Majalgaon Sahakari Sakhar Karkhana Limited, Beed v. Asst.CIT, Circle-2, Aurangabad

ITA 821/PUN/2013 | 2000-2001
Pronouncement Date: 30-04-2014 | Result: Allowed

Appeal Details

RSA Number 82124514 RSA 2013
Assessee PAN AAABM0171G
Bench Pune
Appeal Number ITA 821/PUN/2013
Duration Of Justice 1 year(s) 21 day(s)
Appellant Majalgaon Sahakari Sakhar Karkhana Limited, Beed
Respondent Asst.CIT, Circle-2, Aurangabad
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 30-04-2014
Assessment Year 2000-2001
Appeal Filed On 08-04-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE: SHRI R.S. PADVEKAR JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO S . 821 & 822 / P N/ 20 1 3 ASSESSMENT YEAR S : 2000 - 01 & 2008 - 09 MAJALGAON SAHAKAR I SAKHAR KARKHANA LTD. A/P. SUNDARNAGAR TAL. - MAJALGAON DISTT. - BEED VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2 AURANGABAD (APPELLANT) (RESPONDENT) PAN NO. AAABM0171G APPELLANT BY: N O N E RESPONDENT BY: SHRI P.L. PATHADE D ATE OF HEARING : 0 9 - 0 4 - 2014 DATE OF PRONOUNCEMENT : 30 - 0 4 - 2014 ORDER PER R.S. PADVEKAR JM: - TH ESE TWO APPEALS ARE FILED BY THE ASSESSEE CHALLENGING THE RESPECTIVE IMPUGNED ORDERS OF THE LD. CIT(A) AURANGABAD DATED 27 - 02 - 2013 FOR THE A.YS. 2000 - 0 1 & 2008 - 09. WE FIRST TAKE THE APPEAL FOR THE A.Y. 2000 - 01. THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GROUND: 1. ON THE FACT AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AURANGABAD HAS ERRED IN DIS ALLOWING AND ADDING BACK AN AMOUNT OF RS.21 67 008/ - ON ACCOUNT OF AREA DEVELOPMENT FUND. 2. THE FACTS WHICH ARE REVEALED FROM THE RECORDS ARE AS UNDER. THIS IS THE SECOND ROUND OF APPEAL BEFORE THE TRIBUNAL. THE ASSESSEE IS A CO - OPERATIVE SUGAR FACTO RY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF SUGAR ALCOHOL AND ITS BI - PRODUCTS . THE 2 ITA NOS. 821 & 822/PN/2013 MAJALGAON SSK LTD. BEED ASSESSEE HAS DE DUCTED THE A MOUNT TOWARDS THE AREA DEVELOPMENT FUND (IN SHORT THE ADF) OF RS.21 67 008/ - FROM SUGARCANE PRICE AS PER THE DIRECTIONS GIVEN BY THE COMMISSIONER OF SUGAR MAHARASHTRA STATE PUNE. ADMITTEDLY THE ASSESSEE HAS NOT SPENT ANY AMOUNT IN THIS PARTICULAR YEAR TOWARDS THE ADF. THE CLAIM OF THE ASSESSEE WAS AGAIN REJECTED BY THE ASSESSING OFFICER AND THE SAME WAS CONFIRMED BY TH E LD. CIT(A). 3. WE HAVE HEARD THE LD. DR. NONE WAS PRESENT FOR THE ASSESSEE. ON THE PERUSAL OF THE RECORD IT IS SEEN THAT THE NOTICE OF HEARING HAS BEEN DULY SERVED ON THE ASSESSEE BY REGISTERED POST AD AND THE ACKNOWLEDGEMENT IS PLACED ON RECORD. THE IDENTICAL ISSUE HAS COME FOR THE CONSIDERATION BEFORE THE ITAT PUNE IN THE CASE OF LOKNETE BALASAHEB DESAI SAHAKARI SAKHAR KARKHANA LTD. & ORS. VS. DCIT ITA NOS. 2060 TO 2075/PN/2012 AND ITA NOS. 05 TO 11/PN/2013 ORDER DATED 28 - 02 - 2014 