9911796707
TMI Blog2022 (2) TMI 439X X X X Extracts X X X X X X X X Extracts X X X X ..... eme not as an accrued one but in proceeding on the basis that only the amount actually paid during the AY in question can be allowed. The definition of paid under Section 43(2) of the Act contemplates an accrued liability . There is no dispute that the Appellant follows the accrual method of accounting. There is also no dispute regarding the actual amount that was incurred as liability by the assessee under the VRS scheme. As equally erroneous on the part of the CIT (A) to treat the expenditure towards the aforementioned liability as capital expenditure . There is no warrant for such a conclusion. It was not even the Department s case that liability incurred for settling VRS dues would be capital in nature. It needs to be borne in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1/5th of the actual payment made during the relevant year? 4. The background facts are that, the Appellant Assessee is stated to be engaged in the business of manufacture and sale of refractory products. The Appellant follows the mercantile system of accounting and its accounts are maintained on accrual basis. 5. During the AY 2001-02 (accounting year 2000-01), the Appellant / Assessee implemented a Voluntary Retirement Scheme (VRS) for its employees, which was otherwise known as Friendly Departure Scheme (FDS). 291 employees were covered thereunder during the accounting year 2000-01. The liability towards compensation under the FDS for the said 291 employees worked out to ₹ 12,83,51,995/-. This ascertained liability was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounting upon the basis of which the profits or gain are computed under the head profits and gain of business or profession . In other words, the above definition does not require actual payment of a sum for it to be treated as expenditure. Even if the liability is incurred and the Assessee is following the accrual system of accounting, the liability would stand attracted in the first year in which it was incurred. It would be up to the Assessee to amortise the liability by spreading it over the remaining years. 9. However, the Assessing Officer (AO), i.e., the Assistant Commissioner of Income Tax, Circle 1(1), Sambalpur disallowed the claim of deduction of ₹ 2,56,70,399/- and only allowed 1/5th of the amount, i.e. ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee follows the mercantile accounting system and not the cash system and that its income is assessed under the head profits and gains and business of profession. 12. For the aforesaid reasons the question framed by this Court is answered in favour of the Assessee and against the Department by holding that allowance and deduction under the VRS scheme are to be based on the entire accrued liability incurred and not just of the amount actually paid during the relevant AY. 13. The impugned orders of the CIT (A) and the ITAT and the corresponding order of the AO to the above extent are hereby set aside. The appeal is allowed in the above terms but with no order as to costs. 14. As the restrictions due to resurgence of COVID-19 si ..... X X X X Extracts X X X X X X X X Extracts X X X X
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