Ita/1/2017 Of M/S. Inditrade Capital Limited v. 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 OFI.T.A.TRIBUNAL,COCHIN BENCH APPELLANT: M/S. INDITRADE CAPITAL LIMITEDXXXVI-202, JJ COMPLEX, DAIRY METHANAM ROAD, EDAPALLY, KOCHI-682024 REPRESENTED BY ITS SR.MANAGER-ACCOUNTS & AUTHORISED SIGNATORY BIJU S. RESPONDENT: BY ADV. SRI.JOSE JACOB 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 TAXESR1 BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON15.03.2021, THE COURT ON THE SAME DAY DELIVERED THEFOLLOWING: S.V.BHATTI,J. JUDGMENT Dated this the 15th day of March 2021 Heard learned Adv.Jose Jacob for petitioner and learned SeniorAdvocate Sri.PKR Menon for respondent. 2.Assessee is the appellant. The subject appeal deals withreturns filed by the assessee for the assessment year 2009-10. TheIncome Tax Officer through assessment order dated 29.11.2011 inAnnexure-A rejected the claim of assessee under Sec.40A(7) of theIncome Tax Act; disallowed the deposit of gratuity made with a non-notified institution and recorded that the assessee failed to establishthe correctness of reconciled entries resulting in payment of money tothe customers of the assessee. 3.The assessee was doing business of stock brokering andfinancial services. The first controversy, for our consideration, relatesto the assessee depositing gratuity with unauthorized agency, saiddeposit, admittedly, was made before the return was filed by theassessee for the subject assessment year. The other controversy is The assessee was doing business of stock brokering and ITA No.1 of 2017 3 disallowance of payment of Rs.2,11,115/- by assessee tocustomers towards settlement of outstanding amount due to customer. The outstanding is stated by the assessee asresulting primarily on account of clerical errors andcorrected upon reconciliation of entries between the parties.The provisions of law which have bearing are excerptedbefore hand. 3.1 Sec.40A(7) of the Income Tax Act reads thus: “7(a) Subject to the provisions of clause (b), no deductionshall be allowed in respect of any provision (whether calledas such or by any other name) made by the assessee for thepayment of gratuity to his employees on their retirement oron termination of their employment for any reason. (b) Nothing in clause (a) shall apply in relation to anyprovision made by the assessee for the purpose of paymentof a sum by way of any contribution towards an approvedgratuity 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 ofthis Act, a deduction otherwise allowable under this Act in respectof- (a) any sum payable by the assessee by way of tax, duty, cess or feeby whatever name called, under any law for the time being inforce or ITA No.1 of 2017 4 (b) any sum payable by the assessee as an employer by way ofcontribution to any provident fund or superannuation fund orgratuity fund or any other fund for the welfare of employees or (c)any sum referred to in clause (ii) of sub-section (1) ofsection 36 or (d)any sum payable by the assessee as interest on any loan orborrowing from any public financial institution or a State financialcorporation or a State industrial investment corporation, inaccordance with the terms and conditions of the agreementgoverning such loan or borrowing, or (a) any sum payable by the assessee by way of tax, duty, cess or feeby whatever name called, under any law for the time being inforce or ITA No.1 of 2017 4 (b) any sum payable by the assessee as an employer by way ofcontribution to any provident fund or superannuation fund orgratuity fund or any other fund for the welfare of employees or (c)any sum referred to in clause (ii) of sub-section (1) ofsection 36 or (d)any sum payable by the assessee as interest on any loan orborrowing from any public financial institution or a State financialcorporation or a State industrial investment corporation, inaccordance with the terms and conditions of the agreementgoverning such loan or borrowing, or (da) any sum payable by the assessee as interest on any loan orborrowing from a deposit taking non-banking financial companyor systemically important non-deposit taking non-bankingfinancial company, in accordance with the terms and conditions ofthe agreement governing such loan or borrowing, or (e) any sum payable by the assessee as interest on any loan oradvances from a scheduled bank or a co-operative bank other thana primary agricultural credit society or a primary co-operativeagricultural and rural development bank in accordance with theterms and conditions of the agreement governing such loan oradvances, or (f) any sum payable by the assessee as an employer in lieu of anyleave at the credit of his employee, or (g) any sum payable by the