AND IT IS HELD AS UNDER: 18. NOW THE QUESTION BEFORE US IS WHETHER THIS COLLECTION MADE TOWARDS ADF BY THE ASSESSEE SUGAR FACTORY IS IMPRESSED WITH THE SPECIFIC OBLIGATION OR ASSESSEE HOLD THIS MONEY AS A TRUSTEE AS HELD IN THE CASE OF BIJLEE COTTON MILLS (P.) LTD. (S UPRA)? OUR ANSWER IS YES. IN THIS CASE EVEN IF INITIALLY IT WAS BY WAY OF DISCRETION THE SUGAR CO - OPERATIVE FACTORIES WERE COLLECTING THE FUND AND SPENDING THE SAME ON THE DIFFERENT PROJECTS UNDERTAKEN IN THE AREA OF OPERATION BUT SUBSEQUENTLY THE COLLEC TION AND USE OF FUND WAS REGULATED BY THE INTERVENTION OF THE GOVT. BY ISSUING THE ORDER U/S. 79A OF THE MAHARASHTRA CO - OPERATIVE SOCIETY ACT. THE ASSESSEE HAS MAINTAINED THE SEPARATE ACCOUNT IN RESPECT OF THIS FUND AND AS PER THE STATEMENT FILED BEFORE U S IT IS SEEN THAT THE ASSESSEE SUGAR FACTORY IS UTILIZING THE ADF ON DIFFERENT PROJECTS AS PER THE APPROVAL GIVEN IN THE ANNUAL GENERAL MEETING (AGM). THE ASSESSEE HAS TO SUBMIT THE REPORT EVERY YEAR IN RESPECT OF THE COLLECTION AND UTILIZATION OF THE AMO UNT UNDER THE ADF TO THE GOVERNMENT. NOWHERE IT IS THE CASE OF THE REVENUE THAT ANY MONEY IS DIVERTED BY THE ASSESSEE SUGAR FACTORY FOR ANY OTHER PURPOSE OTHER THAN 3 ITA NOS. 821 & 822/PN/2013 MAJALGAON SSK LTD. BEED APPROVED IN THE AGM OF THE MEMBERS. MERELY BECAUSE THE AMOUNT COLLECTED IS NOT KEPT SEPA RATELY IN THE BANK ACCOUNT THE CHARACTER OF THE AMOUNT WILL NOT CHANGE AS HELD IN THE CASE OF BIJLEE COTTON MILLS (P.) LTD. (SUPRA). AS SUBMITTED BEFORE US THE ASSESSEE IS REQUIRED TO SUBMIT THE AUDITORS REPORT TO THE DIRECTOR OF SUGAR GOVT. OF MAHARAS HTRA EACH YEAR SHOWING THE OPENING BALANCE OF THE ADF AMOUNT COLLECTED DURING THE YEAR AND UTILIZED DURING THE YEAR (PAGE NO. 29 OF THE COMPILATION). WE THEREFORE HOLD THAT THE COLLECTION MADE BY THE ASSESSEE TOWARDS THE ADF BY WAY OF DEDUCTION MADE FR OM THE SUGARCANE BILLS PAYABLE TO THE MEMBERS AND NON - MEMBERS IS IMPRESSED WITH AN OBLIGATION TO SPEND THE SAME FOR THE SPECIFIED PURPOSES AND THE PERSONS/MEMBERS PAYING CONTRIBUTION TO ADF ARE AWARE BEFORE THE DEDUCTION IS MADE THAT FOR WHAT PURPOSE THE A SSESSEE CO - OPERATIVE FACTORY IS COLLECTING THE SAID FUND AND WHERE THE FUND WILL BE UTILIZED. IN OUR HUMBLE OPINION THE ASSESSEES ROLE IS LIKE A TRUSTEE OF THE AREA DEVELOPMENT FUND. WE ACCORDINGLY DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. IT WA S SUBMITTED BEFORE US THAT THE DEPARTMENT HAS ALLOWED THE EXPENDITURE INCURRED BY THE ASSESSEE OUT OF THE ADF ON THE ACTUAL BASIS TREATING THE SAME AS A BUSINESS EXPENSES. AS WE HAVE HELD THAT THE AMOUNT COLLECTED UNDER THE ADF IS NOT A TRADING RECEIPT IN THE HANDS OF THE ASSESSEE HENCE THE DEDUCTION GIVEN BY THE ASSESSING OFFICER IN THE RESPECTIVE ASSESSMENT YEARS TOWARDS ADF IS TO BE WITHDRAWN. THE ASSESSING OFFICER IS ACCORDINGLY DIRECT TO EXCLUDE FULLY THE AMOUNT INCLUDED TOWARDS AREA DEVELOPMENT FU ND IN THE INCOME OF THE ASSESSEE AND ALSO TO WITHDRAW THE AMOUNT ALLOWED AS A BUSINESS EXPENDITURE TOWARDS ADF. ACCORDINGLY THE ASSESSEE SUCCEEDS ON THIS ISSUE. 