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Income Tax Appellate Tribunal, ‘D’ BENCH : CHENNAI
Before: SHRI ABRAHAM P. GEORGE & SHRI G. PAVAN KUMAR
आदेश / O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:
This appeal of the Revenue is directed against an order dated 30.11.2016 of the Commissioner of Income-tax (Appeals)-3, Chennai. Revenue has taken altogether five grounds of which ITA No.537/Mds/2017. :- 2 -: grounds No.1 & 5 are general in nature needing no specific adjudication.
Vide its ground 2, Revenue is aggrieved on deletion of a 2. disallowance of provision for safety bonus of �6,37,28,715/-. Ld. Counsel of the assessee at the outset submitted that the issue regarding claim of safety bonus had come up before this Tribunal in assessee’s own case for assessment years 2001-02 to 2004-05 in ITA 382, 2429/Mds/2006, 775 & 2341/Mds/2007. As per ld. Authorised Representative, vide its order dated 11.07.2008, the Tribunal had held that estimate of safety bonus liability was fixed by the assessee based on calculations which were internationally accepted. Ld. Authorised Representative also submitted that the issue had once again come before this Tribunal in Revenue appeal for assessment year 2005-06 and Co-ordinate bench in its order dated 25.02.2010 in ITA 1637/Mds/2009 and CO No.201/Mds/2009, had again held in favour of the assessee.
Per contra, ld. Departmental Representative fairly admitted that the issue is covered in favour of the assessee.
We have perused the orders and heard the contentions. The 4.
Tribunal in assessee’s own case for assessment years 2001-02 to ITA No.537/Mds/2017. :- 3 -:
2004-05 with regard to the claim of safety bonus liability held as under at paras 17 to 19 of its order dated 11.07.2008.
‘’17. After considering the rival submissions and material on record, we find that initially the Assessee claimed the safety bonus liability in respect of its members enrolled in the year which was disallowed by the Assessing Officer on the ground that the same is a contingent liability and not an actually existing liability. On appeal, the CIT(Appeals), the CIT(Appeals) has modified the order of Assessing Officer and adopted the method of probability. The CIT(Appeals) directed the Assessee to file the calculation on the basis of law of probability as adopted and accepted internationally in the field of insurance. Accordingly, the Assessee filed the estimates which, were accepted by the CIT(Appeals) and the Assessing Officer was accordingly directed to allow the same. We find that the . CIT(Appeals) has adopted a pragmatic and realistic approach in computing the safety bonus liability which are otherwise the only basis for ascertaining these liabilities to allocate the same during the period of sustaining of the said liability.
In the case of Calcutta Co. Ltd. (supra), the Hon'ble Supreme Court has held that :-
"We are definitely of the opinion that the sum represented the estimated amount which would have to be expended by the appellant in the course of carrying on its business and was incidental to the same and having regard to the accepted commercial practice and trading principles was a deduction which, if there was no specific provision for it under sec 10(2) of the Act, was certainly allowable deduction" in arriving at the profits, and gains of the business of the appellant under section 10(1) of the Act, there being no prohibition against it, express or implied, in the Act.
In the case of Treasure Island Resorts (P) Ltd. (supra), the Hyderabad Bench of the Tribunal/ after following the decision of the Hon'ble Supreme Court in the case of Calcutta Co. Ltd. (supra) has held that ITA No.537/Mds/2017. :- 4 -:
Even when the method of accounting adopted is mercantile system, taxability of a receipt may be postponed when the receipt entails a liability to be met in future years. In this view of the matter, it has to be held that all the amounts received by the Assessee as the membership fee do not accrue as income in the same year. In view of the continuing liability, allocation of income over different years is permissibe’’.
Therefore, from the above decisions it is clear that the liability associated with the receipts and spread over for a future period should be accounted on the basis of estimates so far as it represents real and true and accepted principles of estimation. Moreover, when we have already held that the principle of matching of revenue and expenditure is a well accepted principle, we find no error or illegality in, the order of the CIT(Appeals) in deciding the issue of liability of safety bonus. Accordingly, this issue is decided against the Revenue and the order of the ClT(Appeals) is upheld qua this issue’’.
