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Income Tax Appellate Tribunal, “D”, BENCH KOLKATA
Before: SHRI S. S. GODARA, JM & DR. A.L.SAINI, AM
आदेश / O R D E R Per Dr. Arjun Lal Saini, AM: The Revenue`s Appeal in ITA No.2305/Kol/2017, for A.Y. 2011-12 and Cross objection No.25/Kol/2018, for A.Y.2011-12, (Arising out of ITA No. 2305 /Kol/2017),filed by assessee, are directed against an order dated 08.08.2017, passed by the Commissioner of Income Tax (Appeals)-1, Kolkata. Assessee’s appeal in ITA No.2318/Kol/2016, for A.Y.2008-09 is directed against an order passed by the Commissioner of Income Tax (Appeals)-1, Kolkata.
Since the appeals filed by the Revenue and Assessee relate to same assessee, and identical issues are involved, therefore, these have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.
At the outset itself, the ld. Counsel for the assessee filed an affidavit for condonation of delay of 25 days in filing the Cross-Objection. We heard both the parties on this primarily issue and having regard to the reasons given in the affidavit and after hearing the ld. DR for the Revenue, we condone the delay and admit the Cross-objection for hearing.
The grievances raised by the Revenue in ITA No.2305/Kol/2017, for A.Y.2011-12, are as follows:
“1.Whether on the facts & in the circumstances of the case and in law, the Ld.CIT(A) was justified in allowing a claim of Rs.3,28,00,000/-, disregarding the fact that there had been no claim made by the Assessee in its return of income? 2. Whether on the facts & in the circumstances of the case and in law, the Ld.CIT(A) was justified in ignoring the relevant judgement of the Hon’ble Supreme Court case in Goetze (India) Ltd. (2006) 157 Taxmann 1(SC)? 3. That it is prayed to set aside the order passed by the Ld. CIT(A)- 1 and restore the assessment order passed by the Assessing Officer in this case.
3 The Jute Corporation of India Ltd. I T A N o . 2 3 0 5 / K o l / 2 0 1 7 C . O N o . 2 5 / K o l / 2 0 1 8 A s s e s s m e n t Y e a r : 2 0 1 1 - 1 2 I T A N o . 2 3 1 8 / K o l / 2 0 1 6 - Fo r A . Y. 2 0 0 8 - 0 9 4. Department craves leave to add, alter or modify any or all of the above grounds of appeal at or before the time of hearing of the appeal.”
The grievances raised by the assessee in his Cross-objection No.25/Kol/2018 reads as under:
“1. For that, the Income tax Officer, Ward 1(3)/Kol, (Assessing Officer) has erred in making addition of Rs.11,71,051/- as excess provision to gratuity without considering the fact that amount provided towards liability for gratuity was ascertained liability as per actuarial valuation, for the year which corporation would have to accounted for & also is obliged to pay such mandatory liability towards gratuity payment. Hence such addition by Assessing Officer is bad in law, unjustified and require to be deleted. 2. For that the Assessing Officer has erred in making addition of Rs.1,59,92,567/- as excess provision of leave encashment benefits, without considering the fact that, the amount provided as per actuarial valuation, towards liability for leave encashment benefits to retired employees to satisfy the requirement of law and which is mandatory, Such provision for the year was ascertained liability towards corporations’ obligation for such payments. So wrong illegal and unjustified addition may be deleted. 3. For that, as per nature of trade the corporation dealing in Raw Jute, entails certain losses in respect of weight loss and quality loss with elapses of time between the packing and delivery. As a general accounting principles and following norms such loss are accounted for as liability. Addition of Rs.5,70,410/- made by the Assessing Officer for booking such liability treating the same as provision for such losses is not justified as such loss is inevitable to the corporation and if not allowed to deviate from general principle of business. Hence such addition made by Assessing Officer may be deleted. 