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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: Shri Joginder Singh, & Shri N.K. Pradhan
आदेश / O R D E R
Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 17/01/2012 of the Ld. First Appellate Authority, Mumbai. The first ground raised by the assessee pertains to upholding the disallowance of provision for leave encashment of Rs.3,53,84,604/- u/s 43B of the Income Tax Act, 1961 (hereinafter the Act).
During hearing, the ld. counsel for the assessee, Shri Yogesh A. Thar, claimed that the impugned issue is covered by the decision of the Tribunal for Assessment year 2008-09 (ITA No.1269 & 1479/Mum/2012) order dated 18/08/2016. This factual matrix was not controverted by Shri N.P. Singh, ld. CIT-DR. However, the ld. CIT-DR defended the addition by contending that if the version of the assessee is accepted then it requires re-examination of facts by the ld. Assessing Officer.
2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the decision of the Coordinate Bench of the Tribunal (ITA No.5457/Mum/2013) order dated 30/06/2015, for ready reference and analysis:-
“The present appeal has been preferred by the assessee against the order dated 20.06.2013 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.
3 M/s Birla Sun Life Asset Management
2. The sole issue raised in this appeal is relating to the disallowance on account of provision for leave encashment of Rs.74,61,261/- under section 43B of the Income Tax Act. The assessee claimed that the provision for leave encashment was ascertained liability of the company and the same should not be construed as the item covered by section 43B of the Income Tax Act in view of the decision of the Hon’ble Kolkata High Court in the case of “Exide Industries Ltd.” 292 ITR 470. The AO however, held that the said amount was remained unpaid and therefore the provision for leave encashment was squarely covered under the provisions of section 43B. In appeal, the Ld. CIT(A) also upheld the finding of the AO.
Before us, the Ld. A.R. of the assessee has brought our attention to the decision of the co-ordinate Bench of the Tribunal dated 23.01.2015 in the case of “Aaditya Birla Finance Ltd. Vs. ACIT” wherein the Tribunal, while relying upon various other decisions of the Tribunal and adopting the same line, has restored the matter to the file of the AO observing that since the matter in the case of Exide Industries Ltd. (supra) was pending before the Hon’ble Supreme Court, the AO to adjudicate the issue afresh in the light of the decision of the Hon’ble Supreme Court as may come in the case of “Exide Industries Ltd.” (supra). The relevant part of the decision of the co-ordinate Bench in the case of “Aaditya Birla Finance Ltd. Vs. ACIT” (supra) for the purpose of reference is reproduced as under: “4.2 At the outset Ld. AR of the assessee has produced before us a copy of order of the Tribunal in the case of the sister concern of the assessee M/s. Birla Insurance Advisory & Broking Services Ltd., in ITA No.7531/Mum/2010. The Tribunal in the said case has restored the matter on the identical issue to the file of the AO while relying upon the decision in the case of Essar Exploration and Production India Ltd. vs. ACIT in ITA No.6189/Mum/2011 order dated 8/8/2012. The operating part of the order for the sake of convenience is reproduced as under:
“3. At the outset Ld. AR of the assessee has produced before us a copy of order of the Tribunal dated 8/8/2012 in in the case of Essar Exploration & Production India Ltd. vs. ACIT, order dated
4 M/s Birla Sun Life Asset Management 8/8/2012 , in which similar issue came up for consideration of ITAT. Before ITAT reference was made to the aforementioned decision in the case of M/s. Universal Medicare Pvt. Ltd. vs. ACIT(supra), and after hearing both the parties and considering the issue that in another matter in the case of Exide Industries Ltd. vs. Union of India, 292 ITR 470 (Cal), where provisions of section 43B(f) were held to be arbitrary and in Special Leave Petition before Hon’ble Apex Court vide order dated 8/9/2008 the judgment of Hon’ble Culcutta High has been stayed and also the fact that Hon’ble Bombay High Court has admitted the issue in consideration in the appeal filed by the department in the case of M/s. Universal Medicare Pvt. Ltd.(supra), the matter was restored back to the file of AO with the following observations:
7. We observe that Mumbai Tribunal by its order dated 30.3.2009 in the case of Universal Medicare Pvt Ltd. (supra) allowed the claim of provision for leave encashment on the basis of decision of Hon’ble apex Court in the case of Bharat Earth Movers (supra) as the Honble Calcutta High Court in the case of Exide Industries (supra) struck down the provision of section 43B(f) being arbitrary, unconscionable. Further, the department filed SLP before Hon’ble apex Court against the decision of Hon’ble Calcutta High Court in the case of Exide Industries Ltd (supra) by its order dated 8.9.2008 in SLP No.12060/2008 has stayed the operation of judgment of Hon’ble Calcutta High Court. Further, it is also a fact that Hon’ble Bombay High Court has admitted the issue under consideration in the appeal filed by department in the case of Universal Medicare Pvt Ltd (supra). At the time of hearing, Id A.R. submitted that the said appeal is yet to be disposed of. We also observe that ITAT Kolkata Bench by its order dated 30.1.2012 considered the said issue and by following earlier decision on identical issue in the case Ernst & Young Pvt Ltd. (supra) has restored the matter to the file of AC with a direction to adjudicate the same as per decision of Hon’ble apex Court in the case of Exide Industries Ltd (supra), In view of above and respectfully following the earlier decisions (supra), we set aside the orders of authorities below and restore the matter back to the file of AO for adjudication afresh as per the decision of Hon’ble apex Court in the case of Exide Industries Ltd (supra).
3.1 Referring to the above observation it was pleaded by Ld. A.R that the matter may be restored back to the file of AO with similar directions.
4. Ld. D.R did not have any objection to such request of Ld. A.R.
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5. In this view of the situation, after hearing both the parties, respectfully following subsequent decision of the Tribunal on this issue in the case of Essar Exploration & Production India Ltd.,(supra), we restore this issue to the file of A.O with similar directions. The relevant observations have already been reproduced. We direct accordingly”.
4.3 The Ld. Representatives of the parties submitted that they have no objection if the matter in this case also be restored to the file of AO with a direction to decide the same in the light of above reproduced directions. This issue is accordingly restored to the file of AO to decide the same as per the directions given in the case of sister concern of the assessee as reproduced above.”
The Ld. A.R., therefore, while also relying upon various other decisions of the Tribunal wherein the matter is restored to the file of the AO with the direction to decide the same as per the proposition of law that may be laid down by the Hon’ble Supreme Court in the case of “Exide Industries Ltd.” (supra) has stressed that the matter in this case be accordingly restored to the file of the AO.
The Ld. D.R. has also not raised any objection against restoration of matter to the AO. 6. We have considered the rival submissions. It is correct that the decision of the Hon’ble Kolkata High Court in the case of “Exide Industries Ltd.” (supra) has been stayed by the Hon’ble Supreme Court vide order dated 08.09.08 passed in SLP to Appeal (Civil) …CC 12060/2008 wherein the Hon’ble Supreme Court has made the following observations: “UPON hearing counsel the Court made the following ORDER Issue notice. In the meantime, there shall be stay of the impugned judgment, until further order.”
We further find that the Hon’ble Supreme Court vide order dated 08.05.2009, passed in SLP (Civil No.22889/2008) while granting the leave to file appeal, has made the following observations: “ORDER
6 M/s Birla Sun Life Asset Management Delay condoned. Leave granted.
Pending hearing and final disposal of the Civil Appeal, Department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as the outstanding interest demand as of date is concerned, it would be open to the Department to recover that amount in case Civil Appeal of the Department is allowed. We further make it clear that the assessee would, during the pendency of this Civil Appeal, pay tax as if Section 43B(f) is on the Statute Book but at the same time it would be entitled to make a claim in its returns.”
A perusal of the above observations reveals that while accepting the petition for leave to file the appeal vide order dated 08.05.2009, the Hon’ble Supreme Court has directed that pending the hearing and disposal of the Civil Appeal, the Department is restrained from recovering penalty and interest which has accrued till date. It has also been made clear that it would be open to Department to recover the amount of outstanding interest demand in case the appeal of the Department is allowed. It has also been directed that during the pendency of the Civil Appeal, the assessee will pay tax as if section 43B(f) is on statute book but at the same time the assessee would be entitled to make a claim in this respect in its returns.