4. WE THEREFORE FOLLOWING THE DECISION IN THE CASE OF LOKNETE BALASAHEB DESAI SAHAKARI SA KHAR KARKHANA LTD. & ORS. (SUPRA) ALLOW THE GROUND TAKEN BY THE ASSESSEE. 5. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED. 6. NOW WE TAKE UP A.Y. 2008 - 09. THE ASSESSEE HAS TAKEN THE FOLLOWING TWO GROUNDS: 4 ITA NOS. 821 & 822/PN/2013 MAJALGAON SSK LTD. BEED 1. ON THE FACT AND IN THE CIRCUMSTANCE OF T HE CASE AND IN LAW OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AURANGABAD HAS ERRED IN DISALLOWING AND ADDING BACK AN AMOUNT OF RS. 9 259/ - ON ACCOUNT OF SALE OF SUGAR AT CONCESSIONAL RATE. 2. ON THE FACT AND IN THE CIRCUMSTANCE OF THE CASE AND IN L AW OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AURANGABAD HAS ERRED IN DISALLOWING AND ADDING BACK AN AMOUNT OF RS. 18 88 927/ - ON ACCOUNT OF GRATUITY PAYABLE. 7. THE FIRST ISSUE IS IN RESPECT OF THE DISALLOWANCE OF RS.9 259/ - TOWARDS THE SALE OF SUGAR AT CONCESSIONAL RATE. AS OBSERVED BY THE ASSESSING OFFICER THE ASSESSEE HAS SOLD THE SUGAR AT CONCESSIONAL RATE TO MEMBERS AND NON - MEMBERS . A S PER THE DETAILS GIVEN BY THE ASSESSING OFFICER THE BENEFIT TO THE EXTENT OF RS.92 596/ - WAS GIV EN T HE ASSESSING OFFICER MADE THE ADDITION TO THAT EXTENT. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT(A) AND LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE ON PRINCIPLE BY HOLDING THAT THE SALE OF SUGAR AT CONCESSIONAL RATE TO ITS MEMBERS IS ON ACCO UNT OF BUSINESS EXPEDIENCY AND FOR RUNNING THE BUSINESS SMOOTHLY WITHOUT INTERRUPTION IN PRODUCTION ACTIVITY FOR WANT OF SUGARCANE. THE OPERATIVE PART OF THE FINDINGS OF THE LD. CIT(A) ARE AS UNDER: 5.2. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE A ND RIVAL CONTENTIONS. THE ISSUE IS COVERED IN FAVOUR OF THE APPELLANT BY THE HON'BLE ITAT IN THE CASE OF SHRI CHHATRAPATI SHAHU SSK (ITA N0.1924/PN/90) IN ITS ORDER DATED 08/08/1996. THE RELEVANT DECISION IN PARA - 39 IS REPRODUCED AS UNDER - 'WE HAVE CONSID ERED THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE REGARDING THE FACT THAT THE ASSESSEE HAS SOLD SUGAR TO ITS MEMBERS AT CONCESSIONAL RATES. ON SUCH CONCESSIONAL SALES NO PROFIT HAS ACCRUED TO THE ASSESSEE. THERE IS NO LAW TO PROHIBIT THE CONCESSIONAL SALES BY THE ASSESSEE SOCIETY TO ITS MEMBERS. THE SUPREME COURT IN THE CASE OF CIT V. A. RAMAN & CO.