4. For that the interest income of Rs.66,67,569/- added by Assessing Officer to assessment is interest earned from investment of “project fund” wherein corporation is an implementing agency, received from Govt. corporation does not hold any proprietary to such fund nor does it claim any expenditure related to implementation of such project. Interest income from investment of project fund was utilized to recoup the deficit in project budget on capital account such interest is not an income of the corporation, as after the project is over, the corporation is obliged to refund the excess money to Govt. so such addition made by Assessing Officer does not hold good considering the nature of business involved to the transaction and is arbitrary in nature, not as per law and unjustified and hence may be deleted. 5. Disallowance of Rs.3,28,00,000/- towards payment to LICI during the year for contribution to approved gratuity fund to discharge earlier liability is not justified. The corporation had to pay tax in earlier Assessment Year
4 The Jute Corporation of India Ltd. I T A N o . 2 3 0 5 / K o l / 2 0 1 7 C . O N o . 2 5 / K o l / 2 0 1 8 A s s e s s m e n t Y e a r : 2 0 1 1 - 1 2 I T A N o . 2 3 1 8 / K o l / 2 0 1 6 - Fo r A . Y. 2 0 0 8 - 0 9 2008-09 as the same was disallowed and taxed by Assessing Officer treating that as excess provision towards gratuity liability. Thus, such action of Assessing Officer has resulted in deviation from allowing the claim as per provision u/s 43(b) on payment basis. Reference to decision of Goetze (India) Ltd. does not hold good in instant case as the assessee is not claiming any additional relief for the expenditure incurred by it but only submitting to allow the same as per provision u/s 43(b) of I.T. Act. In course of assessment proceedings, Assessing Officer was given reference of several judicial decisions in such matter, but Assessing Officer has quoted above reference only, which is bad in law, unjustified. Hence, the same may be deleted. 6. For that the penalty proceedings initiated by Assessing Officer u/s 271(1)(c) on grounds of appeal (1), (2) & (4) does not hold good as there was no such suppressing of income made by corporation to the returned income/loss and additions are made arbitrarily which is bad in law and hence this section does not be applicable and the same to be withdrawn. 7. For that the assessee craves leave to add, supplement, modify and delete etc any other points in the course of appeal proceedings.”
The solitary grievance raised by the Revenue in ITA No.2305/Kol/2017, for A.Y.2011-12, is that the Ld. CIT(A) was not justified in allowing a claim of Rs.3,28,00,000/-, disregarding the fact that there had been no claim made by the Assessee in its return of income. On the same issue, the assessee is in cross objection before us, Vide cross objection No.5 raised by the assessee.
The brief facts qua the issue are that during the assessment proceedings the assessee has filed a submission regarding allowance of arrear gratuity payment to tune of Rs. 3,28,00,000/- paid to Life Insurance Corporation of India, (LIC) during the previous year 2010-11. The assessee did not claim these allowance in its return of income and even it did not file any revise return to that effect. Therefore, ld CIT(A) directed the assessing officer to allow the assessee’s claim for amount of Rs. 3,28,00,000/- paid to LIC during the F.Y. 2010-11 claimed as deduction u/s 43B on actual payment basis after due verification.
Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has allowed the assessee`s appeal holding that an amount of Rs. 3,28,00,000/- paid to LIC during
5 The Jute Corporation of India Ltd. I T A N o . 2 3 0 5 / K o l / 2 0 1 7 C . O N o . 2 5 / K o l / 2 0 1 8 A s s e s s m e n t Y e a r : 2 0 1 1 - 1 2 I T A N o . 2 3 1 8 / K o l / 2 0 1 6 - Fo r A . Y. 2 0 0 8 - 0 9 the F.Y. 2010-11 relevant to the A.Y. 2011-12 under consideration against the provision for gratuity disallowed in previous A.Y. 2008-09 was allowable as expenditure on payment basis. Therefore, ld CIT(A) directed the AO to allow the assessee’s claim for amount of Rs. 3,28,00,000/- paid to LIC during the F.Y. 2010-11, claimed as deduction u/s 43B of the Act on actual payment basis after due verification.
Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us and assessee is in Cross-objection before us.
The ld. Counsel for the assessee has submitted before us that the ground taken by the Department is not justified and defeating the provision of section 43B of the I T Act. The payment of contribution to gratuity fund is covered u/s 43B of the Act, and such payment was made in respect of contribution to Gratuity fund in A.Y. 2011-2012, which was disallowed in the Assessment year 2008- 2009 by AO.
On the other hand, the ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and is not being repeated for the sake of brevity.
We have given a careful consideration to the rival submissions and perused the materials available on record, we note that the ground raised by the assessee, i.e. claim for allowance of expenditure incurred in respect of arrear gratuity payment of Rs.3,28,00,000/- paid to LIC during the F.Y. 2010-11 has been raised as one of the grounds of appeal and is found to arise out of the order of the Assessing Officer, as it was also raised during the course of assessment proceedings, by the assessee by submitting a letter before him. We note that an amount of Rs.5,53,82,693/- was disallowed by AO during Assessment year 2008- 09, as excess provision debited to the Profit and Loss account for contribution to approved gratuity fund. Out of such disallowed provision an amount of Rs.3,28,00,000/- was claimed during the year AY 2011-12 on payment basis, which AO has not allowed as the same was not claimed through original return of income or through revise return, though during assessment proceedings same was
6 The Jute Corporation of India Ltd. I T A N o . 2 3 0 5 / K o l / 2 0 1 7 C . O N o . 2 5 / K o l / 2 0 1 8 A s s e s s m e n t Y e a r : 2 0 1 1 - 1 2 I T A N o . 2 3 1 8 / K o l / 2 0 1 6 - Fo r A . Y. 2 0 0 8 - 0 9 claimed through appropriate representation and necessary proofs for actual payment was placed before AO.
We note that assessee`s claim should be allowed, in terms of provisions of section 43B of the Act, on actual payment basis, as the same was paid during year. The sum of Rs.3,28,00,000/- was paid to LICI for contribution to Approved Gratuity Fund to discharge its liability which was earlier disallowed and taxed by the AO. However, on appeal by the assessee, the ld. CIT(A) has considered the issue. We note that section 250(5) of the Act empowers the CIT(A) to admit such additional grounds/evidences at his discretion which has to be exercised judiciously provided he is satisfied that omission to include the issue in the original appeal was not willful or unreasonable or that such ground could not have been raised earlier for good reasons. Further, the primary facts relating to the issue should be available on record, if the relevant facts are not available on record, the issue cannot be taken in the form of additional ground, vide judgment of Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT 229 ITR 353 (SC) wherein it was held that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. The Supreme Court further observed that there may be several grounds justifying the raising of new plea in an appeal and each case has to be considered on its own facts. The CIT(A) must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. Therefore, we note that ground raised by the assessee, that is, claim for allowance of expenditure incurred in respect of arrear gratuity payment of Rs.3,28,00,000/- paid to LIC during the F.Y. 2010-11 has been raised as one of the grounds of appeal and is found to arise out of the order of the Assessing Officer, as it was also raised by the assessee, during the course of assessment proceedings.
We note that this issue pertains to disallowance of provision in respect of gratuity disallowed by the A.O in A.Y 20O8-09 , against which an amount of arrear gratuity payment of Rs.3,28,00,000/- paid to LIC during the F.Y. 2010-11 . We note that the liability for the impugned amount of arrear gratuity of
7 The Jute Corporation of India Ltd. I T A N o . 2 3 0 5 / K o l / 2 0 1 7 C . O N o . 2 5 / K o l / 2 0 1 8 A s s e s s m e n t Y e a r : 2 0 1 1 - 1 2 I T A N o . 2 3 1 8 / K o l / 2 0 1 6 - Fo r A . Y. 2 0 0 8 - 0 9 Rs.3,28,00,000/- had arisen and was part of the provision for an amount of Rs.5,53,82,693/- was disallowed by A,O during Assessment year 2008-09, as excess provision debited to the Profit & Loss account. Therefore, based on these facts an amount of Rs.3,28,00,000/- paid to LIC during the F.Y. 2010-11 relevant to the A.Y. 2011-12, under consideration against the provision for gratuity disallowed in previous A.Y. 2008-09 is allowable as expenditure on payment basis.
