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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: ABY T VAKERY & SHRI AMARJIT SINGH
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE ABY T VAKERY, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA No.1184/MUM/2023 (A.Y. 2009-10) Black Box Limited Vs. Deputy Commissioner of 5th Floor, Building No.9, Income Tax- 14(1)(1) Airoli Knowledge Park, 460, Aayakar Bhavan, MIDC Industrial Area, M.K. Road, Airoli West, Navi Mumbai- 400020 Mumbai- 400708
स्थायी लेखा सं./जीआइआर सं./ PAN/GIR No:AAACT3992M Appellant .. Respondent
Appellant by : Shri K.K. Ved, AR, Respondent by : Shri Ashok Kumar Ambastha, DR Date of Hearing 07.08.2023 Date of Pronouncement 18.09.2023 आदेश / O R D E R PER AMARJIT SINGH :- 1. The present appeal filed by the assessee is directed against the order passed u/s 250 of the Income Tax Act, 1961 ([hereinafter “the Act”] by the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [hereinafter „the CIT(A)‟/NFAC] dated 14.02.2023 for A.Y. 2009-10.
ITA No. 1184/M/2023 Black Box Ltd 2. The assessee has raised the following grounds of appeal :- 1. Re-opening of the assessment proceedings is invalid and bad in law a. The learned CIT (A) erred in not quashing the reassessment proceedings being invalid and bad in law; b. The learned CIT (A) erred in not appreciating that the reassessment proceedings initiated are invalid and bad in law as the conditions laid down in the first proviso to Section 147 of the Income-tax Act, 1961 ('the Act') are not met for re- opening c. The learned CIT (A) erred in not appreciating that the re- opening of assessment on a mere change of opinion without any new tangible material being brought on record is not valid as held by Courts on various occasions; d. The learned CIT(A) erred in not appreciating that the reassessment proceedings initiated based on Audit objection are invalid and bad in law; e. The learned CIT (A) erred in not appreciating that the queries raised in Audit Objection on material already available with the learned Deputy Commissioner of Income- tax 14(1)(1) i.e., Financials, do not tantamount to reasons to believe that the income chargeable to tax has escaped assessment as per the provisions of section 147 of the Act; f. The learned CIT (A) erred in not appreciating that the re- opening of assessment without any new tangible material being brought on record is invalid and bad in law; and
g. The learned CIT (A) erred in not appreciating in the correct perspective the submissions made by the Appellant in this regard.
ITA No. 1184/M/2023 Black Box Ltd
Disallowance of Employee Separation Scheme Expenditure a. The learned CIT (A) erred in upholding the disallowance of the expenditure of Rs.4,16,55,329/- towards Employee Separation Scheme;
b. The learned CIT (A) erred in not appreciating that the Employee Separation Scheme of the Appellant was not akin to voluntary retirement scheme as contemplated under section 35DDA of the Act, and
c. The learned CIT (A) erred in not appreciating in the correct perspective the submissions made by the Appellant in this regard.
Initiation of the penalty proceedings under section 271(1)(c) of the Act a. The learned Assessing Officer erred in initiating penalty proceedings under Section 271(1)(c) of the Act.
b. The Appellant prays that the penalty proceedings initiated by the learned Assessing Officer under Section 271(1)(c) of the Act be quashed. 4. Each one of the above grounds of appeal is without prejudice to the other. 5. The appellant reserves the right to amend, alter or add to any of the above grounds of appeal. 3. The fact in brief is that return of income declaring total income of Rs. 9,39,50,794/- was filed on 27.09.2009. The assessment u/s
ITA No. 1184/M/2023 Black Box Ltd 143(3)(ii) of the Act was finalized on 11.03.2013 determining total income at Rs. 15,62,70,759/-. 4. Subsequently, the case was reopened on the basis of the following reasons for reopening: “Perusal of the P&L account vis-à-vis computation of income furnished by the assessee along with notes forming part of the return of income revealed that the assessee had debited an amount of Rs. Rs. 4,16,55,329/- towards expenditure on "Separation of Employees" as exceptional item which was in fact the amount of compensation paid to employees on mutual termination of employment. The expenditure prima facie is in the nature of payment in connection with voluntary retirement scheme. Therefore, the deduction claimed by the assessee should have been allowed in accordance with provision of section 35DDA".
