Principal Commissioner Of Income Tax v. M/S Rajasthan State Seed Corporation Ltd

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR D.B. Income Tax Appeal No.4/2016 Principal Commissioner of Income Tax Vs. M/s Rajasthan State Seed Corporation Ltd. Date of order 29.4.2016 Hon'ble Mr. Justice M.N. Bhandari Hon'ble Mr. Justice J.K. Ranka Mr. R.B. Mathur Adv. & Mr. Nikhil Simlote Adv., for the petitioner. By the Court(per Ranka, J.) 1.Instant appeal is directed against the order dt.17.07.2015passed by the Income Tax Appellate Tribunal (for short ITAT) inITA No.893/JP/2012. It relates to assessment year 2009-10. 2.The brief facts which can be noticed are that the respondent isa corporation established by the Government of Rajasthan and is engaged in procurement, processing and trading of seeds, tractorand agriculture implements. The assessee claims that the accountsare audited. During the course of assessment proceedings theAssessing Officer desired the assessee to explain:- (i)The expenses claimed to the tune of Rs. 982874/- being priorperiod expenses, (ii)Contribution to LIC Group Gratuity Scheme amounting toRs. 19282605/- and, (iii) Contribution to State Renewal Fund at Rs. 758134/-. 3.After raising query and seeking explanation all the three amounts as aforesaid were disallowed by the Assessing Officer onthe premise (i) that the prior period expenses pertained to earlierassessment years and is not required to be allowed, during theprevious year relevant to the year under assessment. (ii) the GroupGratuity Scheme was not approved by the Commissioner whichwas mandatory and the same being not approved, the deductionunder Section 36(1)(V)was not allowable. (iii) State Renewal Fundis not an allowable expenditure within the provisions of Section 37 (1). 4.The assessee assailed the same before the learned CIT(Appeals) who allowed all the three expenses. The tribunal alsoupheld the order of the CIT (Appeal) by dismissing the appeal ofthe revenue. 5.Learned Counsel for the Revenue contended that; (i) Prior period expenses was not at all an allowable expenditureparticularly in view of the fact that they pertained to the earlier years and the assessee having followed the system of accountingthe expenditure in the year in which it was incurred, the same wasnot allowable. (ii) The Group Gratuity Scheme was not approvedby the Commissioner and it was mandatory for a claim to bedeductible under Section 36(1)(v) to get it approved and once theGratuity Insurance Scheme was not approved the claim was rightlydisallowed . (iii) Insofar as the claim of contribution to State Renewal Fund isconcerned he contended that the assessee could not prove the sameto be allowable under Section 37(1) and thus the assessee having not been able to prove the expenditure the Tribunal erred inallowing all the 3 expenses. He further contended that substantialquestions of law emerge out of the order of Tribunal and needsconsideration. 6.We have heard learned counsel for the Revenue and haveconsidered his submissions and have perused the impugned orderas also the order of the lower authorities and we are of the viewthat no substantial questions of law emerge out of the order of theTribunal so as to call for interference of this Court. 7.Insofar as the prior period expenses is concerned a finding of fact has been recorded by the Appellate Authorities that approvalfor payment of the said expenditure was given during the yearunder appeal therefore the liability crystallized during the year andsimilar method was being regularly followed by the assesseeconsistently and when there is a finding recorded by the AppellateAuthorities that the expenditure crystallized during the year, waswritten in the books this year and on year to year basis was claimedin the same manner and fashion was rightly claimed and allowedduring the year, is a finding of fact. 7.Insofar as the prior period expenses is concerned a finding of fact has been recorded by the Appellate Authorities that approvalfor payment of the said expenditure was given during the yearunder appeal therefore the liability crystallized during the year andsimilar method was being regularly followed by the assesseeconsistently and when there is a finding recorded by the AppellateAuthorities that the expenditure crystallized during the year, waswritten in the books this year and on year to year basis was claimedin the same manner and fashion was rightly claimed and allowedduring the year, is a finding of fact. 8.Insofar as disallowance of claim of Rs. 19282605/- isconcerned, admittedly, the assessee-respondent has claimed to haveapplied for according approval of Group Gratuity Scheme to theconcerned