Considering these facts and circumstances, we direct the A.O. to allow the assessee’s claim for amount of Rs. 3,28,00,000/- paid to LIC during the F.Y. 2010-11, claimed as deduction u/s 43B of the Act, on actual payment basis, after due verification. Hence, statistical purposes the ground raised by the Revenue and cross objection raised by the assessee are allowed. That being so, we decline to interfere in the order passed by the ld CIT(A), his order on this issue is hereby upheld and the grounds raised by the Revenue is dismissed.
The cross objection No.1 raised by the assessee reads as under: “1. For that, the Income tax Officer, Ward 1(3)/Kol, (Assessing Officer) has erred in making addition of Rs.11,71,051/- as excess provision to gratuity without considering the fact that amount provided towards liability for gratuity was ascertained liability as per actuarial valuation, for the year which corporation would have to accounted for & also is obliged to pay such mandatory liability towards gratuity payment. Hence such addition by Assessing Officer is bad in law, unjustified and require to be deleted.
We note that Cross-objection No.1 raised by the assessee relates to addition of Rs.11,71,051/- on account of excess provision to gratuity. We have heard both the parties on this issue and note that assessee has submitted a written submission before the ld. CIT(A) stating that assessee had made provision of Rs.11,71,051/- for accrued gratuity liability based on actuarial valuation towards liability. The ld. CIT(A) has allowed the claim of the assessee observing the following: “The appellant's A.R. has contended through the written submission that during the relevant F.Y. 2010-11, it had provided an amount of Rs. 11,71,051/- for accrued gratuity liability based on actuarial valuation towards liability. It was also argued that the A.O. had disallowed the amount of Rs.11,71,051/- which was provided based on actuarial valuation allowable Under Section 37(1) of the Act. On careful consideration of the
8 The Jute Corporation of India Ltd. I T A N o . 2 3 0 5 / K o l / 2 0 1 7 C . O N o . 2 5 / K o l / 2 0 1 8 A s s e s s m e n t Y e a r : 2 0 1 1 - 1 2 I T A N o . 2 3 1 8 / K o l / 2 0 1 6 - Fo r A . Y. 2 0 0 8 - 0 9 submission, it is observed that there is substance of the appellant's contention as the provision of Rs.11,71,051/- is found to be based upon actuarial valuation relevant certificate evidencing the same was submitted by the A.R. In view of the fact that the provision for Rs. 11,71,051/- was admittedly based on actuarial valuation, and the liability had crystallized and was claimed on due basis. Therefore, the said provision being an ascertained liability is held to be an allowable expenditure Under Section 37(1) of the I.T. Act, 1961. Accordingly, the A.O. is directed to delete the addition of Rs. 11,71,051/-. This ground is allowed.”
We find the aforesaid conclusion of the CIT(A) reasonable, therefore, we do not interfere in the order passed by the ld CIT(A), his order on this issue is hereby approved.
The cross objection No.2 raised by the assessee reads as under: “2.For that the Assessing Officer has erred in making addition of Rs.1,59,92,567/- as excess provision of leave encashment benefits, without considering the fact that, the amount provided as per actuarial valuation, towards liability for leave encashment benefits to retired employees to satisfy the requirement of law and which is mandatory, Such provision for the year was ascertained liability towards corporations’ obligation for such payments. So wrong illegal and unjustified addition may be deleted.”
