2012 (9) TMI 332 - HC - Income Tax

Disallowance of expenditure in connection with VRS - Held that - this question of fact viz. whether the payments had been made under the Voluntary Retirement Scheme had been raised unnecessarily by the Commissioner of Income Tax (Appeals). The Assessing Officer had not disallowed the same on this ground. - even assuming that the appellant is entitled to raise this issue in appeal, it would not raise a substantial question of law. MAT - book adjustment - ITAT hold that the extraordinary items in the form of Rs.30 crores representing profit on transfer of land for development and Rs. 73 crores representing reversal of provisions for construction cost credited by the assessee in its accounts should be excluded from the net profit as per books which is computed as per Part II and Part III of Schedule VI to Companies Act on the ground that no income can be included in the book profit under section 115JA based on mere book entries? - Decision of ITAT sustained. VRS payment of Rs.27.92 crores, made to workers for closure of factory - It is pertinent to note that before the Tribunal, the appellant had not contended that the decision of this Court in the matter of Commissioner of Income-Tax Versus Bhor Industries Ltd.( 2003 (2) TMI 20 - BOMBAY HIGH COURT) is inapplicable to the present facts in fact, in it s appeal to the Tribunal the appellant-Revenue had urged that Bhor Industries is inapplicable only because the decision has not been accepted by the Department. Therefore, it is not open to urge a new ground or facts in third appeal.

Summary

Issues:
1. Allowability of payments under Voluntary Retirement Scheme as revenue expenditure.
2. Dispute regarding proof of payment under Voluntary Retirement Scheme.
3. Treatment of Voluntary Retirement Scheme payments as revenue expenditure.
4. Applicability of judicial pronouncements in determining revenue expenditure.
5. Exclusion of extraordinary items from net profit calculation.
6. Consideration of judicial pronouncements in altering net profit declared by the assessee.

Analysis:

1. The appeal involved a dispute regarding the allowability of payments amounting to Rs.86.32 lakhs under the Voluntary Retirement Scheme (VRS) as revenue expenditure for closure of business. The appellant questioned the Tribunal's decision to treat these payments as revenue expenditure, arguing that they were not made in the normal course of business but in connection with the VRS.

2. The appellant raised a concern about the lack of proof provided by the respondent regarding the payments made under the VRS. However, it was noted that the Assessing Officer did not dispute that the payments were made under the scheme, and the Tribunal confirmed the same after examining the material on record.

3. Another issue raised was the treatment of a VRS payment of Rs.27.92 crores made to workers for the closure of a factory with the intention to develop mill land. The appellant contested the Tribunal's decision to consider this payment as revenue expenditure, citing differences from a previous case involving Bhor Industries Limited.

4. The appellant further questioned the Tribunal's decision regarding the exclusion of extraordinary items, such as profit on land transfer and reversal of provisions, from the net profit calculation based on the Companies Act. The appellant argued that these items should not be excluded based solely on book entries.

5. Additionally, the appellant raised concerns about the Tribunal ignoring a judicial pronouncement in the case of Apollo Tyres regarding the alteration of net profit declared by the assessee. The appellant contended that the Tribunal should have considered this precedent in its decision-making process.

6. The judgment highlighted that the questions raised by the appellant regarding the exclusion of extraordinary items and the application of judicial pronouncements were admitted for further consideration. The Court acknowledged the relevance of previous decisions, such as the case of Bhor Industries Limited, in determining the applicability of certain principles to the present case. The Court also emphasized the importance of consistency in legal arguments presented at different stages of the appeal process.