(67 ITR 11) HAS LAID 5 ITA NOS. 821 & 822/PN/2013 MAJALGAON SSK LTD. BEED DOWN THAT THE LAW DOES NOT OBLIGE A TRADER TO MAKE THE MAXIMUM PROFIT THAT HE CAN OUT OF HIS TRADING - TRANSACTIONS. INCOME WHICH ACCRUES TO A TRADER IS TAXABLE IN HIS HANDS: INCOME WHICH HE COULD HAVE BUT HAS NOT EARNED IS NOT MADE TAXABLE AS INCOME ACCRUED TO HIM. IN THE CASE OF THE ASSESSEE BEFORE US NO INCOME ACCRUED TO THE ASSESSEE ON CONCESSIONAL SALES AND THE ASSESSEE SOCIETY WAS NOT LIABLE TO BE ASSESSED ON THE SUMS ADDED BY THE REVENUE FOR THESE ASSESSMENT YEARS. IN OUR VIEW THEREFORE THE ADDITIONS WERE NOT JUSTIFIED AND HENCE DELETED.' SIMILAR VIEW IN RESPECT OF CONCESSION BY CONSUMER COOPERATIVE STORE HAS BEEN GIVEN IN THE CBDT C IRCULAR NO.117 AS REPORTED IN (1974) 094 ITR(STAT)0001A. THE CIRCULAR READS AS UNDER: I AM DIRECTED TO SAY THAT AN INSTANCE HAS COME TO THE NOTICE OF THE BOARD WHEREIN THE INCOME TAX OFFICER IN THE CASE OF A CONSUMER CO - OPERATIVE STORE HAD DISALLOWED THE CLAIM FOR DEDUCTION ON ACCOUNT OF REBATE ALLOWED ON THE PURCHASES MADE BY THE MEMBERS OF THE STORE. 2. THE BOARD IN CONSULTATION WITH THE DEPARTMENT OF COMMUNITY DEVELOPMENT AND CO - OPERATION HAS DECIDED THAT REBATE OR BONUS (WHICH IS IN THE NATURE OF DEFER RED DISCOUNT) PASSED ON BY THE CONSUMER CO - OPERATIVE STORES TO THEIR MEMBERS ON THE VALUE OF THE PURCHASES MADE BY THEM DURING A YEAR SHOULD BE ALLOWED AS A DEDUCTION IN COMPUTING THE BUSINESS INCOME OF SUCH A SOCIETY. (SD.) T.P. JHUNJHUNWALA SECRETARY CENTRAL BOARD OF DIRECT TAXES'. KEEPING IN VIEW THE DECISION OF HON'BLE ITAT AND THE CIRCULAR RELIED ON BY THE APPELLANT THE ADDITION IS REQUIRED TO BE DELETED. RECENTLY THE HON'BLE SUPREME COURT HAS DECIDED THE SIMILAR ISSUE IN THE CASE OF CIT BOMBAY VS . KRISHAN SAHAKARI SAKHAR KARKHANA LTD. 254 CTR 638 THE HON'BLE APEX COURT HAS HELD AS UNDER 'THE QUESTION WHETHER THE ABOVE DIFFERENCE BETWEEN THE FAIR MARKET PRICE AND THE CONCESSIONAL PRICE SHOULD OR SHOULD NOT BE ADDED TO THE TOTAL INCOME OF THE A SSESSEE(S) SOCIETY NEEDS 6 ITA NOS. 821 & 822/PN/2013 MAJALGAON SSK LTD. BEED TO BE RELOOKED BY COMMISSIONER OF INCOME TAX (APPEALS) (FOR SHORT 'CIT(A)'). APART FROM THE ABOVE STATED QUESTION THE CIT(A) WOULD TAKE INTO ACCOUNT WHETHER THE ABOVE MENTIONED PRACTICE OF SELLING SUGAR AT CONCESSIONAL RATE HAS BE COME THE PRACTICE OR CUSTOM IN THE COOPERATIVE SUGAR INDUSTRY? AND WHETHER ANY RESOLUTION HAS BEEN PASSED BY STATE GOVERNMENT SUPPORTING THE PRACTICE? THE CIT(A) WOULD ALSO CONSIDER ON WHAT BASIS THE QUANTITY OF THE FINAL PRODUCT I.E. SUGAR IS BEING FIXED FOR SALE TO FARMERS/CANE GROWERS/MEMBERS EACH YEAR ON ONE TO ONE BASIS APART FROM DIWALI?' WITH THE ABOVE DIRECTIONS THE HON'BLE SUPREME COURT HAS REMITTED THE ISSUE TO THE FILE OF THE CIT(A) TO DENOVO CONSIDER THE MATTER. THE ABOVE DIRECTIONS OF HON'BLE SUPREME COURT ARE BEING CONSIDERED AS UNDER - (1) WHETHER THE ABOVE MENTIONED PRACTICE OF SELLING SUGAR AT CONCESSIONAL RATE HAS BECOME THE