We note that cross objection No.2 raised by the assessee relates to addition of Rs.1,59,92,567/- on account of excess provision of leave encashment benefits. We have heard both the parties, perused the materials available on record. We note that Assessing Officer observed that an amount of Rs.1,59,92,567/- was claimed as excess provision for leave encashment, which was not paid within time limit u/s 139(1) of the Act, therefore, the Assessing Officer disallowed the claim of the assessee stating that the said amount is liable to be disallowed u/s 43B(f) of the Act. We note that the assessee claimed the said amount of Rs. 1,59,92,567/- in its profit & loss account towards sum payable by the employer in lieu of leave at the credit of employee computed based on actuarial valuation, as per details submitted before the Assessing Officer. The assessee has relied upon the judgment of jurisdictional High Court, Calcutta in the case of Exide Industries vs. Union of India [292 ITR 470 (Cal)]. Relying upon the said judgment rendered by the Hon’ble Jurisdictional High Court, the assessee did not consider the
9 The Jute Corporation of India Ltd. I T A N o . 2 3 0 5 / K o l / 2 0 1 7 C . O N o . 2 5 / K o l / 2 0 1 8 A s s e s s m e n t Y e a r : 2 0 1 1 - 1 2 I T A N o . 2 3 1 8 / K o l / 2 0 1 6 - Fo r A . Y. 2 0 0 8 - 0 9 aforesaid amount of leave encashment to be covered within the purview of the provision of section 43B of the Act while computing the income of the company under the provision of the Act. We note that assessee’s contention is that its claim was based on actuarial valuation. We note that Clause (f) of section 43B provides that any sum payable by the assessee as an employer in lieu of any leave at the credit of his employees 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. In other words, deduction for leave encashment is to be allowed on actual payment and not on the basis of provision. Therefore, even if provision for leave encashment may not be considered as unascertained liability, the same is not allowable in the light of the provision of section 43B(f) of the Act. We note that Hon’ble Calcutta High Court has struck down provision of section 43B(f) while deciding the case of Exide Industries vs. Union of India (supra). However, the Revenue filed SLP against this order before the Hon’ble Supreme Court. The Hon’ble Supreme Court in the case of CIT vs. Exide Industries Ltd. in SLP(Civil) CC.12060/2008, during hearing on 08.09.2008 gave the following order: “Upon hearing counsel the Court made the following order, Issue notice, in the meantime, there shall be stay of the impugned judgment, until further orders.”
Although generally speaking, it is true, that stay of an order of lower court affects only the parties of the concerned suit and the stay does not necessarily mean that ratio of the order of lower court does not remain in force. However, the issue under consideration in the case of Exide Industries Ltd. (supra) was the very legality of section 43B(f) of the Act. Therefore, the stay of Hon'ble High Court order has wider ramification and its scope is not limited only to the parties to the suit. Therefore, the order of High Court in the case of Exide Industries Ltd. (supra) is at present not operational.
Therefore, in the light of the above situation, we direct the Assessing Officer to allow the appeal of the assessee as per final outcome of the judgment of the
10 The Jute Corporation of India Ltd. I T A N o . 2 3 0 5 / K o l / 2 0 1 7 C . O N o . 2 5 / K o l / 2 0 1 8 A s s e s s m e n t Y e a r : 2 0 1 1 - 1 2 I T A N o . 2 3 1 8 / K o l / 2 0 1 6 - Fo r A . Y. 2 0 0 8 - 0 9 Hon’ble Supreme Court, in the case of Exide Industries Ltd. (supra). Hence, we allow this ground of cross objection for statistical purposes.
The cross objection No.3 raised by the assessee reads as under:
“3. For that, as per nature of trade the corporation dealing in Raw Jute, entails certain losses in respect of weight loss and quality loss with elapses of time between the packing and delivery. As a general accounting principles and following norms such loss are accounted for as liability. Addition of Rs.5,70,410/- made by the Assessing Officer for booking such liability treating the same as provision for such losses is not justified as such loss is inevitable to the corporation and if not allowed to deviate from general principle of business. Hence such addition made by Assessing Officer may be deleted.”
