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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : KOLKATA
[Before Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM] I.T.A No.1524/Kol/2013 Assessment Year : 2003-04
D.C.I.T-Circle-1, -vs.- M/s. Gloster Jute Mills Ltd. Circle-1(2), Kolkata Kolkata [PAN : AAACG 9800B] (Appellant) (Respondent) C.O.No.99/Kol/2013 (A/o I.T.A No.1524/Kol/2013 Assessment Year : 2003-04
M/s. Gloster Jute Mills Ltd. -vs- D.C.I.T., Circle-1, Kolkata Kolkata [PAN : AAACG 9800B] (Cross Objector) (Respondent)
For the Department : Shri Anand Kumar Sinha, JCIT For the Assessee : Shri Mayank Singhania, ACA
Date of Hearing : 13.02.2017. Date of Pronouncement : 01.03.2017. ORDER Per N.V.Vasudevan, JM
ITA No.1524/Kol/2013 is an appeal filed by the Revenue against the order dated 15.02.2013 of CIT(A)-XX, Kolkata relating to A.Y 2003-04. The assessee has filed a cross objection being C.O. 99/Kol/13 against the very same order of CIT(A).
The Assessee is a company engaged in the business of manufacturing of jute goods. For A.Y.2003-04 the assessee filed return of income on 01.12.2003 declaring total income of Rs.2,40,83,850/-. The AO in the course of scrutiny assessment proceedings u/s 143(3) of the Income Tax Act, 1961 (Act) addressed a letter dated
2 ITA No.1524/Kol/2013& C.O.No.99/Kol/2013 M/s. Gloster Jute Mills Ltd. A.Yr.2003-04 29.12.2005 to the assessee wherein he raised a specific query with regard to the assessee’s claim for deduction, while computing the income, of a sum of Rs.36,41,496/- which was a payment made by the Assessee as an employer to a Superannuation Fund (Scheme) created by the Assessee for it’s employees. The query of the AO in his letter was as follows :- “5. From item no.14 of notes on account in schedule 8 it is seen that contribution to superannuation scheme for Rs.36,41,496/- has been debited to Profit & Loss Account although the approval of Commissioner of Income-tax was not obtained. Please explain why this claim should not be disallowed.”
The assessee addressed a reply dated 20.01.2006 in which the assessee submitted that a sum of Rs.36,41,496/- debited in the profit and loss account was a contribution to “Gloster Jute Superannuation Fund” and the said fund was duly approved by the Commissioner of Income tax vide his order dated 16.11.2004. It was specifically brought to the notice of the AO that order dated 16.11.2004 specifically says that the approval of the fund will take effect from 06.03.2003. A copy of the approval of the Commissioner of Income Tax was also filed along with this letter.
The assessment was completed u/s 143(3) of the Act by an order dated 15.03.2006. There was no addition made by way of disallowance of payment made to Superannuation fund.
The AO however issued a notice u/s 148 of the Act for assessing income of Assessee that has escapement assessment within the meaning of section 147 of the Act. The AO had recorded the following reasons :- “Reasons for issue of notice u/s 148 It is seen from schedule 18 of Annual Report that the assessee co. introduced a superannuation scheme for certain employees w.e.f. 1st march, 1990 and a sum of Rs.36,41,496/- including contribution for the period prior to 1st April, 2002 paid to the fund established for this purpose. This amount of Rs.36,41,496/- has been charged against the revenue in the A.Y.2008-09. Again from item No.17(1) of 3CD report it is seen that in respect of superannuation fund, the company has filed a 2
3 ITA No.1524/Kol/2013& C.O.No.99/Kol/2013 M/s. Gloster Jute Mills Ltd. A.Yr.2003-04 petition dt. 23.3.2003 from approval which was accorded under Rule 2(1) of Part B of the fourth Schedule to the I.T.Act w.e.f. 6.3.2003. In view of the above it is seen that contribution from 1st March, 1990 to March, 2001 is prior period expenses which is disallowable/not allowable expenditure. I, have, therefore, reason to believe that income chargeable to tax has escaped asstt. By Rs.36,41,496/- within the meaning of section 147 of the Il.T.Act, and such escapement is attributable to the assessee who claimed inadmissible expenses. Notice u/s 148 is issued accordingly.”
