PRINCIPAL COMMISSIONER JAIPUR-II JAIPUR vs. M/S RAJ STATE SEED CORP LTD

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR. D.B. Income Tax Appeal No.136/2016 Principal Commissioner of Income Tax, Jaipur-II, Jaipur Vs. M/s Rajasthan State Seed Corporation Ltd. DATE OF JUDGMENT ::: 8th September, 2016 HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE BANWARI LAL SHARMA Mr. Nikhil Simlote, for the appellant. ***** (1) By way of this appeal, the Department has challenged the judgment & order of the Income Tax Appellate Tribunal dismissing the appeal preferred by the Department, confirming the order of the CIT (Appeals). (2) This court while admitting the appeal framed following substantial questions of law:- “1. Whether in the facts and circumstances of the case, the Tribunal was justified in deleting disallowance of prior period expenses of Rs.252468/- made by the Assessing Officer even when it was not in accordance with the accounting policies followed by the assessee. 2. Whether in the facts and circumstances of the case, the Tribunal was justified in allowing deduction for the contribution of Rs.4731494/- made to an unapproved Gratuity Fund. 3. Whether in the facts and circumstances of the case, the Tribunal was justified in holding contribution of Rs.1516912/- to State Renewal Fund as an allowable expenditure though it is not an actual expenditure.”

2 (3) Identical controversy came up for consideration before this court in D.B. Income Tax Appeal No.4/2016 (Principal Commissioner of Income Tax Vs. M/s Rajasthan State Seed Corporation Ltd.) decided on 29.4.2016, wherein it was held in para nos.7,8 & 9 as under:- “7. Insofar as the prior period expenses is concerned a finding of fact has been recorded by the Appellate Authorities that approval for payment of the said expenditure was given during the year under appeal therefore the liability crystallized during the year and similar method was being regularly followed by the assessee consistently and when there is a finding recorded by the Appellate Authorities that the expenditure crystallized during the year, was written in the books this year and on year to year basis was claimed in the same manner and fashion was rightly claimed and allowed during the year, is a finding of fact. 8. Insofar as disallowance of claim of Rs. 19282605/- is concerned, admittedly, the assessee-respondent has claimed to have applied for according approval of Group Gratuity Scheme to the concerned Commissioner on 31st March, 1981. Once the assessee files an application for approval of the scheme, it was for the Commissioner to have taken recourse of disposing of the said application either to approve or to reject the same. The same having not been done for the last more than almost 25 years, the assessee could not have been blamed for the same. There is no denial by the AO that application for approval has not been filed by the assessee on 31.3.1981. Even the Assessing Officer admits that the application for approval was submitted on 31st March, 1981 and both the Appellate Authorities have come to a definite finding of fact that once an application has been moved for approval and

3 having not been rejected then the claim could not have been disallowed or the claim could not have been rejected merely because the Commissioner did not accord approval of the same. The assessee cannot be made to suffer for inaction of the revenue, admittedly the respondent-assessee is a Government of Rajasthan Undertaking or even otherwise the Commissioner ought not have slept over the application for approval for more than 25 years. The Appellate Authorities are well justified in coming to the said conclusion. Needless to mention that a finding has been given by the Tribunal that the amounts are being disallowed by the learned AO from year to year at least from the assessment year 1996-97 i.e. almost 20 years but is being allowed regularly in appeal therefore, for this reason also we reject the claim of the revenue. The Assessing Officer ought not have made a repeated addition merely for this purpose and a litigation of this nature ought not to have come before this court as appeals all throughout is being allowed year after year. On the one hand the revenue does not decide the application for approval and the amount is being disallowed by the Assessing Officer from year to year which is not at all justified. The Revenue is well advised

not

make

repetitive additions/disallowance for this purpose and expose its weakness before the Courts as on the one hand application for according approval has not been granted and for inaction of Commissioner amounts are disallowed and to incur wasteful public money either way as at least the respondent has also to incur public money to defend its case being a Government of Rajasthan Undertaking in filing repetitive appeals though succeeding year after year. Merely because the tax effect is more than what is prescribed in the Circulars be it old or the latest being in December 2015 is no ground to file such appeals, we though were inclined to levy cost on the Revenue but stop ourselves in doing the same to make it clear to the Revenue to be more careful in future that such kind of

4 litigation deserves to be avoided as the Courts are choked with such frivolous litigation and is not able to concentrate on other important issues. 9. Insofar as the expenditure incurred on State Renewal Fund is concerned, said expenditure also goes to show that the renewal fund was set up by the State Government and was created with the object of providing a safety net for the workers likely to be effected by restricting in the State Public Enterprise and that a finding of fact has been recorded that the contribution made to the State Renewal fund is solely for the purposes of the welfare and benefit of the employees. In our view, it is for the assessee to decide whether any expenditure should be incurred in the course of business and expenditure of this nature being for business expediency is certainly allowable deduction under Section 37(1) of the Act. In our view any normal expenditure for the welfare and benefit of employees is allowable expenditure under Section 37(1), the Tribunal has come to a finding of fact that it was a legal obligation of

the

respondent-assessee

towards contribution of the said amount to the State Renewal Fund and there being a legal obligation as well in our view the Tribunal has come to a correct conclusion. (4) In view of the order, the appeal is liable to be dismissed. The view taken by CIT (Appeals) & Tribunal is required to be affirmed. Therefore, we answer the question raised in the present appeal in favour of the assessee and against the Department. (Banwari Lal Sharma), J. (K.S. Jhaveri), J. Brijesh9.