Ground No.3 raised by the assessee in his Cross-Objection relates to addition of Rs.5,70,410/- made by the Assessing Officer on account of provision for losses in respect of weight loss of jute and quality loss of jute. We have heard both the parties, perused the materials available on record. We note that Assessing Officer had disallowed the assessee’s claim for provision for loss for sale of jute to customers on account of quality and short weight of delivery of jute amounting to Rs.5,70,410/-. The Assessing Officer observed that as per the mercantile basis of accounting only un-discharged accrued liabilities are allowable whereas the assessee’s claim was on estimate basis and therefore, being an un-ascertained liability the amount of Rs.5,70,410/- was disallowed by the Assessing Officer. We note that during the appellate proceedings, the assessee submitted the raw jute details certain losses due to weight and quantity loss between the period of packing and delivery to mills which are incidental to the business was an allowable expenditure. The assessee was also produced copy of bills for claim of Rs.2,22,076/- before ld CIT(A) and the same was also produced before the Assessing Officer. We note that Assessing Officer disallowed the impugned amount of Rs.5,70,410/- on account of provision of claim of loss by treating the same as provision for unascertained liabilities. However, the assessee has submitted that the losses were incidental to the business and the assessee had already produced bills for claims for Rs.2,22,074/- before the Assessing Officer in support of its claim. Therefore, the ld. CIT(A) directed the Assessing Officer to
11 The Jute Corporation of India Ltd. I T A N o . 2 3 0 5 / K o l / 2 0 1 7 C . O N o . 2 5 / K o l / 2 0 1 8 A s s e s s m e n t Y e a r : 2 0 1 1 - 1 2 I T A N o . 2 3 1 8 / K o l / 2 0 1 6 - Fo r A . Y. 2 0 0 8 - 0 9 allow the assessee’s claim to the extent of Rs.2,22,074/- after due verification that the liability in respect of the said claim had become due and crystallized during the relevant F.Y.2010-11. The balance disallowance of Rs.3,48,426/- (Rs.5,70,410/- - Rs.2,22,074/- was confirmed by the ld. CIT(A) as unascertained liabilities. That being so, we decline to interfere in the order passed by the ld. CIT(A), his order on this issue is hereby upheld and the Ground No.3 raised by the assessee in his Cross-objection is dismissed.
The cross objection No.4 raised by the assessee reads as under:
“4. For that the interest income of Rs.66,67,569/- added by Assessing Officer to assessment is interest earned from investment of “project fund” wherein corporation is an implementing agency, received from Govt. corporation does not hold any proprietary to such fund nor does it claim any expenditure related to implementation of such project. Interest income from investment of project fund was utilized to recoup the deficit in project budget on capital account such interest is not an income of the corporation, as after the project is over, the corporation is obliged to refund the excess money to Govt. so such addition made by Assessing Officer does not hold good considering the nature of business involved to the transaction and is arbitrary in nature, not as per law and unjustified and hence may be deleted.”
