2015 (10) TMI 2239 - AT - Income Tax

Penalty u/s. 271(1)(c) - Company has claimed deduction of expenditure toward payment made to employees under Voluntary Separation Scheme - Held that - Section 35DDA pre-supposes that there is a continuance and existence of business for next relevant years on going concern concept basis, which is not the fact in the assessee s case. Here, the Govt. of India has decided to close the business and the scheme is not voluntary in nature. It was compulsory and was to be opted by all the employees and if it is not available by certain employees, then in that circumstance, those employees will be compulsorily retrenched. Hence, from the spirit of the scheme, it is seen that it is not voluntary in nature and accordingly, in the circumstances, when the assets are in the process of being sold out, the employees are made to go and the business is being in the process of closure down. In these circumstances, the appellant s contention that their case is not covered by the scheme contemplated by section 35DDA has to be accepted. - Decided in favour of assessee. Penalty imposed u/s. 271(1)(c) - once the impugned addition on the basis of which the penalty was imposed by the Assessing Officer, stands deleted by us, there remains no justification to hold that the assessee had furnished inaccurate particulars of its income. Therefore, the very basis for imposition of penalty stands collapsed. We, therefore, find no reason to interfere with the order of the ld. CIT(A) in deleting the impugned penalty imposed u/s. 271(1)(c) - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of expenditure under Voluntary Separation Scheme (VSS).
2. Deletion of penalty under section 271(1)(c) of the IT Act.

Issue 1: Disallowance of Expenditure under VSS:
The case involved an appeal against the disallowance of Rs. 90,40,000 made by the Assessing Officer on account of expenditure incurred on payment made to employees under the Voluntary Separation Scheme (VSS). The company, a Government of India Undertaking, had filed a return of income declaring a total loss. The Assessing Officer revised the assessment order and disallowed a portion of the payments under VSS. The company argued that the scheme was compulsory for all employees due to the closure of the business by the Government, making the deduction allowable under section 35DDA inapplicable. The Tribunal agreed with the company, stating that the scheme was not voluntary as it was mandatory for all employees, leading to the deletion of the disallowance.

Issue 2: Deletion of Penalty under Section 271(1)(c) of the IT Act:
The Assessing Officer imposed a penalty under section 271(1)(c) for allegedly furnishing inaccurate particulars of income. The company appealed, and the penalty was deleted by the CIT(A). The Revenue challenged this deletion, arguing that since the disallowance was upheld, the penalty should also stand. However, the Tribunal held that since the disallowance was overturned, there was no basis for the penalty. As a result, the Tribunal upheld the deletion of the penalty and dismissed the Revenue's appeal.

In conclusion, the Tribunal allowed the appeal of the assessee regarding the disallowance of expenditure under VSS, as the scheme was deemed compulsory and not voluntary, making the deduction applicable under section 35DDA inapplicable. Additionally, the Tribunal dismissed the Revenue's appeal regarding the penalty under section 271(1)(c) as the basis for the penalty imposition was no longer valid after the disallowance was deleted.