2023 (4) TMI 569 - AT - Income Tax

Amount received after cessation of employment with the employer company - profits in lieu of salary or not - assessee had received sum from his erstwhile company as ex-gratia and from this amount claimed partial u/s 10(10C) VRS compensation/termination of Service and balance remaining amount from ex-gratia taken as capital receipt - HELD THAT - In the normal course, section 17(3)(iii) of the Act would apply but in this case, the letter which has been issued by the employer clearly stated that the payment of the amount has been made voluntarily to the assessee and is not the compensation. This letter has not been doubted by the department. Neither, the ld. A.O nor the NFAC conducted any independent inquiry regarding the veracity of this letter and none of the authorities have held this letter issued by the employer to the assessee as bogus. Without establishing the letter as non-genuine or without examining the sanctity of the payment made simply invoking the provisions of the Act for making addition is not appropriate for a quasi-judicial authority. Revenue should have verified and examined the genuineness of the letter which was produced by the assessee wherein the employer had stated that it is a voluntary payment made as per appreciation for the employee without entering into this exercise simply invoking the provision of the Act is not legally tenable and takes the colour of arbitrariness. D.R could not produce any documents/evidences on record to show that the payment received from the employer nor voluntary in nature or that the payment was coupled with some legal obligation on the part of the employer to pay to the employee. No such facts were produced before us. In this case, when the employer itself stated that the payment has been made voluntarily by them out of appreciation for the employee thus falls outside the rigours of section 17(3)(iii) of the Act. In view thereof, we set aside the order of the NFAC and direct the ld. A.O to delete the addition from the hands of the assessee. The grounds of appeal of the assessee are allowed.

Summary

Issues involved:
The judgment addresses multiple grounds of appeal including the perversity of the order, violation of principles of natural justice, treatment of received amount as income, taxability of payment mode, relief under section 89 of the Income Tax Act, and initiation of penalty proceedings.

Ground No.1:
The appeal challenges the order of the Commissioner of Income Tax as perverse for not considering established case laws, seeking deletion of an addition of Rs. 42,21,154.

Ground No.2:
The appeal argues that the order violated principles of natural justice by not providing justification for disregarding appellant's case laws, praying for deletion of the same addition.

Ground No.3:
Contends that the Assessing Officer erred in treating the received amount as income under the charging section or computation section, requesting deletion of the addition.

Ground No.4:
Questions the taxability of the payment mode as voluntary and not legally obligated, asserting it as a capital receipt not subject to tax, seeking deletion of the addition.

Ground No.5:
Seeks relief under section 89 of the Income Tax Act regarding the amount received by the appellant.

Ground No.6:
Challenges the initiation of penalty proceedings under section 270A, requesting the Assessing Officer to drop the penalty proceedings.

The judgment involves a case where the appellant received an amount from the employer post voluntary retirement, claiming a portion under VRS compensation and the remaining as ex-gratia. The Assessing Officer treated the balance amount as profit in lieu of salary under section 17(3)(iii) of the Income Tax Act, 1961. The National Faceless Appeal Centre upheld this decision based on the employer's deduction of TDS and inclusion of the amount in Form No. 16. However, the appellant contended that the payment was voluntary and not compensation, supported by a letter from the employer. The Tribunal found that without verifying the genuineness of the letter, invoking the Act's provisions for addition was inappropriate. As the employer confirmed the voluntary nature of the payment, the Tribunal directed the deletion of the addition, allowing the appeal.

This judgment highlights the importance of considering the voluntary nature of payments and verifying supporting documents before invoking tax provisions, ensuring fairness and adherence to legal principles in income tax assessments.