In response to the notice u/s 148 of the Act the assessee by letter dated 06.09.2006 requested the AO to treat the return filed on 01.12.2003 as return filed in response to the notice issued u/s 148 of the Act.
The assessee submitted before AO that the issue with regard to allowing deduction on account of contribution to employees Superannuation Fund was already examined in the proceedings u/s 143(3) of the Act and the same cannot be the subject matter of proceedings u/s 147 of the Act. The assessee also pointed out that the fund was duly approved by the Commissioner of Income tax w.e.f. 06.03.2003 and the contribution by the assessee, as an employer, to the said fund was paid on 10.03.2003 though the approval of the Commissioner of Income Tax was obtained only by order dated 16.11.2004. The assessee pointed out that since the approval was operative from 06.03.2003 the contribution to the fund made by the assessee on 10.03.2003 was a contribution to the superannuation fund and was to be allowed as deduction u/s 36(1)(iv) of the Act. The AO however, rejected the explanation of the assessee and disallowed the claim of the assessee for deduction by observing as follows :- “5. The explanation furnished by the A/R of the assessee has been examined. But the explanation submission of the A/R of the assessee are not acceptable on the following grounds: (i)The contribution of Rs.36,41,496/- to the Superannuation Fund was not related to the financial year 2002-03 and the same was related to the period prior to 1st April 2002.
4 ITA No.1524/Kol/2013& C.O.No.99/Kol/2013 M/s. Gloster Jute Mills Ltd. A.Yr.2003-04 (ii)At the time of payment of Rs.36,41,496/- on 10.03.03 to Birla Sunlife Insurance Company Ltd there was no approval of the Superannuation Fund to which the contribution was made. (iii)As per the Audit Report the petition for approval of the Superannuation Fund by the CIT-I, Kol was filed on 27.03.03 much after the actual payment made on 10.03.03. Therefore, the contribution of 36,41,496/- on account of Superannuation Fund charged to revenue is not allowed to be deducted from revenue account and added back for computing the total income of the assessee for the assessment year 2003-04. [Addition Rs.36,41,496/-]”
Before CIT(A) the assessee challenged the validity of assumption of jurisdiction by the AO u/s 147 of the Act. The plea of the assessee in this regard was that while completing the original assessment u/s 143(3) of the Act the issue was already examined by the AO and no adverse view was taken and that on the same set of facts without any tangible material coming into possession of the AO, he has sought to reopen a completed assessment purely the basis of a change of opinion which was not permissible in law. In this regard the assessee placed reliance on the decision of the Hon’ble Delhi High Court in the case of CIT vs Kelvinator of India Ltd. 256 ITR 1 (Delhi)(FB) and also the CBDT Circular No.549 dated 31.10.1989 which explained the scope of section 147 and made it very clear that a mere change of opinion cannot form the basis for reopening a completed assessment. Attention was also drawn to the decision of the Hon’ble Apex Court in the case of CIT vs Kelvinator of India Ltd. 320 ITR 561 (SC) wherein the decision of the Hon’ble Delhi High Court in the case of Kelvinator of India ltd. (supra) was upheld. Reference was also made to the following decisions :- (i) Full Bench of the Hon’ble Delhi High Court in the case CIT. -vs.- Usha International Ltd. (ITA· No. 2026/2010) (Del) wherein it was held that the reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the AO does not make any addition in the assessment order. The fact that the assessment order is silent will not be relevant in determining whether or not there is 'change of
5 ITA No.1524/Kol/2013& C.O.No.99/Kol/2013 M/s. Gloster Jute Mills Ltd. A.Yr.2003-04 opinion' because the assessee cannot have any control over the way an order is written.
(ii) Decision of the Hon'ble Mumbai ITAT in Third Member Bench-in the case of ACIT ,-vs.- Rolta India Ltd (2011) 132· ITO 98 (Mum) wherein the AO has raised a specific query regarding the allowability of the software expenses as ·revenue in nature and had specifically asked the assessee to justify the claim. In response to the same, the, assessee wrote a letter to the AO giving the justification and the relevant ·facts. Though there was no specific reference to this issue in the assessment order passed under s. 143(3) it has to be presumed that the AO was satisfied on the basis of the assessee's reply that the expenses were allowable as revenue expenditure. Hence, in the absence of any tangible material which could persuade the AO to form the belief that income chargeable to tax had escaped assessment by reason of the allowance of the expenses, he cannot issue notice u/s 148 even though the notice has been issued within the period of four years from the end of the A.Y. 1998-99.