This has been followed by this Tribunal in subsequent years also vide order dated 25.02.2010 in ITA 1637/Mds/2009 and CO 201/Mds/2009 for assessment year 2005-06, in ITA 457/Mds/2010, dated 25.06.2010 for assessment year 2006-07, in ITA 1651/Mds/2010, dated 16.12.2010 for assessment year 2007-2008. Accordingly, we are of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in allowing the claim. Ground No. 2 stands dismissed.
Vide its grounds 3 & 4, grievance raised by the Revenue is 5. with regard to deletion of a disallowance of insurance premium of �32,86,975/-.
Ld. Counsel for the assessee submitted that the issue is 6. covered in favour of the assessee in assessee’s own case for ITA No.537/Mds/2017. :- 5 -: assessment year 2006-2007 vide Tribunal order dated 25.06.2010 in ITA 457/Mds/2010.
Per contra, ld. Departmental Representative submitted that 7.
Tribunal had not given a blanket allowance, but only to the extent of actual payments.
We have perused the orders and heard the contentions. Issue relating to insurance premium for the safety card holders of the assessee, had come up before this Tribunal in assessment year 2006- 07 in Revenue’s appeal. It was held as under at paras 6 to 10 of its order dated 25.06.2010 in ITA No.457/Mds/2010
In the immediately preceding assessment year assessee had changed its method of accounting of insurance premium. Every safety card holder was contractually entitled for insurance premium during the tenure of membership and during that year, assessee decided to quantify such liability taking into account the possible future insurance premium payment that were to be effected during the tenure of the memberships. As a result, assessee for that year in addition to the premium paid on existing card holders and new card holders Rs.6,96,66,815/-, also claimed insurance premium payable in future for all such card holders, quantifying the liability at Rs.19,80,97,951/-, altogether totaling to Rs.26,77,64,766/-.. Assessing Officer noted that for the impugned assessment year also assessee had followed the changed method for charging the premium. Accordingly, the amount worked out for the claim of insurance premium of Rs.3,31,85,098.70 by the assessee was as under: ₹ P. 1 Insurance premium provision – A.Y 2005-06 19,80,97,951.00 2 Less: Payments made to various
ITA No.537/Mds/2017. :- 6 -: insurance companies being insurance premium pertaining to the A.Y. 2006-07 6,91,15,178.70 Balance (A) 12,89,82,772.30
3 Insurance premium provision – A.Y 2006-07(B) 15,90,41,807.00
4 Insurance premium paid (B) –(A) 3,00,59,034.70 5 Add: Bajaj Allianz General Insurance Co. Ltd 5.332.00 TATA AIG General Insurance Co. Ltd 31,06,512.00 IFFCO Tokyo General Insurance Co. Ltd 2,008.00 AMP Sanmar Insurance Co. Ltd 12,212.00
Total 3,31,85,097.70’’
Out of the above actual premium payment are as under:- Amount (in ₹) Name of the company to which paid Reliance General Insurance Co.Ltd 1,22,57,457.00 Bajaj Allianz General Insurance Co. Ltd 1,64,91,675.00 IFFCO Tokyo General Insurance 36,75,085.00 Co. Ltd National Insurance 2,16,11,683.70 TATA AIG General Insurance Co. Ltd 1,50,79,278.00
Total 6,91,15,178.70’’
Assessing Officer noted that there were some other premium payments which also had to be considered. Thus, he worked out the actual premium payment for the impugned assessment year as under:-
Insurance premium pertianing to A.,Y. 2006-07 6,91,15,178.70 Add : Bajaj Allianz General Insurance 5,332.00 Co. Ltd TATA AIG General Insurance Co. Ltd 31,06,512.00
ITA No.537/Mds/2017. :- 7 -:
IFFCO Tokyo General Insurance Co. 2,008.00 Ltd AMP Sanmar Insurance Co. Ltd 12,212.00 Allowable premium 7,22,41,242.70’’
However, since assessee itself had claimed only RS.3,32,59,309/-, Assessing Officer refused to consider the enhanced claim made by the assessee, during the course of the assessment proceedings. According to Assessing Officer, the issue regarding change of method of accounting of insurance premium which was for the first time made in assessment year 2005-06, was pending before Id. CIT(A). Aggrieved by the above treatment, assessee is in appeal before Id. CIT(A).
