What did the Tribunal hold?

The Tribunal held that the issue was similar to a previous year's case decided in favor of the assessee, which was also upheld by the Bombay High Court. Therefore, the deduction should be allowed.

The assessee claimed a deduction of Rs. 2.86 crore for payments made under a Voluntary Retirement Scheme (VRS). The Assessing Officer and CIT(A) disallowed this deduction, treating it as capital expenditure.

What were the issues?

Whether expenditure incurred on a Voluntary Retirement Scheme (VRS) is deductible as revenue expenditure or is a capital expenditure, especially for assessment years prior to the insertion of Section 35DDA.

Foseco India Limited vs DCIT | ITAT Pune 2020

Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE – VIRTUAL COURT

Before: SHRI R.S. SYAL & SHRI PARTHA SARATHI CHAUDHURY

For Appellant: Shri Prashant Jaiswal

For Respondent: Shri S.P. Walimbe

PER R.S.SYAL, VP : This appeal by the assessee arises out of the order passed by the CIT(A)-13, Pune on 18-10-2019 in relation to the assessment year 1998-99.

The only issue raised herein is against not granting deduction of Rs.2.86 crore towards payment on account of Voluntary Retirement Scheme (VRS) relating to employees of its Calcutta unit.

Succinctly, the facts of the case are that the assessee is a company engaged in the business of manufacture and sale of foundry fluxes, foundry chemicals and profax. The assessee filed the return declaring total income at Rs.6,10,08,690/-. The Assessing Officer, in the assessment completed u/s.143(3), did not allow deduction of Rs.2,86,86,055/- incurred on payment of VRS by treating the same as a capital expenditure. The ld. first appellate authority countenanced the view of the Assessing Officer. Aggrieved thereby, the assessee has approached the Tribunal.

We have heard both the sides through Virtual Court and gone through the relevant material on record. It is undisputed that the assessee paid the above sum towards VRS of certain employees of Calcutta unit. It is noticed that similar issue came up for consideration before the Tribunal in assessee‟s own case for the immediately succeeding assessment year. Vide order dated 26-03- 2010 (ITA No.4667/M/2005), the Tribunal has decided it in favour of the assessee. The Revenue carried the matter before the Hon‟ble Bombay High Court against the said order of the Tribunal. Vide judgment dated 08-03-2013, the Hon‟ble Bombay High Court dismissed the appeal of the Revenue. A copy of the judgment is available on record.

It is seen that section 35DDA has been inserted by the Finance Act, 2001 providing for amortization of expenditure incurred on Voluntary Retirement Scheme. The assessment year under consideration is prior to the insertion of section 35DDA and hence cannot rule the position. The instant year would be governed by the earlier provisions.

The ld. DR fairly admitted that the facts and circumstances of the case for the year under consideration are similar to those of the assessment year 1999-2000, which has been considered and decided by the Hon‟ble Bombay High Court. Respectfully following the same, we reverse the impugned order on this score and direct to allow the deduction in the year under consideration.

In the result, the appeal is allowed. Order pronounced in the open Court on 06th July, 2020.

FOSECO INDIA LIMITED,PUNE vs. DCIT CIRCLE-1(2), PUNE

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