As far as the merits of the addition made by the AO is concerned, the Assessee drew attention of the AO to the provisions of section 36(1)(iv) of the Act which states follows:- "36(1) The deduction provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28
(iv)any sum paid by the appellant as an employer by wav of contribution towards a. recognized provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognizing the provident fund or approving the superannuation fund, as the case may be; and subject to such conditions as the Board may think fit to specify in cases where the contribution are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some ·definite basis by reference to the income chargeable under the head "Salaries" or to the contributions or to the number of members of tile fund;"
It was submitted that perusal of the provisions of section 36(1)(iv) of the Act would show that deduction for the amount of contribution to superannuation fund shall be allowed if the sum is paid to an approved superannuation fund during the previous year. It was reiterated that the superannuation fund in question was duly approved by the Commissioner of Income Tax vide its order dated 16-11-2004 w.e.f. 06-03-2003 under 5
6 ITA No.1524/Kol/2013& C.O.No.99/Kol/2013 M/s. Gloster Jute Mills Ltd. A.Yr.2003-04 Rule 2(1) of Part 8 of the Fourth Schedule to the Act. It was pointed out that the Assessee made payment of Rs. 36,41,396/- to Birla Sunlife Insurance Co. Ltd towards contribution to superannuation fund on 10-03-2003 vide cheque no. 906990 drawn on SBI. Copy of the above approval and the receipt evidencing payment of the same was also filed. Reference was also made to the provisions of Sec. 438 of the Act which are as under:- "43B. Certain deductions to be only on actual payment. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-
(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". ……. 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 previous year In which he liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. "
It was submitted that on reading of the aforesaid provision, a deduction with regard to the expenditure on account of superannuation fund can be allowed only if it is actually paid within the relevant financial year or before the due date of filing of the return of income for the relevant assessment year, irrespective the previous year in which the liability to pay such sum was incurred. Reference was also made to the judgment of Hon'ble Delhi High Court in the case of CIT -vs.- Kelvinator of India Ltd. (1994) 210 ITR 933 (Delhi) wherein it has been held by the Court that:
7 ITA No.1524/Kol/2013& C.O.No.99/Kol/2013 M/s. Gloster Jute Mills Ltd. A.Yr.2003-04 "When a gratuity scheme is introduced for the first time, the gratuity payable to the existing employees who have already rendered some years of service and are still in service shall have to be considered ,to make a provision, because the gratuity payable depends on the entire length of service of an employee. The provision for gratuity has to value the liability with reference to 15 years of service, but this is distributed entire 15 years, out of which, when the scheme comes into force , a part of the total liability dependent upon the completed five years service of the employee has arisen. Though, this liability, in turn, is referable to each of the previous five years the legal liability arises only when the gratuity scheme is brought into force. Therefore, to that extent the liability attributable to those five years could be stated as having arisen during the accounting year in which the scheme is brought into force. “(emphasis added)
The CIT(A) did not adjudicate on the validity of initiation of re-assessment proceedings, however deleted the addition made by the AO observing as follows :- “5.2. I have perused the assessment order and considered the submission of the appellant. The fact of the case is that the A.O. disallowed the claim of the appellant towards contribution to superannuation fund on the ground that tie contribution was not related to the FY 2002-03 but the same was related to the period prior to 1st April 2002. At the time of payment on 10-03-2003 to Birla Sunlife Insurance Company Ltd., there was no approval of the Superannuation Fund to which the contribution was made. The appellant argued that as per provision of section 36(1)(iv), the deduction for the amount of contribution to superannuation fund is allowable if the same is paid in the year under consideration. Further, the approval for the fund by the CIT vas given with effect from 06.03.2003 and the payment towards their contribution to superannuation fund to Birla Sunlife Insurance Co. Ltd. amounting to Rs.36,41,396/- was made on 10.03.2003. As per section 43B, the same is allowable on payment basis. To support their argument, they relied upon various judgments of the Honble ITAT/High Courts. After careful consideration of the facts and circumstances of the case and also the various judgments cited by the appellant, I find merit in their argument, therefore, the appeal on this ground is allowed.”