During the course of re-assessment the assessing officer observed that employee separation scheme was similar to voluntary retirement scheme, therefore, the assessee was asked to explain why disallowances u/s 35DDA of the Act should not be considered. The assessee explained that it has announced employee separation scheme on 7th January, 2009 till 27th January, 2009 and claimed aggregate expenditure of Rs. 4,16,55,329/- pertaining to 48 employees who have opted for employees separation scheme. The assessing officer further observed that the option under the 4
ITA No. 1184/M/2023 Black Box Ltd separation scheme was available to all the eligible employees and it was not forced upon the employees therefore this was similar to the voluntary retirement scheme where the employees opt to take retirement. It was only after the employee chooses to make an application the same may be accepted or rejected by the management. Therefore, there was discretion of the employee to the scheme which was similar to the VRS. The assessing officer has also placed reliance on the decision of the ITAT Bangalore in the case of Commissioner of Income Tax (LTU) Bangalore Vs State Bank of Mysore, ITA No. 890 of 2011 where the ITAT held that the Exit Option Scheme eligible for deduction u/s 35DDA of the Act. Therefore, after considering that separation scheme launched by the assessee was similar to the voluntary Retirement Scheme, the assessing officer held that the claim of expenditure of Rs. 4,16,55,329/- for the scheme to be amortized over a period of 5 years as provided u/s 35DD of the Act and 1/5 of the expenses to the amount of Rs. 83,31,066/- was allowed as deduction during the year under consideration.
The aggrieved assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) has dismissed the appeal of the assessee.
ITA No. 1184/M/2023 Black Box Ltd
During the course of appellant proceedings before us, the Ld. Counsel referred to Paper Book filed comprising copies of profit and loss account, statement of computation of total income and letter dated 04.05.2016 issued by the assessing officer along with reasons recorded for re-opening the assessment. The Ld. Counsel submitted that in the profit and loss account the assessee has shown expenditure on separation of employees under the head exceptional items and in the note forming part of the return of income the assessee has submitted that it has incurred separation charges of Rs. 4,16,55,329/- and the said expenditure was the amount of compensation paid to the employees on mutual termination of employees. The Ld. Counsel submitted that notice u/s 148 was issued beyond a period of four years from the end of the relevant assessment year and there was no failure on the part of the assessee to disclose fully truly all material facts therefore, re- opening of assessment was not valid in law. The Ld. Counsel has also placed reliance on the decision of the ITAT Mumbai in the case of State Bank of India vs DCIT vide ITA No. 1053/M/2022 dated 30.03.2023. 8. On the other hand the Ld. DR contented that issue of claim of expenditure towards separation of employees was neither discussed 6
ITA No. 1184/M/2023 Black Box Ltd in the original assessment order nor assessing officer has called any detailed on this issue, therefore re-opening of the assessment was valid.
Heard both the side and perused the material available on record. Ground no. 1 Re-opening of assessment proceedings is in-valid and bad in law. In the case of the assessee return of income for the AY 2009-10 was filed on 27.09.2009. The assessment u/s 143(3) of the Act was finalized on 11.03.2013. Thereafter the AO has re-opened the assessment by issuing of notice u/s 148 of the Act on 20.02.2016 on the basis of the following reasons:- “Perusal of the P&L account vis-à-vis computation of income furnished by the assessee along with notes forming part of the return of income revealed that the assessee had debited an amount of Rs. Rs. 4,16,55,329/- towards expenditure on "Separation of Employees" as exceptional item which was in fact the amount of compensation paid to employees on mutual termination of employment. The expenditure prima facie is in the nature of payment in connection with voluntary retirement scheme. Therefore, the deduction claimed by the assessee should have been allowed in accordance with provision of section 35DDA".