In view of the observations of the Hon’ble Supreme Court, in our view, it will be proper to dispose of this appeal in the light of the order of the Hon’ble Supreme Court dated 08.05.2009 passed in the case of “CIT vs. Exide Industries Ltd.” (supra). We therefore dispose of the present appeal with a direction that the assessee will pay the tax as if section 43B(f) is on the statute book, however, till the decision of the Hon’ble Supreme Court in the case of “CIT vs. Exide Industries Ltd.” (supra), the Revenue will not recover the penalty and interest which may accrue till the decision of the appeal by the Hon’ble Supreme Court in the case of “Exide Industries Ltd.” It would be open to the Department to recover the outstanding interest demand in case the Civil Appeal of the Department in the case of 7 M/s Birla Sun Life Asset Management “Exide Industries Ltd.” (supra) is allowed by the Hon’ble Supreme Court. Subject to our above observations, the matter is restored to the file of the AO to be adjudicated afresh as per the decision of the Hon’ble Supreme Court in the case of “Exide Industries Ltd.” (supra).
In the result, the appeal of the assessee is therefore partly allowed for statistical purposes.”
2.2. The aforesaid order of the Tribunal was further considered by the Tribunal in order dated 18/08/2016 (ITA No.1269 & 1474/Mum/2012). Therefore, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal for ready reference and analysis:-
“3. Only issue raised by the assessee in the grounds of appeal is against confirmation of disallowance of Rs.21,67,547/- by the CIT(A) as made by the AO for provisions of leave encashment.
4. The facts in brief are that during the course of assessment proceedings the AO noted that assessee has not paid Rs. 21,67,547/- provided on account of leave encashment in respect of leave at the credit of employees which were not allowable as not paid before the due date of filing the return of income and disallowed the same as per the provisions of section 43B(f) of the Act.The ld CIT(A) also upheld the order of CIT(A) on the ground that SLP has been admitted in the apex court on the issue of allowability of leave encashment.
5. At the outset, the ld.AR submitted before us that the matter may be restored back to the file of the AO and keep the matter alive in view of the decision rendered by the Tribunal in its own case in (AY-2010-11) order dated 30.6.2015 in which the identical issue has been decided by the Co-ordinate Bench of the Tribunal by relying on the 8 M/s Birla Sun Life Asset Management decision of Hon’ble Supreme Court rendered in the Special Leave Petition (Civil No.22889/2008) vide order dated 8.5.2009 directing the revenue not to recover the penalty and interest which may accrue till the decision of the appeal by the Hon’ble Supreme Court in the case of “Exide Industries Ltd” and it would be open to the department to recover outstanding interest demand in case Civil appeal is allowed by the Hon’ble Supreme Court. The ld. DR fairly agreed with the submission of ld.AR.
6. We have carefully considered the rival contentions and perused the order in the case of assessee. We find that in the case of “Exide Industries Ltd” the Hon’ble Supreme Court has admitted the Special Leave Petition on the identical issue vide its order dated 8.5.2009 in SLP” (Civil No.22889/2008) allowing to file appeal by the revenue. We further find that the co- ordinate bench of the Tribunal in (supra) following the decision of the Hon’ble Apex Court directed the AO to keep recovery of tax and interest in abeyance till the decision of the Supreme Court in SLP” (Civil No.22889/2008) of the department in the case of “Exide Industries Ltd” and it was further ruled by the Co-ordinate Bench that it would be open to the department to recover the outstanding demands in case the appeal of the department is allowed by the Apex Court. The operative part of the decision is reproduced below : “9. In view of the observations of the Hon’ble Supreme Court, in our view, it will be proper to dispose of this appeal in the light of the order of the Hon’ble Supreme Court dated 08.05.2009 passed in the case of “CIT vs. Exide Industries Ltd.” (supra). We therefore dispose of the present appeal with a direction that the assessee will pay the tax as if section 43B(f) is on the statute book, however, till the decision of the Hon’ble Supreme Court in the case of “CIT vs. Exide Industries Ltd.” (supra), the Revenue will not recover the penalty and interest which may accrue till the decision of the appeal by the Hon’ble Supreme Court in the case of “Exide Industries Ltd.” It would be open to the Department to recover the outstanding interest demand in case the Civil Appeal of the Department in the case of “Exide Industries Ltd.” (supra) is allowed by the Hon’ble Supreme Court. Subject to our above observations, the matter is restored to 9 M/s Birla Sun Life Asset Management
the file of the AO to be adjudicated afresh as per the decision of the Hon’ble Supreme Court in the case of “Exide Industries Ltd.” (supra)”
We find that the facts of the case before us is idential as decided by the coordinate bench in the decisions(supra) and therefore by follwing the decision of the bench respecfully , we restore the matter back to the file of the AO by setting aside the order of CIT(A) and decide the issue accordingly. The ground raised by the assessee is allowed for statistical purposes.”
