2020 (7) TMI 193 - AT - Income Tax

Non granting deduction towards payment on account of Voluntary Retirement Scheme (VRS) relating to employees of its Calcutta unit - HELD THAT - Assessee paid the above sum towards VRS of certain employees of Calcutta unit. It is noticed that similar issue came up for consideration before the Tribunal in assessee‟s own case for the immediately succeeding assessment year. Vide order 2010 (3) TMI 1171 - ITAT MUMBAI the Tribunal has decided it in favour of the assessee. Revenue carried the matter before the Hon ble Bombay High Court against the said order of the Tribunal. Vide judgment 2013 (6) TMI 227 - BOMBAY HIGH COURT Hon ble Bombay High Court dismissed the appeal of the Revenue. A copy of the judgment is available on record. It is seen that section 35DDA has been inserted by the Finance Act, 2001 providing for amortization of expenditure incurred on Voluntary Retirement Scheme. The assessment year under consideration is prior to the insertion of section 35DDA and hence cannot rule the position. The instant year would be governed by the earlier provisions. - Decided in favour of assessee.

Summary

Issues:
Deduction of payment on account of Voluntary Retirement Scheme (VRS) not granted.

Analysis:
The appeal pertains to the assessment year 1998-99, where the only issue raised is the disallowance of a deduction amounting to ?2.86 crore towards VRS payment for employees of the Calcutta unit. The Assessing Officer treated this expenditure as capital expenditure, a decision upheld by the CIT(A)-13, Pune, leading the assessee to approach the Tribunal for redressal.

Upon review, it was established that the assessee company is involved in the manufacturing and sale of foundry fluxes, foundry chemicals, and profax. The Tribunal noted that a similar issue had been addressed in the assessee's case for the subsequent assessment year, where the Tribunal ruled in favor of the assessee. The Revenue had appealed this decision to the Bombay High Court, which subsequently dismissed the appeal on 08-03-2013, with the judgment available on record.

The Tribunal observed that the Finance Act, 2001 introduced section 35DDA for amortization of VRS expenditure, but since the assessment year in question predates this provision, the earlier regulations apply. The Departmental Representative (DR) acknowledged the similarity between the current case and the one decided by the Bombay High Court for the assessment year 1999-2000, leading the Tribunal to reverse the impugned order and direct the allowance of the deduction for the year under consideration.

Consequently, the Tribunal allowed the appeal, emphasizing the similarity in circumstances with the precedent set by the Bombay High Court, thereby granting the deduction of ?2.86 crore towards VRS payment. The order was pronounced in the open court on 06th July 2020.