assessee to the Indian Railways for theuse of railway assets, shall be allowed (irrespective of the previous year in which theliability to pay such sum was incurred by the assessee according tothe method of accounting regularly employed by him) only incomputing the income referred to in section 28 of that previousyear in which such sum is actually paid by him: Provided that nothing contained in this section shall apply inrelation to any sum which is actually paid by the assessee on orbefore the due date applicable in his case for furnishing the returnof 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 incurredas aforesaid and the evidence of such payment is furnished by theassessee along with such return.” 4.According to Adv.Jose Jacob, the assessee had,admittedly, paid the gratuity amount before the return wasfiled. The assesssee, hence, is entitled to the benefit providedby Sec.43B of the Act and this aspect arising under section43(B) has not been considered by all the three authorities.Assuming for argument sake that the amount paid ordeposited towards gratuity is not in the financial year 2009-10 and also not with a notified authority, still under Sec.43Bthe amount so deposited or paid before the actual filing ofthe income tax return ought to be given deduction whiledetermining the net taxable income. The assessee, therefore,.is entitled to deduction of gratuity from income depositedThe finding in this behalf is completely erroneous andignored the statutory benefit available to an assessee. Hefurther argued that the disallowing payments made by theassessee to its customers is equally fallacious, for, upon ITA No.1 of 2017 6 considering the nature of trade in which the assessee isinvolved, reconciliation of sale amount with payment madeby the assessee are always verifiable details and should havebeen examined by keeping in perspective trade practice andheld in favour of assessee. ITA No.1 of 2017 6 considering the nature of trade in which the assessee isinvolved, reconciliation of sale amount with payment madeby the assessee are always verifiable details and should havebeen examined by keeping in perspective trade practice andheld in favour of assessee. 5.Senior Advocate Sri.PKR Menon argues that theassessee did not claim benefit under Sec.43B of Income TaxAct. The absence of a finding under Sec.43B by theauthorities under the Act ought to be taken note by thisCourt. Further such a plea ought not to be entertained forthe first time in this appeal. He alternatively argues that theorders under appeal since do not refer to Sec. 43B of IncomeTax Act, this Court instead of deciding primary facts,however to meet the ends of justice, remits the matter to theAssessment Officer for consideration and disposal afresh.The disallowance of payment made to assessee's customers isfor valid reasons, and grounds canvassed are not within thescope 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 theconsequence of deposit of gratuity before the return is filed.7.The dates and circumstances leading to the ordersunder appeal are not in dispute. On a reading of ordersunder appeal, we are convinced to record a conclusion thatthe case of assessee has not been considered under Sec.43B ofthe Act. In our view, the respondents should haveappreciated the scheme of Sec.40(A), read with Sec.43B and ifa case is made out, extended available relief to the assessee.The findings recorded are substantially in favour of theDepartment, however, by not taking note of Sec.43B of theIncome Tax Act. Hence, to meet the ends of justice, we areconvinced that the orders under appeal are held asunsustainable for not having taken note of the provision oflaw which has bearing on the issue on hand and matterdecided afresh. The issue relating to settlement of claims ofassessee's customer needs to be verified from admissiblerecords/documents. For the present, the findings recorded ITA No.1 of 2017 8 are unsustainable. The case of department is not that thereconciliation relied on by the assessee is illegal orunsustainable but that reconciliation is not correctly proved.The assessee claims to have reconciled the accounts of allcustomers and finally transferred the amount payable by theassessee to its customers. We are of the view that the issuesare not considered in accordance with the Act, particularly,by adverting to Sec.43B of the Act. We are in agreement withthe alternative argument of learned Senior Advocate andremit the matter to Income Tax Officer for consideration anddisposal in accordance with law. Appeal is allowed, matter remitted to Income TaxOfficer. Sd/- S.V.BHATTIJUDGE Sd/- BECHU KURIAN THOMASJUDGE 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