PRACTICE OR CUSTOM IN THE COOPERATIVE SUGAR INDUSTRY? IN THIS REGARD IT HAS BEEN OBSERVED THAT THE SELLING OF S UGAR AT CONCESSIONAL RATE HAS BECOME THE PRACTICE/CUSTOM IN THE COOPERATIVE SUGAR INDUSTRY IN MAHARASHTRA. (2) WHETHER ANY RESOLUTION HAS BEEN PASSED BY STATE GOVERNMENT SUPPORTING THE PRACTICE? IN THIS REGARD IT HAS BEEN OBSERVED THAT THE ACTIVITY OF ALL THE SSKS LTD. IN MAHARASHTRA ARE GOVERNED BY MAHARASHTRA COOPERATIVE SOCIETIES ACT AND THE REGISTRAR OF SOCIETIES SUPERVISES AND CONTROLS THE ACTIVITY OF SSKS IN MAHARASHTRA. THE SUGAR COMMISSIONER GOVERNMENT OF MAHARASHTRA VIDE NOTIFICATION DATED 1 S T MARCH 2006 HAS DIRECTED THAT 5 KGS./MONTH SUGAR BE SOLD AT CONCESSIONAL RATE TO MEMBERS WHO HAVE REGULARLY SUPPLIED SUGARCANE AND TO THE EMPLOYEES. IT WAS ALSO STATED THAT THE CONCESSIONAL PRICE CHARGED BE THE LEVY SUGAR PRICE. (3) THE CIT(A) WOULD ALSO CONSIDER ON WHAT BASIS THE QUANTITY OF THE FINAL PRODUCT I.E. SUGAR IS BEING FIXED FOR SALE TO FARMERS/CANE GROWERS/MEMBERS EACH YEAR ON ONE TO ONE BASIS APART FROM DIWALI?' 7 ITA NOS. 821 & 822/PN/2013 MAJALGAON SSK LTD. BEED IN THIS REGARD IT HAS BEEN OBSERVED THAT A SPECIFIC QUANTITY OF SUGAR IS SOLD TO THE MEMBERS OF THE SOCIETY AT CONCESSIONAL RATE EVERY MONTH APART FROM DIWALI. THE QUANTITY IS DETERMINED BY EACH SSK WHICH IS GENERALLY DETERMINED TO THE EXTENT REQUIRED BY THE FARMERS AND THEIR FAMILY MEMBERS FOR OWN CONSUMPTION. IT HAS ALSO BEEN OBSER VED THAT IN MAHARASHTRA THERE IS ACUTE COMPETITION AMONGST THE SUGAR FACTORIES OF PURCHASING SUGARCANE FROM THE FARMERS AS THE AVAILABILITY OF SUGARCANE IS LESS THAN THE CAPACITY OF SUGAR FACTORIES OF PRODUCING SUGAR. IN THE ABSENCE OF UNINTERRUPTED SUGA RCANE SUPPLY THE SUGAR FACTORIES ARE LIKELY TO INCUR LOSSES. THEREFORE IN ORDER TO ATTRACT FARMERS THE SSKS HAVE ADOPTED THE POLICY OF SUPPLYING SUGAR TO THE MEMBERS/SUGARCANE GROWERS AT CONCESSIONAL RATE. THIS SALE OF SUGAR AT CONCESSIONAL RATE TO MEMB ERS IS ON ACCOUNT OF BUSINESS EXPEDIENCY AND FOR RUNNING THE BUSINESS SMOOTHLY WITHOUT INTERRUPTION IN PRODUCTION ACTIVITY FOR WANT OF SUGARCANE. THE SAID EXPENDITURE INCURRED BY THE SSKS ON ACCOUNT OF SALE OF SUGAR AT CONCESSIONAL RATE IS CERTAINLY INCURR ED NECESSARILY AND EXCLUSIVELY FOR BUSINESS PURPOSE. HOWEVER THE LD.AR OF THE APPELLANT DID NOT SUBMIT THE EXACT QUANTUM OF SUGAR SUPPLIED TO THE MEMBERS/NON - MEMBERS AND EMPLOYEES AND THE CONCESSIONAL PRICE AT WHICH THE SAME HAS BEEN SUPPLIED. THEREFORE IT COULD NOT BE ASCERTAINED WHETHER THE CONCESSIONAL SUPPLY OF SUGARCANE HAS BEEN MADE IN ACCORDANCE WITH THE DIRECTIONS ISSUED BY THE SUGAR COMMISSIONER GOVERNMENT OF MAHARASHTRA VIDE NOTIFICATION DATED 1 ST MARCH 2006. 