Before the l.d. CIT(A), it was submitted that its appeal for assessment year 2005-06 was disposed of by CIT(A)-V Chennai vide order dated 18.2.2009 in ITA NO.74/2007-08. In that order, Id. CIT(A) held that entire insurance premium liability claimed by assessee could not be allowed and only that liability relatable to the previous year could be considered. Reasoning given was that only 1/8th of the membership fee receipt was considered as the income of a year and hence expenditure also could be considered only like wise. For the impugned assessment year also taking the same view as taken by his predecessor for the preceding year, CIT(A) was of the opinion that the premium of Rs.7,22,41,243/- as quantified by Assessing Officer himself had to be allowed. According to him, such claim could not be restricted to Rs.3,32,59,309/- as originally claimed by the assessee in it's profit and loss account. He therefore, directed Assessing Officer to allow the enhanced claim 8. Before us, Id. D.R. assailing on the order of Id. CIT(A), submitted that assessee could not enhance its claim other than through filing a revised return. According to him, assessee had claimed at Rs.3,32,59,309/- originally in its return but enhanced such amount to Rs.7,22,41,243/- by revising its statement of computation but without filing a revised return. Reliance was placed on Hon'ble Apex Court in the case of Goetze (India) Ltd vs. CIT (284 ITR 323).
9. Per contra, the Id. AR. strongly supported the order of Id. CIT(A).
We have perused the orders and heard the rival submissions. For the preceding assessment year, the ITA No.537/Mds/2017. :- 8 -:
changed method of accounting adopted by assessee, claiming future insurance premium also, was not allowed by Assessing Officer and this was upheld by Id. CIT(A). This has not been challenged by assessee in its cross objection for assessment year. So, accepted position IS that only the Insurance claim for the relevant year was allowed to the assessee. If that be so, for the impugned assessment year also assessee would be eligible for the claim of insurance premium debited during the relevant previous year. No doubt, assessee in its return of income, following the change of method of accounting adopted for the preceding assessment year, made a lesser claim, but if taken on actual payment basis, the sum allowable would be Rs. 7,22,41,243/- as admitted by Assessing Officer itself at paragraph 7 of the assessment order. So, we are of the opinion that the enhancement was correctly allowed by the CIT(A) even if the assessee had not filed a revised return. If we take the decision of Hon'ble Apex Court in the case of Goetze (India) Ltd. (supra), it has been made clear therein that the law laid down was limited to the powers of the assessing authority. Here, on the other hand, the directions were given by the Id. CIT(A). It is trite law that powers of the CIT(A) are coterminous with the powers of the Assessing Officer and further he can consider any matter while dealing with an appeal arising out of an assessment. Thus, the CIT(A) was well within his powers to give the directions. We find no reason to interfere with the order of the CIT(A). Ground No.4, therefore, stands dismissed.
For the impugned assessment year submission of the ld. Departmental Representative is that what was claimed by the assessee, except for a sum of �32,86,975/- was only a provision. However, there is no finding by the ld. Assessing Officer that the claim was not an actual liability but only as estimate. Tribunal had clearly held that insurance premium relatable to the previous year has to be allowed. The ld. Assessing Officer had simply held that such provision was not allowed in assessment year 2005-06 and hence could not be allowed for impugned assessment year also. Ld. Assessing Officer had not disallowed the claim as an unascertained liability. In the ITA No.537/Mds/2017. :- 9 -: circumstances, following the order of the Co-ordinate Bench (supra), we are of the opinion that the claim was allowable. We do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals). Grounds 3 & 4 of the Revenue stand dismissed.
In the result, the appeal of the Revenue is dismissed Order pronounced on Wednesday, the 3rd day of May,2017, at Chennai.