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Issues Involved:
1. Deletion of disallowance of Rs. 48,05,871 for provision for compensation under the voluntary retirement scheme (VRS). 2. Deletion of interest amount of Rs. 14,19,296 charged under section 215 of the Income Tax Act. Issue-wise Detailed Analysis: 1. Deletion of Disallowance of Rs. 48,05,871 for Provision for Compensation under VRS: The department appealed against the deletion of disallowance of Rs. 48,05,871, which was the provision for compensation under the voluntary retirement scheme (VRS). The assessee company, a manufacturer of empty hard gelatine capsules, introduced a VRS in 1986, and 218 employees opted for it. The total liability was computed at Rs. 91,33,219, with Part I amounting to Rs. 43,27,348 paid before the end of the accounting year and Part II amounting to Rs. 48,05,871 to be paid ten months after retirement. The assessee, following the mercantile system of accounting, debited the entire amount in its accounts for the year. The Assessing Officer (AO) did not dispute the revenue nature of the expenditure but concluded that the liability for Part II payment did not accrue during the year, deeming it contingent upon certain conditions. Consequently, the AO disallowed the claim for Part II payment. The CIT(A) allowed the claim, reasoning that there was no tax planning scheme, the assessee intended not to treat the money as its own, the event giving rise to the liability occurred during the relevant previous year, and it had no correlation with the subsequent year's income-earning activity. The department's representative argued that Part II liability was contingent, referencing clauses of the VRS and the Supreme Court decision in Shree Sajjan Mills Ltd. v. CIT. The assessee's counsel contended that the liability had accrued during the year, with payment being a procedural aspect, and cited several case laws supporting the accrual of liability. Upon consideration, it was determined that the liability for Part II was contingent, as it depended on employees not taking up employment in similar units within ten months of retirement. This was supported by definitions and guidelines from the ICAI and various case laws, distinguishing the present case from those cited by the assessee. The tribunal concluded that the CIT(A) was not justified in allowing the deduction of additional compensation amounting to Rs. 48,05,871, and restored the disallowance made by the AO. 2. Deletion of Interest Amount of Rs. 14,19,296 Charged under Section 215 of the Income Tax Act: The second issue was the deletion of interest amounting to Rs. 14,19,296 charged under section 215. The AO levied interest under section 215, but the CIT(A) canceled it, observing that the main difference between estimated and assessed income arose from the unforeseen disallowance of additional compensation. The assessee estimated its income at Rs. 10 lakhs and paid advance tax accordingly but was assessed at Rs. 74,21,920. The tribunal disagreed with the CIT(A), referencing the Supreme Court decision in Central Provinces Manganese Ore Co. Ltd. v. CIT, which held that the jurisdictional fact attracting the levy could not be disputed, and it was a matter of satisfying the relevant authority for reduction or waiver of interest. The tribunal restored the levy of interest, advising the assessee to approach the AO for reduction or waiver under section 215(4) if desired. Conclusion: The appeal of the department was allowed, restoring both the disallowance of Rs. 48,05,871 for provision for compensation under VRS and the interest amount of Rs. 14,19,296 charged under section 215.
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