ITA No. 1184/M/2023 Black Box Ltd 10. During the course of appellate proceeding before us the Ld. Counsel submitted that notice u/s 148 of the Act was issued on 18.02.2016 four years from the end of relevant assessment year. He further submitted that the re-assessment proceedings are bad in law since the assessment order was passed u/s 143(3) of the Act and the assessee company had also disclosed fully and truly all the material facts for the relevant assessment year. The Ld. Counsel referred the extract to the audited financial wherein expenditure on separation of employees is disclosed as a separate line of item under the head exceptional items in the profit on the loss statement. Even in the notes forming the part of the return of income it is submitted vide para 10 of the notes that during the previous year relevant to the AY 2009-10, company has incurred separation charges of Rs. 4,16,55,329/-. The said expenditure is the amount of compensation paid to employees on mutual termination of employment. The amount of compensation is computed on the basis of number of years of service of the employee and past performance in the company. The Ld. Counsel also referred the relevant extract to the submission dated 31st August 2012 filed during the original assessment proceedings wherein the company has submitted the audited profit and loss account and computation of income along with notes to computation of income.
ITA No. 1184/M/2023 Black Box Ltd
After perusal to the reason recorded as supra it is evident that the case was re-opened on the basis of information and details already disclosed by the assessee company in profit and loss account, computation of income and the notes forming past of the return of income at the time of original assessment proceedings. The AO has not brought on recording any new tangible material which was not disclosed by the assessee as the re-opening was made beyond four years from the end of relevant assessment years. The AO failed to prove that there has been failure on the part of the assessee to make full and true disclosure during the course of original assessment proceedings. We have perused the decision of Hon‟ble Bombay High Court in the case of Great Eastern Shipping Co. Ltd vs. ACIT (2022) 135 taxmann.com 359 (Bombay) and the decision of the Hon‟ble High Court of Gujarat in the case of Garden Silk Mills Ltd. Vs. ACIT (2021) 128 taxmann.com 3(Gujarat) on the proposition that where there was no failure to disclose truly and fully all material by the assessee, re- opening notice issued after four years from the end of relevant assessment year was unjustified. We have also perused the proviso to section 147 of the Act that wherein assessment u/s (3) of section 143 has been made for the relevant assessment years no action shall be
ITA No. 1184/M/2023 Black Box Ltd taken under this section after the expiry of four years from the end of relevant assessment years unless any income on chargeable to tax has escaped assessment for such assessment years by reason of the failure on the part of the assessee to disclose fully the material facts necessary for assessment.
Since in the case of the as discussed supra in this order, the relevant material was available on record before assessing officer during the original scrutiny assessment as evident from the details furnished during the course of original assessment therefore we consider there was no failure by assessee to disclose truly and fully all material facts for assessment. Therefore, impugned re-assessment initiated in the case of the assessee after four years from end of relevant assessment year was unjustified. Accordingly the appeal of the assessee is allowed.
Since the re-assessment proceedings had been set aside all other issues raised in the appeal have become academic in nature and are left open.
ITA No. 1184/M/2023 Black Box Ltd 14. Grounds no. 3 in respect of initiation of the penalty proceedings u/s 270(1)(c) of the Act is premature at this stage therefore the same stand dismissed.
In the result, appeal of the assessee is partly allowed.
Order Pronounced in Open Court on 18.09.2023 Sd/- Sd/- (ABY T VARKEY) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Mumbai Date 18.09.2023 Shubham P. Lohar आदेश की प्रतितलति अग्रेतिि/Copy of the Order forwarded to : अपीलार्थी / The Appellant 1. 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai गार्ड फाईल / Guard file. 5.
सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER,
उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीलीय अतधकरण/ ITAT, Bench, Mumbai