We note that the Cross-Objection No.4 raised by the assessee relates to interest income of Rs.66,67,569/- added by the Assessing Officer relating to interest earned from investment of “project fund” wherein corporation is an implementing agency, received for Govt. Corporation. We have heard both the parties, perused the materials available on record we note that the Assessing Officer found from note No.5A of schedule 18 to notes to accounts that the assessee had earned total interest of Rs.66,67,569/- which was not shown as income. The assessee has claimed that although TDS was deducted on the interest/accrued earned but the said income was not offered for taxation being capital in nature. We note that the A.O. held that the interest income of Rs.66,67,569/- was in the nature of revenue receipt and TDS was deducted thereon and the amount was brought to tax as assessee's income. The assessee submitted during the appellate proceedings that the Ministry provided for implementation of different schemes and idle funds were maintained in short deposit of banks and the amount was short term interest earned from such funds. It was further stated that the assessee had shown such funds on the liability side
12 The Jute Corporation of India Ltd. I T A N o . 2 3 0 5 / K o l / 2 0 1 7 C . O N o . 2 5 / K o l / 2 0 1 8 A s s e s s m e n t Y e a r : 2 0 1 1 - 1 2 I T A N o . 2 3 1 8 / K o l / 2 0 1 6 - Fo r A . Y. 2 0 0 8 - 0 9 of the balance sheet and the interest of income of Rs.66,67,569/- was credited to the fund account and that it did not hold any proprietary ownership over the said funds. After careful consideration and on perusal of the material on record, we note that assessee has not disputed the fact that the impugned amount of interest income of Rs.66,67,569/- was derived from short term deposits of funds received from Ministries/Sanctioning Authorities. We note that assessee’s case under consideration, are covered by the ratio of the decision of the Hon'ble Supreme Court in Tutikorin Alkali Chemicals and Fertilizers Ltd. (1997) 222 ITR 172 (SC) wherein it was held “it is well settled that taxes attracted at the point when the income is earned taxability of income is not dependent upon its destination or the manner of its utilization. It has to be seen whether at the point of approval, the amount is of revenue nature and it so, the amount will have to be taxed ... It is well settled that income attracts tax as soon as it approves. The application or destination of the income has nothing to do with its approval or taxability. It is also well settled that interest income is always of revenue nature unless it is received by way of damages of compensation.”
We note that receipt in question being interest income of Rs.66,67,569/-, is on short term bank deposit, therefore it should be of revenue nature. Therefore, we decline to interfere in the order passed by the ld. CIT(A), his order on this issue is hereby upheld and the Ground No.4 raised by the assessee in his Cross-objection is dismissed.
The cross objection No.6 raised by the assessee reads as under:
“6. For that the penalty proceedings initiated by Assessing Officer u/s 271(1)(c) on grounds of appeal (1), (2) & (4) does not hold good as there was no such suppressing of income made by corporation to the returned income/loss and additions are made arbitrarily which is bad in law and hence this section does not be applicable and the same to be withdrawn.” This cross objection is consequential in nature and does not require adjudication.
13 The Jute Corporation of India Ltd. I T A N o . 2 3 0 5 / K o l / 2 0 1 7 C . O N o . 2 5 / K o l / 2 0 1 8 A s s e s s m e n t Y e a r : 2 0 1 1 - 1 2 I T A N o . 2 3 1 8 / K o l / 2 0 1 6 - Fo r A . Y. 2 0 0 8 - 0 9 23. Now, we shall deal with ITA No.2318/Kol/2016, assessee’s appeal for Assessment Year 2008-09 where the assessee has raised the following grounds of appeal:
“1) For that the ld. CIT(A) was not justified in disallowing claim of Rs.1,26,04,522/- made by the assessee, for its payment to customers towards settlement of quality and quantity claims for suppliers made during the year out of total provision of Rs.1,45,00,000/- made in its books of accounts. As has been represented during hearing that considering the nature of trade such losses is inevitable and should be allowed in full as provision has been made on reasonable and logical basis and been followed on consistent basis over the years. 2) For that the assessee craves leave to alter, modify or amend any of the above ground/s and to add further ground/s on or before the final hearing of this appeal.”
