M/S. INDITRADE CAPITAL LIMITED vs. COMMISSIONER OF INCOME TAX

ITA No.1 of 2017 1 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 15TH DAY OF MARCH 2021 / 24TH PHALGUNA, 1942 ITA.No.01 OF 2017 AGAINST THE ORDER/JUDGMENT IN ITA 211/2015 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT: M/S. INDITRADE CAPITAL LIMITED XXXVI-202, JJ COMPLEX, DAIRY METHANAM ROAD, EDAPALLY, KOCHI-682024 REPRESENTED BY ITS SR.MANAGER-ACCOUNTS & AUTHORISED SIGNATORY BIJU S. BY ADV. SRI.JOSE JACOB RESPONDENT: COMMISSIONER OF INCOME TAX WARD-I(1), IS PRESS ROAD, KOCHI-682 018 R1 BY SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) R1 BY ADV. SRI.P.K.R.MENON SR.COUNSEL GOI TAXES R1 BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 15.03.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

JUDGMENT Dated this the 15th day of March 2021 S.V.BHATTI,J. Heard learned Adv.Jose Jacob for petitioner and learned Senior Advocate Sri.PKR Menon for respondent. 2. Assessee is the appellant. The subject appeal deals with returns filed by the assessee for the assessment year 2009-10. The Income Tax Officer through assessment order dated 29.11.2011 in Annexure-A rejected the claim of assessee under Sec.40A(7) of the Income Tax Act; disallowed the deposit of gratuity made with a non- notified institution and recorded that the assessee failed to establish the correctness of reconciled entries resulting in payment of money to the customers of the assessee. 3. The assessee was doing business of stock brokering and financial services. The first controversy, for our consideration, relates to the assessee depositing gratuity with unauthorized agency, said deposit, admittedly, was made before the return was filed by the assessee for the subject assessment year. The other controversy is

ITA No.1 of 2017 3 disallowance of payment of Rs.2,11,115/- by assessee to customers towards settlement of outstanding amount due to customer. The outstanding is stated by the assessee as resulting primarily on account of clerical errors and corrected upon reconciliation of entries between the parties. The provisions of law which have bearing are excerpted before hand. 3.1 Sec.40A(7) of the Income Tax Act reads thus: “7(a) Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. (b) Nothing in clause (a) shall apply in relation to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year.” Section 43B reads thus: “”Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- (a) any sum payable by the assessee by way of tax, duty, cess or fee by whatever name called, under any law for the time being in force or

ITA No.1 of 2017 4 (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees or (c) any sum referred to in clause (ii) of sub-section (1) of section 36 or (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State financial corporation or a State industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing, or (da) any sum payable by the assessee as interest on any loan or borrowing from a deposit taking non-banking financial company or systemically important non-deposit taking non-banking financial company, in accordance with the terms and conditions of the agreement governing such loan or borrowing, or (e) any sum payable by the assessee as interest on any loan or advances from a scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank in accordance with the terms and conditions of the agreement governing such loan or advances, or (f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, or (g) any sum payable by the assessee to the Indian Railways for the use of railway assets, 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 sub-section (1) of section 139 in respect of the

ITA No.1 of 2017 5 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.” 4. According to Adv.Jose Jacob, the assessee had, admittedly, paid the gratuity amount before the return was filed. The assesssee, hence, is entitled to the benefit provided by Sec.43B of the Act and this aspect arising under section 43(B) has not been considered by all the three authorities. Assuming for argument sake that the amount paid or deposited towards gratuity is not in the financial year 2009- 10 and also not with a notified authority, still under Sec.43B the amount so deposited or paid before the actual filing of the income tax return ought to be given deduction while determining the net taxable income. The assessee, therefore, is entitled to deduction of gratuity from income deposited. The finding in this behalf is completely erroneous and ignored the statutory benefit available to an assessee. He further argued that the disallowing payments made by the assessee to its customers is equally fallacious, for, upon

ITA No.1 of 2017 6 considering the nature of trade in which the assessee is involved, reconciliation of sale amount with payment made by the assessee are always verifiable details and should have been examined by keeping in perspective trade practice and held in favour of assessee. 5. Senior Advocate Sri.PKR Menon argues that the assessee did not claim benefit under Sec.43B of Income Tax Act. The absence of a finding under Sec.43B by the authorities under the Act ought to be taken note by this Court. Further such a plea ought not to be entertained for the first time in this appeal. He alternatively argues that the orders under appeal since do not refer to Sec. 43B of Income Tax Act, this Court instead of deciding primary facts, however to meet the ends of justice, remits the matter to the Assessment Officer for consideration and disposal afresh. The disallowance of payment made to assessee's customers is for valid reasons, and grounds canvassed are not within the scope of interference by this Court. 6. We have perused the records and appreciate the

ITA No.1 of 2017 7 grounds raised by the assessee, particularly, regarding non- consideration of Sec.43B of the Act while determining the consequence of deposit of gratuity before the return is filed. 7. The dates and circumstances leading to the orders under appeal are not in dispute. On a reading of orders under appeal, we are convinced to record a conclusion that the case of assessee has not been considered under Sec.43B of the Act. In our view, the respondents should have appreciated the scheme of Sec.40(A), read with Sec.43B and if a case is made out, extended available relief to the assessee. The findings recorded are substantially in favour of the Department, however, by not taking note of Sec.43B of the Income Tax Act. Hence, to meet the ends of justice, we are convinced that the orders under appeal are held as unsustainable for not having taken note of the provision of law which has bearing on the issue on hand and matter decided afresh. The issue relating to settlement of claims of assessee's customer needs to be verified from admissible records/documents. For the present, the findings recorded

ITA No.1 of 2017 8 are unsustainable. The case of department is not that the reconciliation relied on by the assessee is illegal or unsustainable but that reconciliation is not correctly proved. The assessee claims to have reconciled the accounts of all customers and finally transferred the amount payable by the assessee to its customers. We are of the view that the issues are not considered in accordance with the Act, particularly, by adverting to Sec.43B of the Act. We are in agreement with the alternative argument of learned Senior Advocate and remit the matter to Income Tax Officer for consideration and disposal in accordance with law. Appeal is allowed, matter remitted to Income Tax Officer. Sd/- S.V.BHATTI JUDGE Sd/- BECHU KURIAN THOMAS JUDGE JS

ITA No.1 of 2017 9 APPENDIX PETITIONER'S/S EXHIBITS: ANNEXURE A THE TRUE COPY OF THE ASSESSMENT ORDER ISSUED BY THE INCOME TAX OFFICER, WARD 1(1), KOCHI FOR THE AY 2009-10 ANNEXURE B THE TRUE COPY OF THE CIT(A) ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS-I, KOCHI FOR THE AY-2009- 10 ANNEXURE C THE TRUE COPY OF THE ITAT ORDER ISSUED BY THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN FOR AY 2009-10