Aggrieved by the order of CIT(A) the revenue has preferred the present appeal before the Tribunal. Grounds of appeal raised by the revenue read as follows :- “1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance made on account of contribution to superannuation fund to the tune of Rs.36,41,496/-.
8 ITA No.1524/Kol/2013& C.O.No.99/Kol/2013 M/s. Gloster Jute Mills Ltd. A.Yr.2003-04 2. That the appellant craves leave to add, alter/or amend any grounds of appeal during the course of hearing.”
Aggrieved by the order of CIT(A) in not holding that the initiation of re- assessment proceedings was null and void, the assessee has filed cross objection in which the following grounds have been raised. :- (a). That on the facts and in the circumstances of the case, initiation of reassessment proceedings and passing of the order u/s 143 r.w.s 147 dated 24-12- 2007 by the A.O. is unjustified, erroneous and needs to be summarily cancelled.
(b). That on the facts and in the circumstances of the case, the issues raised under re-assessment proceedings were already examined by the A.O. during the course of scrutiny proceedings u/s 143(3) and hence re-assessment proceedings have been initiated for mere change of opinion and needs to be quashed.
That the respondent craves leave, to add, to amend, modify, rescind, supplement or alter any of the grounds stated here-in-above either before or at the time of hearing of the appeal.
We have heard the submissions of the ld. DR. The ld. Counsel for the assesse sought for an adjournment which was rejected. We have also heard the submissions of the ld. Counsel for the assessee, who reiterated the submissions as made before CIT(A).
We have given a very careful consideration to the submissions of the ld. DR, who reiterated the stand of the AO as is reflected in the order of assessment. We are of the view that the initiation of re-assessment proceedings was not legally valid. As we have already seen the question whether contribution to superannuation fund ought to be disallowed or not has already been gone into by the AO while concluding the original assessment proceedings. The Tax Audit Report which was referred to by the AO in the reasons recorded before issuing notice u/s 148 of the Act was very much available when the original assessment proceedings were concluded. It thus appears that on the very same material which was available when the original assessment proceedings u/s 143(3) of the Act were completed, the AO has sought to reopen the assessment proceedings u/s
9 ITA No.1524/Kol/2013& C.O.No.99/Kol/2013 M/s. Gloster Jute Mills Ltd. A.Yr.2003-04 148 of the Act merely on the basis of change of opinion. There was no tangible materials coming into the possession of the AO after conclusion of the assessment proceedings u/s 143(3) of the Act on the basis of which he formed a belief regarding escapement of income chargeable to tax. In other words, the AO has come to a different conclusion on the material already available on record while concluding the assessment proceedings u/s 143(3) of the Act and merely on the change of opinion on the same set of facts. Such action of the AO has been held to be illegal and not valid in law by the decisions referred to by the assessee before CIT(A). We, therefore, hold that the initiation of proceedings u/s 147 of the Act was not valid and therefore order of re- assessment has to be annulled and is accordingly annulled.
As far as the merits of addition made by the AO which was deleted by CIT(A) is concerned, we are of the view that the conclusion of CIT(A)on this issue are correct and supported by the decision of the Hon’ble Delhi High Court referred to in the submissions before CIT(A). We are of the view that the contribution cannot be considered as prior period expenses in view of the specific provision of section 36(1)(iv) r.w.s. 43B of the Act and deduction on the basis of payment is permissible in law. We are of the view that order of CIT(A) in this regard does not call for any interference. 16. In the result the appeal by the revenue is dismissed and the Cross Objection of the assessee is allowed.
Order pronounced in the Court on 01.03.2017.
Sd/- Sd/- [Waseem Ahmed] [ N.V.Vasudevan ] Accountant Member Judicial Member
Dated : 01.03.2017. [RG PS] 9
10 ITA No.1524/Kol/2013& C.O.No.99/Kol/2013 M/s. Gloster Jute Mills Ltd. A.Yr.2003-04
Copy of the order forwarded to:
M/s. Gloster Jute Mills Ltd., 21, Strand Road, Kolkata-700001. 2. D.C.I.T. Cirle-1, Kolkata. 3. CIT(A)-XX, Kolkata 4. CIT- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.