2.3. Considering the totality of facts and following the aforesaid orders of the Tribunal, we remand this issue to the file of the ld. Assessing Officer to examine the claim of the assessee in the light of the aforesaid orders and decide afresh in accordance with law. Thus, this ground of the assessee is allowed for statistical purposes only.
3. The next ground raised
pertains to disallowance of provision for ex-gratia expenses of Rs.2,29,36,844/-. Our attention was invited to page-6 of the assessment order and the observation made in para
6. (page-3) of the assessment order. Attention was also invited to the ground raised before the Ld. Commissioner of Income Tax (Appeal) by explaining that in the ground of appeal wrong amount has been mentioned. The ld. CIT-DR though defended the addition but did not controvert that there was inadvertent error on behalf of the assessee on the basis of which adjudication could not be made in a required manner.
10 M/s Birla Sun Life Asset Management 3.1. We have considered the rival submissions and perused the material available on record. It is noticed that, a confusion was created through the tax auditor’s report mentioning that the gratuity of Rs.2,28,183/- was not paid by the assessee. The assessee vide letter dated 22/07/2011 stated that the impugned gratuity was not paid as reported in the tax audit and the addition was left out in the total income by claiming that it was a clerical error. It is also noted that in the grounds raised before the Ld. Commissioner of Income Tax (Appeal), it has been mentioned that it was a provision for ex- gratia but wrong figure was mentioned. Considering the totality of facts, the assessee is directed to explain the factual matrix before the Assessing Officer so that the same can be examined and may be decided in accordance with law. The assessee be given opportunity to substantiate its claim, thus, this ground is also allowed for statistical purposes.
4. The last ground raised before us is with respect to the disallowance of Rs.4,42,26,646/- being the amount of addition made u/s 43B in Assessment year 2008-09 in respect of provision for ex-gratia. It was explained by the ld. counsel that this amount was decided in favour of the assessee in earlier year, therefore, in the present year, in appeal has to be disallowed. This factual matrix was not controverted by ld. CIT-DR. Under the circumstances narrated before us, since, the impugned amount was allowed to the assessee in Assessment year 2008-09, therefore, in the present Assessment year, it has to be disallowed. The claim of the 11 M/s Birla Sun Life Asset Management assessee is fortified by the decision of the Ld. First Appellate Authority dated 01/12/2011 (Assessment year 2008-09), wherein, vide para 4 to 4.3.6, the issue has been deliberated upon. It is further noted that the Ld. Commissioner of Income Tax (Appeal), while deleting the addition relied upon various decision including Shriram Pistons & Rings Ltd. vs CIT (2008) 307 ITR 363 (Del.), CIT vs Raza Textile Ltd. (2005) 199 CTR (All) 694. Finally, it was held that the ex-gratia payment do not fall within the ambit of section 36(1)(ii) of the Act. Since, the same addition was deleted in Assessment year 2008-09, and no appeal was filed by the Department, being the same amount, it has to be disallowed in the present Assessment year, thus, this ground is decided against the assessee being the relief has already been granted in earlier Assessment year.
Finally, the appeal of the assessee is partly allowed for statistical purposes.
This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 25/10/2016.