may kindly be allowed by Hon'ble ITAT.
21. The brief facts of the case are that during the course of the assessment proceedings, the assessee claimed for deduction of Rs.62,15,659/- for payment of Service Tax. It is stated that the appellant disallowed a sum of Rs.88,56,229/- in the AY 2008-09 being the provision for Service Tax but not paid out of which, a sum of Rs.84,28,845/- was paid subsequently as follows:
i. Paid during the Financial year 2008-09 (AY 2009-10) Rs.18,28,080 ii. Paid during the Financial Year 2009-10 (AY 2010-11) Rs. 8,48,715 iii. Reversed during the Financial Year 2011-12 (AY 2011-12) Rs.57,52,050
---------------
Total Rs.84,28,845
---------------
ITA No.367/Chny/2017
&
ITA Nos.305 & 306/Chny/2017
:- 12 -:
22. Out of these payments, a sum of Rs.62,15,659/- was claimed as deduction during the previous year relevant to the assessment year under consideration. It was stated that the claim for deduction of Service Tax in the year of payment could not be made due to oversight.
23. We heard the rival submissions and perused the materials on record.
24. The deduction of Service Tax expenditure is governed by the provisions of Sec.43B of Income Tax Act, which mandates that the Service Tax expenditure is allowable only on actual payment basis, notwithstanding the fact that the liability has accrued during the relevant previous year. In the present case, admittedly the payment of service tax was not made during the previous year relevant to the assessment year under consideration. Hence, the claim cannot be allowed as deduction.
25. In the result, the appeal filed by the assessee in ITA No.306/Chny/2017 is dismissed.
Order pronounced on the 4th January, 2019 in Chennai.
Sd/- Sd/-
(एन.आर.एस. गणेशन) (इंटूर रामा राव)
(N.R.S. GANESAN) (INTURI RAMA RAO)
या यक सद य/JUDICIAL MEMBER लेखा सद य/ACCOUNTANT MEMBER
ITA No.367/Chny/2017
&
ITA Nos.305 & 306/Chny/2017
:- 13 -:
चे नई/Chennai,
3दनांक/Dated: 4th January, 2019.
TLN
आदे श क/ , त4ल5प अ6े5षत/Copy to:
1. अपीलाथ+/Appellant 4. आयकर आयु7त/CIT
2. ,-यथ+/Respondent 5. 5वभागीय , त न ध/DR
3. आयकर आयु7त (अपील)/CIT(A) 6. गाड( फाईल/GF