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TMI Blog2024 (8) TMI 821X X X X Extracts X X X X X X X X Extracts X X X X ..... on of AO treating the amounts of Rs. 18,74,899/- as Profits in Lieu of Salary & erred in denying the relief u/s 89 & has thereby erred on Facts & Law by confirming the Assessment as completed by die AO. 3. The Learned CIT(A) has erred in not addressing the stand taken by the Appellant of the amounts received from the Co. as per the Settlement Scheme 2019 & they were not compensation as envisaged u/s. 17(3), ignoring the Fact that said Scheme was floated & the said amounts were paid voluntarily by the Co. The Learned CIT(A) has further erred in understanding the Appellant's service contract & the Settlement Scheme Document & has failed to ascertain that the said amounts were paid de hors of any contract, paid without any obligation & without any entitlement of the Appellant. The learned CIT(A) has not considered the letter from the Co. submitted before him in the course of Appellate proceedings, stating the fundamentals & nature of the amounts paid to be voluntary. 4. The Learned CIT(A) has erred by not considering the claim of the Appellant, of the said amounts being Capital Receipts because the same was received only due to premature cessation of his employment & permanent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee i.e. Pfizer Healthcare India Pvt. Ltd., the Assessing Officer noted the following declarations: * Pfizer Healthcare India Private Limited had decided to cease manufacturing in its plant located at Plot No. L-8 (part) & L-9, Gut NOs. 36, 37, 38, MIDC, Waluj, Aurangabad-431136, India with the intention to exit the Plant due to significant long term loss of product demand. * The Company is desirous of providing a beneficial settlement to all permanent employees of the Plant. Towards this objective, the Company has taken a decision to offer a financial scheme to its permanent employees at the Plant, on the terms and conditions set out below. * The Scheme (as hereinafter defined) is purely voluntary and it is for each such employee to decide whether or not to opt for the same. * In the event the employees opt to retire voluntarily from their employment with the Company in accordance with the Scheme, their last day of employment with the company will be February 8, 2019, (unless mutually agreed otherwise in writing) and they will be paid an attractive financial package on the terms and conditions set out below. Those employees who do not opt for the Scheme (as here in afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployee from employer and therefore, is taxable as Profits in lieu of salary u/s 17(3) of the Act. The Assessing Officer therefore, disallowed the tax relief claimed u/s 89 of the Act of Rs. 18,74,899/-. 9. Before the CIT(A) / NFAC the assessee submitted that the assessee vide its submissions dated 16.08.2021 had withdrawn the claim u/s 89 of the Act made in the ITR and computation and alternatively and protectively requested the Assessing Officer to treat and consider all these amounts as 'capital receipts' as they were received as ex-gratia and severance pay in lieu of termination of premature retirement and permanent loss of source of income. The decision of the Mumbai Bench of the Tribunal in the case of Sri Ajay B Ghose vs. DCIT, CPC, Bangalore for assessment year 2017-18 vide appeal in ITA No.1720/Mum/2021, dated 15.11.2021 was also relied upon. 10. However, the CIT(A) / NFAC did not agree with the contention of the assessee and upheld the action of the Assessing Officer by observing as under: "4.3.2 In this case, the AO observed that the Preamble of Financial scheme for employees at Aurangabad 2019 (scheme) issued from the employer Pfizer Heaithcare India P ltd. that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of the appellant made under sec. 89 of the I T Act. Therefore, the disallowance of tax relief made by the AO are confirmed. All grounds raised by the appellant are dismissed." 11. Aggrieved with such order of CIT(A) / NFAC, the assessee is in appeal before the Tribunal. 12. The Ld. Counsel for the assessee referred to the Financial Scheme for the employees at Aurangabad of Pfizer Healthcare India Pvt. Ltd., copy of which is placed at pages 73 to 83 of the paper book and drew the attention of the Bench to the following clauses: "I. PREAMBLE (i) Pfizer Healthcare India Private Limited (the "Company") has decided to cease manufacturing in its plant located at Plot No L-8 (part), L-9 & Gut Nos 36, 37, 38, MIDC, Waluj, Aurangabad - 431136 ("Plant") with the intention to exit the Plant due to significant long term loss of product demand. (ii) The above decision is bona fide and has been made after an extensive and careful evaluation. The employees of the Plant have been informed of this decision and reasons thereof. (iii) The Company is desirous of providing a beneficial settlement to all permanent employees of the Plant. Towards this objective, the Company has taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance policy" shall have the meaning assigned to it in clause (10D) of section 10; (iii) any amount due to or received, whether in lump sum or otherwise, by any assessee from any person- (A) before his joining any employment with that person; or (B) after cessation of his employment with that person." 