Commissioner on 31[st] March, 1981. Once the assesseefiles an application for approval of the scheme, it was for theCommissioner to have taken recourse of disposing of the saidapplication either to approve or to reject the same. The samehaving not been done for the last more than almost 25 years, theassessee could not have been blamed for the same. There is nodenial by the AO that application for approval has not been filed bythe assessee on 31.3.1981. Even the Assessing Officer admits that the application for approval was submitted on 31[st] March, 1981and both the Appellate Authorities have come to a definite findingof fact that once an application has been moved for approval andhaving not been rejected then the claim could not have beendisallowed or the claim could not have been rejected merelybecause the Commissioner did not accord approval of the same.The assessee cannot be made to suffer for inaction of the revenue,admittedly the respondent-assessee is a Government of RajasthanUndertaking or even otherwise the Commissioner ought not haveslept over the application for approval for more than 25 years. TheAppellate Authorities are well justified in coming to the saidconclusion. Needless to mention that a finding has been given bythe Tribunal that the amounts are being disallowed by the learnedAO from year to year at least from the assessment year 1996-97 i.e.almost 20 years but is being allowed regularly in appeal therefore,for this reason also we reject the claim of the revenue. TheAssessing Officer ought not have made a repeated addition merelyfor this purpose and a litigation of this nature ought not to havecome before this court as appeals all throughout is being allowedyear after year. On the one hand the revenue does not decide the application for approval and the amount is being disallowed by theAssessing Officer from year to year which is not at all justified.The Revenue is well advised not to make repetitiveadditions/disallowance for this purpose and expose its weaknessbefore the Courts as on the one hand application for accordingapproval has not been granted and for inaction of Commissioneramounts are disallowed and to incur wasteful public money eitherway as at least the respondent has also to incur public money todefend its case being a Government of Rajasthan Undertaking infiling repetitive appeals though succeeding year after year. Merelybecause the tax effect is more than what is prescribed in theCirculars be it old or the latest being in December 2015 is noground to file such appeals, we though were inclined to levy coston the Revenue but stop ourselves in doing the same to make itclear to the Revenue to be more careful in future that such kind oflitigation deserves to be avoided as the Courts are choked withsuch frivolous litigation and is not able to concentrate on otherimportant issues. 9.Insofar as the expenditure incurred on State Renewal Fund isconcerned, said expenditure also goes to show that the renewal 9.Insofar as the expenditure incurred on State Renewal Fund isconcerned, said expenditure also goes to show that the renewal fund was set up by the State Government and was created with theobject of providing a safety net for the workers likely to beeffected by restricting in the State Public Enterprise and that afinding of fact has been recorded that the contribution made to theState Renewal fund is solely for the purposes of the welfare andbenefit of the employees. In our view, it is for the assessee todecide whether any expenditure should be incurred in the course ofbusiness and expenditure of this nature being for businessexpediency is certainly allowable deduction under Section 37(1) ofthe Act.In our view any normal expenditure for the welfare andbenefit of employees is allowable expenditure under Section 37(1), the Tribunal has come to a finding of fact that it was a legalobligation of the respondent-assessee towards contribution of thesaid amount to the State Renewal Fund and there being a legalobligation as well in our view the Tribunal has come to a correctconclusion. 10.Taking into consideration the facts and circumstances on allthe 3 questions raised, in our view the deletion of disallowance isbased on material evidence on record and is a finding of fact, noquestion of law much less substantial question of law can be said to emerge. We find no perversity or illegality in the orderimpugned so as to call for interference of this Court. 11.Accordingly the appeal being devoid of merits, is hereby dismissed. (J.K. Ranka) J. (M.N. Bhandari) J. savita29 [All corrections made in the judgment/order have been incorporated in the judgment/order being emailed.] SavitaJr. PA