2009 (7) TMI 74 - HC - Income Tax

Penalty u/s 271(1)(c) wrong application of provisions amount paid to employees under voluntary retirement scheme deduction is available u/s 35DDA but assessee claimed deduction u/s 37(1) - assessee believed that the payment made in a settlement arrived at under Section 18(1) of the Industrial Disputes Act, would qualify as revenue expenditure and it could claim the entire deduction under Section 37 of the Income Tax Act. whereas Section 35 DDA of the Act covers such a situation held that ingredients of Section 271(1)(c) of the Act are not satisfied penalty not to be imposed.

Summary

Issues:
Assessment of lump sum payment to workers under Section 18(1) of the Industrial Disputes Act for tax deduction; Claim of deduction under Section 35DDA or Section 37 of the Income Tax Act; Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act; Legality of penalty order and challenge by the assessee; Interpretation of legislative amendments in Section 271 by the Finance Act, 2008; Application of Section 35DDA for expenditure on voluntary retirement schemes; Consideration of Industrial Disputes Act in settlement payments; Bona fide nature of the assessee's claim and absence of concealment of income.

Analysis:
The judgment by the Delhi High Court involved an assessment of a lump sum payment made by the assessee to its workers under Section 18(1) of the Industrial Disputes Act for tax deduction. The Assessing Officer initially considered the payment as voluntary retirement compensation and applied Section 35DDA instead of Section 37 of the Income Tax Act for deduction. This led to the initiation of penalty proceedings under Section 271(1)(c) based on the Assessing Officer's view. However, the assessee challenged the penalty order, arguing that the claim under Section 37 was bona fide and not intended for concealment of income.

The Commissioner of Income Tax (Appeals) agreed with the assessee's contention, setting aside the penalty. The Revenue's appeal to the Income Tax Appellate Tribunal (I.T.A.T.) was dismissed, emphasizing that no intention to conceal income was found, and the Assessing Officer did not record satisfaction of concealment, a prerequisite for penalty under Section 271. The I.T.A.T. noted that the legislative amendment in Section 271 by the Finance Act, 2008 eliminated the requirement for such recorded satisfaction.

The High Court analyzed the application of Section 35DDA, which allows deductions for expenditure on voluntary retirement schemes. It highlighted the benevolent nature of such schemes, aimed at providing extra benefits to employees opting for voluntary retirement. The Court considered the settlement payment under Section 18(1) of the Industrial Disputes Act in the context of the assessee's business activities and the closure of a unit, leading to the dispute between employees and the employer.

The Court acknowledged the assessee's reliance on a Supreme Court judgment regarding expenditure on premature retirement payments and concluded that the claim under Section 37 was a bona fide move. It emphasized that the assessee made complete disclosure, and there was no concealment of income or inaccurate particulars. Therefore, the Court held that the requirements of Section 271(1)(c) were not satisfied in this case, and the appeal was dismissed as no substantial question of law arose for determination.