15. So far as sub-clause (ii) is concerned, the Ld. Counsel for the assessee referring to the various decisions submitted that this clause is also not applicable. He submitted that the amount received by the assessee is not a compensation but on account of loss of pay. Referring to the decision of the Hon'ble High Court of Calcutta in the case of CIT vs. Ajit Kumar Bose (1987) 165 ITR 90 (Cal), he submitted that the Hon'ble High Court has held that where the conditions of service clearly stipulated that the assessee's services could be terminated at any time on giving three months notice and there was no obligation on the employer to pay anything to the assessee in connection with the termination, payment made ex-gratia, therefore, totally voluntary and not compensation which implies some sort of obligation to pay and cannot be taxed as profits in lieu of salary within meaning o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 Sharad D. Magar ASHPM1986C 28.3.2024 2 Dnyaneshwar Waghmare ABCPW4100G 26.3.2024 3 Ajay K. Agrawal AJJPA2079F 21.3.2024 4 Kalidas T Deshmukh AKTPD8174D 10.3.2024 5 Bhimraj S Kahandal ABRPK4860E 9.3.2024 6 Nandkishor Khairnar BFEPK6767A 9.3.2024 7 Narendrakumar P Desale BALPD6728C 4.3.2024 8 Ramesh S. Sonavne CEAPS7400G 21.2.2024 9 Sanjay N. Karale AAFPK0335H 16.2.2024 10 Ravindra W. Aherwal ABDPA1341G 13.2.2024 11 AG Deshmane AVLPD8364J 10.11.2023 21. He accordingly submitted that the CIT(A) / NFAC is not justified in sustaining the addition of Rs. 57,12,673/-. 22. The Ld. DR on the other hand heavily relied on the order of CIT(A) / NFAC. 23. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed by both the sides. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case rejected the claim of relief u/s 89 of the Act of Rs. 18,74,899/- on income of Rs. 57,12,674/- treating the same as income u/s 17(3) of the Act. We find the CIT(A) / NFAC upheld the action of the Assessing Officer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. Hence the same is not compensation as contemplated under the provisions of sec. 17(3)(i)." As the various courts have allowed the claim that the amount received at the time of cessation of his employment due to closure of the manufacturing unit as capital receipt during assessment proceedings in the cases referred by the assessee, the AO's has duly accepted the above claims of the respective assessee, which are very similar cases as that of the assessee's instant case. Hence, the reopened assessment proceedings in the case of the assessee, is hereby proposed to be completed by accepting the income returned by the assessee in response to 148." 25. In the remaining cases also, the respective AOs have treated such compensation as capital in nature. We, therefore, find merit in the arguments of the Ld. Counsel for the assessee that when the concerned AOs after reopening of the assessment have treated such compensation as capital in nature and the Revenue has not challenged the same and which has attained finality since no 263 proceedings have been initiated, therefore, the assessee's case being identical to the facts of the other employees of Pfizer Healthcare India Pvt. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Department." 27. We find the Delhi Bench of the Tribunal in the case of ITO vs. Avirook Sen (supra) at para 12 of the order has observed as under: "12. As the payment of ex-gratia compensation was voluntary in nature without there being any obligation on the part of employer to pay further amount to assessee in terms of any service rule. it would not amount to compensation in terms of section 17(3)(i) of the Act. The impugned addition was rightly deleted by the Ld. CIT(A). The aforesaid point is accordingly determined against the revenue department. The appeal is accordingly not sustainable as we don't find any error of law or fact in the impugned order passed by Ld. CIT(A). The department appeal is liable to be dismissed." 28. The various other decisions relied on by the Ld. Counsel for the assessee placed in the paper book support his case to the proposition that the payment of ex-gratia compensation received by the assessee was voluntary in nature without there being any obligation on the part of the employer to pay further amounts to the assessee in terms of any service rule and therefore, would not amount to compensation in terms of section 17(3) of the Act. We, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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