PARADEEP PHOSPHATES LIMITED,BHUBANESWAR vs. ACIT, CORPORATE CIRCLE-1(2), BHUBANESWAR
What did the Tribunal hold?
The Tribunal held that payments to DAV School were allowable as business expenditure, following a previous precedent. The grounds related to compensation and appreciation of GOI Bonds were dismissed as redundant based on the assessee's submissions.
What were the facts?
The assessee made payments to DAV School for running the school on its plant premises, which the Assessing Officer disallowed under Section 40A(9). The assessee also received compensation for loss on sale of GOI Bonds and had appreciation in the value of GOI Bonds.
What were the issues?
Whether payments made to a school for employees' children are deductible business expenses and the taxability of compensation/appreciation on GOI Bonds.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cases cited in this judgment(2)Show listHide list
Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.
- CIT v. Travancore Cochin Chemicals Ltd.20 citing243 ITR 284 · 2000 · HC
- DCIT v. Gujarat Guardian Ltd.5 citing152 Taxmann 37 · 2006 · HC · Read judgment
Income Tax Appellate Tribunal, CUTTACK BENCH, CUTTACK
Before: S/SHRI N.S SAINI & PAVAN KUMAR GADALE
IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK
BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER
ITA Nos.412 & 413/CTK/2017 Assessment Years : 2012-2013 & 2013-2014
Paradeep Phosphates Vs. ACIT, Corporate Circle 1(2), 5th floor, Limited, Bayan Bhubaneswar Bhawan, Pt Jawaharlal Nehru Marg, Bhubaneswar. PAN/GIR No.AABCP 3276 D (Appellant) .. ( Respondent)
Assessee by : Shri A.K.Sabat, AR Revenue by : Shri A.K.Mohapatra, CIT DR
Date of Hearing : 29/08/ 2018 Date of Pronouncement : /08/ 2018
O R D E R Per N.S.Saini, AM These are appeals filed by the assessee against the separate
orders of the CIT(A)-1, Bhubaneswar both dated 18.7.2017 for
the assessment years 2012-13 & 2013-14.
Ground No.1 of appeal of both the appeals is general in
nature and hence, requires no separate adjudication by us.
In Ground No.2 of appeal of both the assessment years, the
grievance of the assessee is that the CIT(A) erred in confirming
P a g e 1 | 7 the disallowance of Rs.2,18,90,457/- for the assessment year
2012-13 and Rs.2,39,28,791/- for the assessment year 2013-14.
The brief facts of the case are that the Assessing Officer
disallowed Rs.2,18,90,457/- for the assessment year 2012-13 and
Rs.2,39,28,791/- for the assessment year 2013-14 u/s.40A(9) of
the Act being amount paid to DAV School 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/trust 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 disallowed the same for
both the assessment years.
On appeal, the CIT(A) confirmed the disallowance made by
the Assessing Officer.
Before us, ld A.R. of the assessee submitted that this issue
is covered by the decision of this Bench of the Tribunal in ITA
No.264/CTK/2015 for the assessment year 2010-2011 order dated
4.8.2017.
P a g e 2 | 7
Ld D.R. could not controvert the above submission of ld A.R.
of the assessee.
After considering the rival submissions and perusing the
orders of lower authorities, we find that similar disallowance was
made by the authorities below in the assessment year 2010-2011
and this Bench of the Tribunal has deleted the disallowance made
u/s.40A(9) of the Act. The relevant discussion in the said decision
read as under:
“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 following 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. Further, ld A.R. relied on the decision of Hon’ble 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 school’s proportionate expenditure on the ground that the same was allowable under section 40A(10) and section 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
P a g e 3 | 7 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 assessee’s claim on the ground the said contribution was for business purposes. On further appeal, Hon’ble High Court held that the 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 40A(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 business 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.
Ld D.R. though relied on the orders of lower authorities but could not cited any contrary decisions before us.
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 Hon’ble Kerala High Court in the case of 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.”
Facts being similar in the assessment years under
consideration, respectfully following the precedent, we set aside
the orders of lower authorities and delete the disallowance
Rs.2,18,90,457/- for the assessment year 2012-13 and
Rs.2,39,28,791/- for the assessment year 2013-14 and allow the
ground of appeal of the assessee.
P a g e 4 | 7
In Ground No.3 of appeal for the assessment year
2012-13, the grievance of the assessee is that the CIT(A) erred in
confirming the disallowance made for non-deduction of
compensation received from Government of India towards loss on
sale of GOI Bond of Rs.25,49,21,000/-
Before us, ld A.R. of the assessee submitted that the
assessee has claimed ‘diminution in the value of GOI Bonds’ as
allowable expenses in earlier years. Hence, when Government of
India gave compensation of Rs.25.49 crores @ 50% of loss
incurred by the assessee, the same amount was offered for
taxation as an income in the return of income. Since the
department disallowed the claim of the assessee for the earlier
assessment years, the assessee claimed before the Assessing
officer not to consider Rs.25.49 crores as income being
compensation @ 50% against losses in diminution received from
GOI since it would tantamount to double taxation by way of
disallowing 100% of ‘diminution’ in earlier assessment years and
with further taxing 50% compensation received from GOI against
losses and making the same as taxable income. Ld A.R.
submitted that the ITAT, Cuttack has allowed the diminution in
value of GOI Bonds as allowable expenditure/loss vide order dated
27.4.2018 in ITA No.560/CTK/2013 & ITA No.02/CTK/2013
P a g e 5 | 7 (Asst.Year 2009-2010), the compensation of Rs.25.49 crores
received will be taxable as already offered by PPL in return of
income and, accordingly, the ground becomes redundant.
In view of the above submission of ld A.R of the
assessee, we dismiss the ground of the appeal of the assessee.
In Ground No.3 of appeal for the assessment year
2013-14, the grievance of the assessee is that the CIT(A)erred in
not allowing non-deduction of gain on account of appreciation in
valuation of GOI Bonds of Rs.21,24,60,000/-.
Before us, ld A.R. submitted that in the past
assessment years ‘diminution in value of GOI Bonds’ claimed as
loss by PPL were not allowed. In view of above, appreciation in
value of GOI Bonds of Rs.21,24,60,000/- offered by the assessee
as taxable income in return of income ought not to be taxable and
the authorities below should have considered such issue suo-
motto as consequential issue (due to disallowances made by them
earlier). He submitted that that this Bench of the Tribunal has
allowed the ‘diminution in value of GOI Bonds as loss/allowable
expenditure vide its order dated 27.4.2018 in ITA
No.560/CTK/2013 and ITA No.02/CTK/2013 (Asst.Year 2009-
2010), such appreciation/gain in value of GOI Bonds becomes
taxable as rightly offered in the return of income by the assessee.
P a g e 6 | 7 Hence, the ground becomes redundant.
In view of the above submission of ld A.R of the
assessee, we dismiss the ground of the appeal of the assessee.
In the result, appeals filed by the assessee are partly
allowed.
Order pronounced on 29/08/2018. Sd/- sd/- (Pavan Kumar Gadale) (N.S Saini) JUDICIALMEMBER ACCOUNTANT MEMBER Cuttack; Dated 29 /08/2018 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : PPl, Bhubaneswar
The Respondent. ACIT, Corporate Circle, Bhubaneswar. 3. The CIT(A)-1, Bhubaneswar 4. Pr.CIT-1, Bhubaneswar 5. DR, ITAT, Cuttack 6. Guard file. By order //True Copy//
Sr. Pvt. Secretary, ITAT, Cuttack
P a g e 7 | 7
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