The brief facts qua the issue are that during the assessment proceedings, the ld AO noted from the note to accounts (vide Schedule 19, Item No.10), that the assessee credited the sales of raw jute under price support operatives and commercial operation net of claims for short weight settled and paid during the year as well as the provision of Rs.145 lakh towards possible claims from customers. Further, the assessee showed in its accounts (vide schedule 9) an amount of Rs.2,56,18,278/- towards claims payable. Therefore, in the requisition u/s 142(1) of the Act issued to the assessee on 23.08.2010 (vide requisition no.19) the assessee was requested to furnish among others, the details of the provision of Rs.145 lakh made in the accounts towards possible claims from the customers of the assessee. Also in the said requisition, the assessee was requested to submit a reconciliation statement of the amount of Rs.2,56,18,278/- stated in the accounts as claims payable as on 31.03.08. In the written submission dated 25.10.08, the assessee did not state anything about the said amounts of Rs.145 lakh and Rs.2,56,18,278/-. Therefore, the assessee was requested again in course of the hearing to furnish the details called for. But as on the date of this order, the assessee has not furnished any details and explanation in relation to the said amount i.e. Rs.145 lakh and Rs.2,56,18,278/-. Therefore, in absence of any details and explanation in respect of possible claim of Rs.145 lakh debited by the assessee in the accounts for possible claim from customers, the said amount of
14 The Jute Corporation of India Ltd. I T A N o . 2 3 0 5 / K o l / 2 0 1 7 C . O N o . 2 5 / K o l / 2 0 1 8 A s s e s s m e n t Y e a r : 2 0 1 1 - 1 2 I T A N o . 2 3 1 8 / K o l / 2 0 1 6 - Fo r A . Y. 2 0 0 8 - 0 9 Rs.145 lakh is treated as a contingent liability of the assessee during the previous year relevant to the Assessment Year 2008-09 and as such contingent liability being not allowable was added back for computing the total income of the assessee for the Assessment Year 2008-09.
Aggrieved by the stand so taken by the AO, the assessee carried the matter in appeal before the ld CIT(A) who has confirmed the addition made by the assessing officer. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
The ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, the ld. Counsel for the assessee relied on the submissions made before the authorities below.
We have given a careful consideration to the rival submissions and perused the materials available on record, we note that out of total provision of Rs.145 lakh an amount of Rs.1,26,04,522/- was paid to mills for claims set off. The ld. CIT(A), by its order dated 19.02.2013 for the previous year restricted addition of Rs.18,95,478/- only and subject to verification.
We note that although the direction of the CIT(A) was to allow assessee`s claim for provision of clauses, subject to verification of actual payment of Rs.1,26,04,522/- by the assessee during the year. However, assessee had instead of submitting relevant supporting evidence, under the direction, to imply restricting addition to Rs.18,95,478/- which was incorrect.
We note that if an assessee follows mercantile system of accounting, deduction for expenditure can be claimed in the year to which it relates even though liability for it was neither paid nor ascertained before the close of the accounting year. To state precisely that payment against provision cannot be made or discharged during same financial year but to be discharged in subsequent Assessment Years. Therefore, we direct the Assessing Officer to examine the provisions made and the actual amount paid out of the provisions during the year and adjudicate the issue as per provisions of law. We also direct the assessee to submit the year wise
15 The Jute Corporation of India Ltd. I T A N o . 2 3 0 5 / K o l / 2 0 1 7 C . O N o . 2 5 / K o l / 2 0 1 8 A s s e s s m e n t Y e a r : 2 0 1 1 - 1 2 I T A N o . 2 3 1 8 / K o l / 2 0 1 6 - Fo r A . Y. 2 0 0 8 - 0 9 provisions made on this account and the actual payment paid against this provision, year- wise, so that Assessing Officer may examine it to ascertain the relevant amount which relates to the Assessment Year under consideration for deduction. This is to ensure that double deduction should not be granted to the assessee against provisions made by him. Therefore, statistical purposes the appeal of the assessee is treated to be allowed.
In the result, the appeals of the assessee are allowed for statistical purposes.
Order pronounced in the open court on this 30/11/2018. Sd/- Sd/- (S. S. Godara) (A. L. Saini) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER कोलकाता /Kolkata; Dated: 30/11/2018 RS, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Assessee - The Jute Corporation of India Ltd. 1. ��यथ� / The Revenue - ACIT, Circle 1(2), Kolkata 2. आयकर आयु�त(अपील) / The CIT(A), 3. आयकर आयु�त / CIT 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, 5. ITAT, Kolkata गाड� फाईल / Guard file. 6.
//True Copy// By Order
Assistant Registrar, I.T.A.T, Kolkata Benches, Kolkata.