5.3. IN VIEW OF THE ABOVE FACTS A ND DISCUSSION AND TO MEET THE ENDS OF JUSTICE I AM OF THE CONSIDERED VIEW THAT THE DISALLOWANCE MADE BY THE A.O. IS TO BE RESTRICTED TO 10% OF THE SAID DISALLOWANCE. THE ADDITION MADE BY THE A.O. ON ACCOUNT OF SALE OF SUGAR AT CONCESSIONAL RATE IS THEREF ORE CONFIRMED TO THE EXTENT OF RS.9 259/ - AND DELETED TO THE EXTENT OF RS.83 337/ - . THE A.O. IS DIRECTED ACCORDINGLY. GROUND NO.2 STANDS PARTLY ALLOWED. 8. THE LD. CIT(A) HAS MADE THE DISALLOWANCE @ 10% OF THE TOTAL ADDITION MADE BY THE ASSESSING OFFICE R BY OBSERVING THAT THE REQUIRED DETAILS WERE NOT FILED BY THE ASSESSEE. IT IS ALSO SEEN THAT THE LD. CIT(A) 8 ITA NOS. 821 & 822/PN/2013 MAJALGAON SSK LTD. BEED HAS DECIDED THE ISSUE IN THE LIGHT OF THE DIRECTION GIVEN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT BOMBAY VS. KRISHNA SAHAKARI SAKHAR KARK HANA LTD. 254 CTR 638. WE THEREFORE FIND NO REASON TO TAKE DIFFERENT VIEW AS THE ADDITION SUSTAINED BY THE LD. CIT(A) IS REASONABLE ONE. WE ACCORDINGLY CONFIRM THE ORDER OF THE LD. CIT(A) AND DISMISSED THE GROUND NO. 1. 9. THE NEXT ISSUE IS DISAL LOWANCE OF THE PROVISION TOWARDS THE GRATUITY PAYABLE. IN THIS YEAR THE ASSESSEE HAS MADE THE PROVISIONS TOWARDS THE GRATUITY PAYABLE TO THE EXTENT OF RS.18 88 927/ - WHICH WAS DISALLOWED BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SEC. 40A(7)(A ) OF THE ACT. THE LD. CIT(A) HAS NEATLY DISCUSSED THIS ISSUE WHICH AS UNDER: 8. GROUND NO. 3 IS IN RESPECT OF DISALLOWANCE OF PROVISION FOR GRATUITY OF RS.18 88 927/ - . THE A.O. HAS DISALLOWED THE SAID PROVISION FOR GRATUITY U/S. 40A(7)(A) OF THE ACT STAT ING THAT THE PROVISION TOWARDS GRATUITY IS NOT ALLOWABLE. IN THIS REGARD THE AR OF THE APPELLANT HAS CLAIMED THAT THE APPELLANT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND HENCE THE PROVISION IS ALLOWABLE. THE APPELLANT FURTHER CLAIMED THAT AS PER SECTION 43(2) OF THE ACT THE AMOUNT PAYABLE IS TO BE TREATED AS PAID. 8.1. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND RIVAL CONTENTIONS. ON PERUSAL OF PROVISIONS OF SECTION 40A(7) IT HAS BEEN NOTICED THAT GRATUITY IS A LIABILITY WHICH NORMALL Y ARISES ACCORDING TO THE LENGTH OF THE SERVICE OF THE EMPLOYEES' OF THE ASSESSEE. THE LIABILITY WOULD GENERALLY ACCRUE YEAR AFTER YEAR. HOWEVER DUE TO PRACTICAL DIFFICULTIES IN COMPUTING THE DEDUCTION ALLOWABLE ON ACCRUAL BASIS IT HAS BEEN PROVIDED UNDE R SECTION 40A(7) THAT DEDUCTION ON ACCOUNT OF PROVISION FOR GRATUITY SHALL BE ALLOWED ONLY WHEN : (A) THE AMOUNT OF GRATUITY HAS BEEN PAID OR ACTUALLY BECOME PAYABLE DURING THE PREVIOUS YEAR TO THE EMPLOYEES' (PROVIDED DEDUCTION HAS NOT BEEN CLAIMED UNDER CLAUSE (B) BELOW); OR (B) WHEN A PROVISION HAS BEEN MADE FOR PAYMENT OF SUM BY WAY OF ANY CONTRIBUTION TOWARD AN APPROVED GRATUITY FUND. 9 ITA NOS. 821 & 822/PN/2013 MAJALGAON SSK LTD. BEED THEREFORE NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY PROVISION MADE FOR THE PAYMENT OF GRATUITY TO THE EMPLOYEES EVEN THOUGH THE ASSESSEE MAY BE FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING UNLESS IT IS A PROVISION FOR THE PURPOSE OF PAYMENT OF A SUM BY WAY OF ANY CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND. IN VIEW OF THE ABOVE FACTS AND PROVISION OF SECTION 4 0A(7) THE A.O. IS JUSTIFIED IN MAKING ADDITION OF RS.18 88 927/ - . GROUND NO.3 IS DISMISSED. 10. IN SUM AND SUBSTANCE THE LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY INTERPRETING THE PROVISIONS OF SEC. 40A(7). SEC. 40A(7) READS AS UNDE R: [(7) (A) SUBJECT TO THE PROVISIONS OF CLAUSE (B) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY PROVISION (WHETHER CALLED AS SUCH OR BY ANY OTHER NAME) MADE BY THE ASSESSEE FOR THE PAYMENT OF GRATUITY TO HIS EMPLOYEES ON THEIR RETIREMENT OR ON TERMIN ATION OF THEIR EMPLOYMENT FOR ANY REASON. (B) NOTHING IN CLAUSE (A) SHALL APPLY IN RELATION TO ANY PROVISION MADE BY THE ASSESSEE FOR THE PURPOSE OF PAYMENT OF A SUM BY WAY OF ANY CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND OR FOR THE PURPOSE OF PAYMEN T OF ANY GRATUITY THAT HAS BECOME PAYABLE DURING THE PREVIOUS YEAR. EXPLANATION. - FOR THE REMOVAL OF DOUBTS IT IS HEREBY DECLARED THAT WHERE ANY PROVISION MADE BY THE ASSESSEE FOR THE PAYMENT OF GRATUITY TO HIS EMPLOYEES ON THEIR RETIREMENT OR TERMINATI ON OF THEIR EMPLOYMENT FOR ANY REASON HAS BEEN ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE ASSESSEE FOR ANY ASSESSMENT YEAR ANY SUM PAID OUT OF SUCH PROVISION BY WAY OF CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND OR BY WAY OF GRATUITY TO ANY EMPLOYEE SHALL NOT BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE SUM IS SO PAID.] 11. AS PER THE LANGUAGE USED BY THE PARLIAMENT NO DEDUCTION IS ALLOWED IN RESPECT OF ANY PROVISION MADE TOWARDS THE GRA TUITY SAVE THE CIRCUMSTANCES MENTIONED IN CLAUSE (B) TO SEC. 40A(7). ADMITTEDLY IT IS 10 ITA NOS. 821 & 822/PN/2013 MAJALGAON SSK LTD. BEED NOT THE CASE OF THE ASSESSEE AS PER THE FACTS ON RECORD THAT THE PROVISION IS MADE IN RESPECT OF THE GRATUITY PAYABLE DURING THE PREVIOUS YEAR RELEVANT TO THE A.Y. 20 08 - 09 NOR IT IS TOWARDS ANY FUND. IN OUR OPINION THE DECISION OF THE LD. CIT(A) ON THE ISSUE IS AS PER THE PROVISION OF LAW AND NO INTERFERENCE IS CALLED FOR. ACCORDINGLY GROUND NO. 2 IS DISMISSED. 12. IN THE RESULT THE ASSESSEES APPEAL IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 30 - 0 4 - 20 1 4 SD/ - SD/ - ( R.K. PANDA ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE DATED : 30 TH APRIL 20 1 4 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 TH E CIT(A) AURANGABAD 4 THE CIT AURANGABAD 5 THE DR ITAT A BENCH PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE