2017 (9) TMI 1527 - HC - Income Tax

Disallowance u/s 14A - expenses of VRS scheme - Held that - As far as disallowance under section 14A of the Act is concerned, the question does not subsist as in the assessee s own case for the previous assessment year, the said aspect has been considered in favour of the assessee and the said order has become final. As far as the expenses of VRS scheme is concerned, it has been held on fact by the Tribunal that the business of the assessee has not closed down and the same is continuing. This court in the case of CIT v. Foseco India Ltd. (2013 (6) TMI 227 - BOMBAY HIGH COURT) has observed that the expenditure incurred relating to VRS scheme is available as revenue expenses. No substantial question of law.

Summary

Issues Involved:
1. Disallowance under section 14A of the Act
2. Disallowance on account of VRS expenses

Analysis:

Issue 1: Disallowance under section 14A of the Act
The Revenue filed an appeal challenging the deletion of disallowance made under section 14A of the Act. The Tribunal was criticized for not considering that the assessee had not proven that all interest-bearing funds were solely for business purposes. The Tribunal's reliance on certain judgments was deemed erroneous. The appellant argued that the disallowance should not have been deleted. However, the respondent contended that a similar issue had been decided in favor of the assessee in a previous assessment. The respondent supported the allowance of expenses towards VRS, citing that the factories were still operational. The court noted that the issue of disallowance under section 14A had been decided in favor of the assessee in a previous assessment, and the expenses towards VRS were justified based on the functioning status of the assessee's businesses, as supported by relevant judgments.

Issue 2: Disallowance on account of VRS expenses
The Tribunal had deleted the disallowance on account of VRS expenses, stating that the assessee's business had not ceased operations. The court referred to the judgment in CIT v. Foseco India Ltd., which supported the treatment of VRS expenses as revenue expenses. Consequently, the court found no substantial question of law in the appeal and dismissed it without costs.

In conclusion, the High Court upheld the Tribunal's decision to delete the disallowances under section 14A of the Act and on account of VRS expenses, based on the factual and legal analysis presented during the proceedings.