2018 (3) TMI 303 - AT - Income Tax

Disallowance of exemption claimed u/s 10(10B) - amount paid to the employer on resignation - compensation on retrenchment from the job or ex-gratia payment - Held that - As decided in Vishnu Mohan T. Nair Vs. ITO 2018 (1) TMI 324 - ITAT AHMEDABAD the conditions of section 10(10B), so far as eligibility for exemption is concerned, is satisfied. That, however, is not the end of the matter. As regards the amount eligible for exemption under section 10(10B), it is specifically provided in the aforesaid section that the amount eligible for exemption will be the least of (i) actual amount received by the assessee; (ii) the amount specified by Central Government i.e. ₹ 5,00,000; and (iii) an amount calculated in accordance with the provisions of clause (b) of Section 25F of the Industrial Disputes Act, 1947 i.e. 15 day s average pay for every completed years of services or part thereof in excess of 6 months. One of the important restrictions on the amount eligible for exemption under section 10(10B) is that it should not exceed fifteen days average pay for every completed years of services or part thereof in excess of six months This aspect of the matter has not been examined at all. Therefore, uphold the claim in principle but remit the matter to the file of the AO for examination of the quantification part in the light of the above observation.

Summary

Issues:
1. Challenge against reopening of assessment under Section 147/148 of the Act.
2. Challenge against initiation of penalty under Section 271(1)(c) of the Act.
3. Disallowance of exemption claimed under Section 10(10B) of the Act.
4. Levying of interest under Section 234A/B/C.

Analysis:
1. The appellant contested the reopening of assessment under Section 147/148, but later withdrew this challenge, leading to its rejection.
2. The challenge against the initiation of penalty under Section 271(1)(c) was deemed premature and not maintainable at the current stage, resulting in its rejection.
3. The key issue revolved around the disallowance of exemption claimed under Section 10(10B) of the Act amounting to ?5,00,000. The appellant argued that the sum received was compensation for retrenchment, while the Assessing Officer viewed it as an ex-gratia payment. The Tribunal examined a similar case and concluded that the payment was indeed eligible for exemption under Section 10(10B) as it constituted retrenchment compensation. The Tribunal directed the Assessing Officer to verify the quantification part as per the provisions of the Act, ultimately allowing the appeal for statistical purposes.
4. The appellant contended that interest under Section 234A/B/C was not applicable, which the Counsel admitted to being consequential. This issue was acknowledged but not further elaborated upon in the judgment.

This judgment highlights the importance of correctly categorizing payments under relevant tax provisions, such as Section 10(10B) for retrenchment compensation. It emphasizes the need for a thorough examination of legal definitions and provisions to determine tax liabilities accurately. The Tribunal's decision to remit the matter for quantification verification underscores the meticulous approach required in tax assessments to ensure compliance and fairness.