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TMI Blog2017 (6) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... i, Accountant Member Revenue by : Sh. Rajesh Kumar, Sr. DR Assessee by : Sh. Santosh Aggarwal, Adv ORDER Per Prashant Maharishi, A. M. 1. This appeal is preferred by the Revenue against the order of the ld CIT(A)-VIII, New Delhi dated 20.03.2014 for the Assessment Year 2008-09 wherein, penalty levied of ₹ 18810897/- u/s 271(1)(c) of the Income Tax Act was deleted. 2. The revenue has raised the following grounds of appeal:- 1. Whether in the facts and circumstances of the case, the ld CIT(A) has erred in deleting the penalty of ₹ 18810897/- imposed by AO on account of addition made u/s 35DDA of the Act, 1961. 2. Whether on the facts and circumstances of the case, the ld CIT(A) has erred in ignoring that the addition on which penalty was imposed was duly confirmed and accepted by the assessee company. 3. That the order of the ld CIT(A) is erroneous and is not tenable on facts and in law. 4. That the grounds of the ld CIT(A) is erroneous and is not tenable on facts and in law. 3. The brief facts of the case is that the appellant is a public limited company filed its return of income on 01.10.2008 at Nil income and subse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontentions and also perused the orders of the lower authorities. The coordinate bench has upheld the disallowance in ITA No. 4155 and 4178/Del/2011 dated 02.12.2015 vide para no. 7 to para No. 16 as under:- 7. Third ground of appeal is against the disallowance of ₹ 6,08,74,376/-being payments made under Voluntary retirement scheme. During the year appellant has claimed the deduction of ₹ 7,60,92,970/- on account of payment made under voluntary retirement scheme. However AO disallowed that sum and allowed only 20 % of the total claim made by the assessee u/s 35DDA of The Income Tax Act, resultantly he disallowed ₹ 6,08,74,376/- out of the total claim of ₹ 7,60,92,970/-. Ld AO was of the view that as the claim of the assessee for allowance of VRS payments , same is covered by provisions of section 35DDA of The Income Tax Act and hence, not allowable u/s 37(1) of the Act. Assessee agitated the issue before CIT (A) who also confirmed the order of AO on same reasoning and therefore assessee is in appeal before us on this ground. 8. Before us Ld. AR of the assessee said that the claim is allowable u/s 37(1) of the Income Tax Act and he relied up on follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sub-section (1) is transferred, before the expiry of the period specified in that sub-section, to another company in a scheme of demerger, the provisions of this section shall, as far as may be, apply to the resulting company, as they would have applied to the demerged company, if the demerger had not taken place. (4) Where there has been reorganization of business, whereby a firm is succeeded by a company fulfilling the conditions laid down in clause (xiii) of section 47 or a proprietary concern is succeeded by a company fulfilling the conditions laid down in clause (xiv) of section 47, the provisions of this section shall, as far as may be, apply to the successor company, as they would have applied to the firm or the proprietary concern, if reorganization of business had not taken place. (5) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) in the case of the amalgamating company referred to in sub- section (2), in the case of demerged company referred to in sub-section (3) and in the case of a firm or proprietary concern referred to in sub-section (4) of this section, for the previous year in which amalgamation, demerger or successio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an expenditure of the nature described in sections 30 to 36 ; (ii) it is not in the nature of capital expenditure or personal expenses of the assessee ; (iii) it must have been laid out or expended wholly and exclusively for the purposes of the business or profession ; and (iv) there is no specific prohibition for its allowance such as section 37(2B), (3) and (4) or as provided in other sections. From the aforesaid two sections, it is apparent that, under section 37, only revenue expenditure, which is expended wholly and exclusively for the purpose of business or profession, can be allowed to be deducted in computing the income while under sections 30 to 36, it could be either revenue expenditure or capital expenditure. Further, section 37 as such is a general provision which provides for deduction of expenditure while computing the income chargeable under the head Profits and gains of business or profession of the assessee, if the expenditure is of revenue nature and not personal expenses of the assessee and if the said expenditure is laid out or expended wholly and exclusively for the purpose of business or profession. Hence, if the expenses are not covered by the specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is also on the issue of whether the VRS expenditure is capital or revenue expenditure. e. CIT V Swan Mills Limited 39 Taxmann.com 112 ( Bom) the issue before high court for AY 2000-01 was whether VRS payments are allowable on closure of business as revenue expenditure and court held that same is allowable as revenue expenditure. 15. In none of the decision cited before us, Honourable courts were concerned about the allowability of claim of VRS expenditure u/s 35DDA of the act as well as u/s 37(1) of the act. Further all the cases cited above pertains to AY prior to introduction of section 35DDA of the act except in case of CIT V KJS India Private Limited 340 ITR 380 (Delhi), however provision of section 35DDA was not brought to the notice of the court. Therefore these decisions render no help to the cause of the assessee. 16. In view of above facts we confirm the order of CIT (A) disallowing the claim of the assessee of ₹ 6,08,74,376/- u/s 37(1) of the act on account of payment made under voluntary retirement scheme. Therefore ground no 3 of the appeal is dismissed. 8. On perusal of the order of the coordinate bench it is apparent that the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) that all material facts were disclosed by the assessee and that there was no intention to conceal any particulars. The modus of claiming deduction was merely a matter of opinion and hence on that ground itself, no penalty is leviable. Secondly, nowhere in the assessment order we find any satisfaction recorded by the Assessing Officer as to concealment by the assessee. This is a prerequisite before Commercial Enterprises in 246 ITR 568 and a host of other judgments which followed thereafter. Therefore, on any count, the penalty is not sustainable and hence we uphold the order of the CIT (Appeals) cancelling the same. 6. Reason given by the ITAT that in the assessment order, no satisfaction is recorded by the Assessing Officer as to concealment by the assessee and setting aside the order on that ground, relying upon the judgment in the case of CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 5681 (Delhi), no more remains valid in view of legislative amendment in section 271 by the Finance Act, 2008. By this amendment, sub-section (1B) is inserted to section 271 of the Income-tax Act retrospectively with effect from 1-4-1989 as per which it is not necessary for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e services were no longer required as a result of the aforesaid closure. It appears that this led to a dispute between the employees and the employer which resulted into settlement under section 18(1) of the Industrial Disputes Act. It was because of this reason that the assessee believed that the payment made in a settlement arrived at under section 18(1) of the Industrial Disputes Act, would qualify as revenue expenditure and it could claim the entire deduction under section 37 of the Income-tax Act. 8. Interestingly, even the Assessing Officer in the assessment order took note of the judgment of the Supreme Court in the case of Employers in relation to the Management of the Indian Cable Co. Ltd. v. Its Workmen AIR 1972 SC 2195. In this case, the Apex Court held that when payment is made to workmen, who retire prematurely, it is treated as expenditure incurred on the ground of commercial expediency and thus expenditure so incurred would be allowable as an expenditure under section 37(1) of the Income-tax Act. This also demonstrates that in the income-tax return filed by the assessee when the assessee is claiming expenditure because of payment made under section 18(1) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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