2016 (9) TMI 1148 - AT - Income Tax

Revision u/s 263 - Voluntary retirement compensation - disallowance of claim of deduction allowed under sec. 10(10C) - profit in lieu of salary - Held that - As decided in CIT vs. Sharda Sinha 2015 (12) TMI 1290 - DELHI HIGH COURT wherein held that the sum paid to the assessee was to compensate for the abrupt loss of source of income and that the termination of contract had fatally injured the appellant s only source of income for the last 20 years. The mere fact that the assessee was free to earn through other sources would not make a difference to this position. The question was thus answered in affirmative that in favour of the assessee and against the Revenue. A possible view to treat the compensation of ₹ 5 lacs received by the assessee from its employer was not liable to tax under sec. 17(3) of the Income-tax Act, 1961 was certainly there. Hence, it cannot be said that the assessment order allowing exemption on the said receipt of ₹ 5 lacs was erroneous and thus prejudicial to the interest of Revenue as well. We thus while setting aside order in question passed under sec. 263 of the Act restore the assessment order granting the above relief on the receipt of ₹ 5 lacs as compensation. The grounds involving the issue of validity of revisional order passed under section 263 of the Act are accordingly allowed in favour of assessee

Summary

Issues Involved:
1. Legality of the revisional order passed under section 263 of the Income-tax Act, 1961.
2. Validity of the addition of ?5,00,000 to the income of the assessee by disallowing exemption under section 10(10C) of the Income-tax Act, 1961.

Comprehensive, Issue-wise Detailed Analysis:

1. Legality of the Revisional Order Passed under Section 263 of the Income-tax Act, 1961:

The assessee contested the revisional order passed by the Learned CIT under section 263 of the Income-tax Act, 1961, arguing that the original assessment order dated 16.10.2008, which assessed the income at ?1,17,391, was not erroneous. The assessee claimed that the action of the Learned CIT-XV, New Delhi, under section 263 was unwarranted and the order should be canceled. The assessee argued that the Assessing Officer (AO) had duly accepted the returned income and allowed the exemption under section 10(10C) after thorough examination during the assessment proceedings. The AO had issued a refund based on the assessment order, indicating satisfaction with the submitted information and documents.

The assessee's representative (AR) contended that the mere difference of opinion between the CIT and the AO could not justify invoking section 263. It was highlighted that the assessee had not concealed any material facts. The AR emphasized that section 10(10C) allows exemption for amounts received by an employee at the time of voluntary retirement under any scheme, and Rule 2BA provides guidelines for this purpose. The AR argued that the provisions should be interpreted in a manner beneficial to the employee opting for voluntary retirement.

2. Validity of the Addition of ?5,00,000 to the Income of the Assessee by Disallowing Exemption under Section 10(10C):

The assessee received ?5,00,000 as compensation for early voluntary retirement, which was included in the income tax return. The AO initially allowed the exemption under section 10(10C), but the Learned CIT directed the AO to disallow this exemption, leading to the addition of ?5,00,000 to the assessee's income. The AR argued that the compensation was received as part of a voluntary retirement scheme and should be exempt under section 10(10C). The AR cited several judicial precedents, including decisions from the Hon'ble Calcutta High Court and the Hon'ble Gujarat High Court, which supported a liberal interpretation of section 10(10C) in favor of the employee.

The CIT(DR) countered that the assessee did not fulfill all conditions under Rule 2BA, making the exemption claim invalid. However, upon reviewing similar cases, such as Arun Bhai R. Naik vs. ITO and CIT vs. Sarda Sinha, the tribunal found that the compensation received by the assessee was not liable to tax under section 17(3) as it was a voluntary payment without any legal obligation from the employer. The tribunal concluded that the AO's original order allowing the exemption was not erroneous or prejudicial to the Revenue's interest.

Conclusion:

The tribunal set aside the revisional order passed under section 263 and restored the original assessment order, allowing the exemption of ?5,00,000 under section 10(10C). The appeal was allowed, and the tribunal pronounced the order in the open court on 16.08.2016.