2010 (9) TMI 1246 - AT - Income Tax

Summary

Issues involved: Appeal against order of CIT(A) regarding deduction of compensation paid to canteen contractor under sect ion 143(3) read with sect ion 153A for assessment year 2001-02.

Summary:
1. The only issue in the appeal was whether the compensation paid to the canteen contractor on contract termination was allowable as a business expenditure similar to a voluntary retirement scheme.
2. The AO disallowed the compensation claim of &8377; 29,80,000 during the original assessment under sect ion 143(3) but CIT(A) deleted the addition.
3. AO repeated the same addition under sect ion 153A, stating the CIT(A) order was under appeal, which the assessee challenged.
4. CIT(A, in the appellate order, allowed the deduction of compensation as it was wholly and exclusively for business purposes, akin to a voluntary retirement scheme.
5. The revenue failed to show any stay or reversal of the CIT(A) order, and as per sect ion 153A(1), the addition made in the original assessment cannot be repeated.
6. The Tribunal upheld the CIT(A) decision, dismissing the revenue's appeal.

This judgment clarifies the treatment of compensation paid to a contractor upon contract termination as a deductible business expenditure, emphasizing the necessity for expenses to be wholly and exclusively for business purposes to qualify for deduction u/s 37 of the IT Act.