LAXMIKANT RAMLING VARDE ,AURANGABAD vs. DCIT CIRCLE 1, AURANGABAD

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “SMC”, PUNE BEFORE SHRI R. K. PANDA, VICE PRESIDENT AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील सं. / ITA No.2299/PUN/2026 िनधा�रण वष� / Assessment Year : 2019-20 Laxmikant Ramling Varde, Vs. DCIT, Circle-1, F- Sector 10/5, Sambhaji Aurangabad. Colony, Aurangabad (MH) H.O., Aurangabad- 431001. PAN : AFTPV8124J Appellant Respondent Assessee by : Ms. Arrchena Shetty Revenue by Shri Vaibhav Madhavrao Dhere : (Virtual) Date of hearing : 21.07.2026 Date of pronouncement : 06.10.2026 आदेश / ORDER PER VINAY BHAMORE, JM: This appeal filed by the assessee is directed against the order dated 09.03.2026 passed by Ld. CIT(A)/NFAC for the assessment year 2019-20. 2. The appellant has raised the following grounds of appeal :- “1. The Learned AO has erred in reopening the assessment u/s 147 on baseless allegation of the appellant claiming bogus claims u/s 89, on borrowed information & satisfaction & without bringing any satisfying & cogent findings on record. He has not undertaken any independent findings of his own. Thus, the issuing of notice u/s 148A & the Order u/s 148A(d) & the notice u/s 148 are arbitrary, illegal & Unlawful. 2. The Learned CIT (Appeals) has erred in confirming the additions made by the AO of Rs. 23,73,947/- by treating it as Profits in lieu of Salary, he has erred in understanding the

2 ITA No.2299/PUN/2026 meaning of Compensation in reference to Sec. 17(3) as explained by various High Courts & has failed to apply the established legal position of appellant's entitlement to receive & employer's Obligation to pay, are fundamental to hold the said amounts as compensation. He has erred in treating the said Capital Receipt amounts as Profits in lieu of Salary u/s 17(3), ignoring Explanation 3 of Sec. 17(2) & Rule 3 sub-clause (10) Explanation (vi)(f) has erred in confirming the additions made by the AO of Rs. 18,540/- by misconceiving the meaning of retirement on account of leave encashment. 3. The Learned CIT (Appeals) has erred in not accepting the Appellant's stand of the said amount received, being Capital Receipts in nature, irrespective of the same being obligatory or not on part of the Co. & has erred in not considering that the payments were made de hors any contract of employment & was paid voluntarily & towards loss of source of income for premature termination of Appellant's employment & disregarding the law as laid down by Hon'ble Supreme Court & various High Courts that amounts paid against loss of permanent source of Income are Capital Receipts. 4. The Learned CIT (Appeals) has erred & failed in not verifying & confirming the AO's stand of understanding the Letter of Appointment & Financial Scheme Document and failed to appreciate that the Co. had evolved the scheme for their own reasons & had voluntarily paid the amounts. The Learned CIT has erred by not realizing the indirect compulsion imposed upon the Appellant, without any other choice to retire & to arrive at the correct interpretation and the underlying intentions of the Co. towards the appellant and the need for evolving the said scheme of pre-mature retirement of all employees permanently. 5. The Learned CIT (Appeals) has erred by not adhering to the Principles of Law of Consistency & the Principles of Binding Precedence which are well settled by the Law & have been followed by his brother AO's & CIT(A), by accepting the claims of Capital Receipts of other co-employee-assesses, who had received amounts in a similar manner from the same Co. thus the said assessment is discriminatory. 6. The Learned CIT(A) has erred in confirming the AO's assessment which has been completed on an unbalanced assessment, impartial of any assumptions & presumption, he is required to co-relate the factual parameters & the legal framework in tandem & decide by his wisdom & uphold rule of law, as he is being a quasi-judicial officer.

3 ITA No.2299/PUN/2026 7. The Appellant Craves Leave to add, Alter, or amend any of the Grounds of the Appeal, before or during hearing of the Appeal.” 3. Facts of the case, in brief, are that the assessee is an individual and ex-employee of M/s. Pfizer Healthcare India Pvt. Ltd., Aurangabad (“Pfizer India”). For AY 2019-20, the assessee filed his return of income declaring total income of Rs.28,98,780/- and claimed refund on the basis of relief u/s 89 and exemption u/s 10 of the IT Act. The case of the assessee was reopened on the basis of claim of bogus refund after following due procedure prescribed u/s 148A(b)/(d) of the IT Act and notice u/s 148 of the IT Act was issued to the assessee on 29.03.2023. The assessee filed return in response to above notice declaring total income of Rs.5,14,910/- only. Subsequently, notices u/s 143(2) and 142(1) respectively were issued to the assessee. The assessee in response to above notices submitted that he has opted for early retirement scheme and received ex-gratia amount of Rs.23,73,947/- which is in nature of capital receipt and not taxable. During the AY 2019- 20, the assessee opted to retire voluntarily from his employment with Pfizer India pursuant to the Pfizer Healthcare India Private Limited Finance Scheme for employees at Aurangabad, 2019 (“Scheme”) which was framed by the company due to closure of

4 ITA No.2299/PUN/2026 its plant at Aurangabad. Under the said Scheme, the assessee received an amount aggregating to Rs.23,92,487/- (Rs.23,73,947 + Rs.18,540), however, the said amount was not claimed to be a capital receipt in his return of income for AY 2019-20 but the assessee instead claimed refund u/s 89 of the Act. The case of the assessee was reopened u/s 147 on the basis of refund claim and substantial relief claimed u/s 89 of the Act for arrear or advance salary. A show cause notice was thus issued on 13.09.2021, stating that why the relief claimed u/s 89 of the Act should not be disallowed. The Assessing Officer concluded that the relief of Rs.23,73,947/- claimed u/s 89 & Rs.18,540/- claimed u/s 10 was not tenable. Consequently, vide order dated 21.03.2024, the Assessing Officer completed the assessment u/s 147 r.w.s. 144B of the IT Act by determining the income of Rs.29,07,397/- as against the income of Rs.5,14,910/- returned by the assessee in response to notice u/s 148 of the IT Act. The above assessed includes addition of Rs.23,73,947/- and Rs.18,540/- on account of profits in lieu of salary. 4. Being aggrieved with the above assessment order, the assessee preferred an appeal before Ld. CIT(A)/NFAC. Not being

5 ITA No.2299/PUN/2026 satisfied with the reply and submissions of the assessee, Ld. CIT(A)/NFAC dismissed the appeal. 5. It is the above order against which the assessee is in appeal before this Tribunal. 6. We have heard Ld. Counsels from both the sides and perused the material available on record including the copy of case law furnished by the assessee. In this regard, we find that it is the claim of the assessee that under identical facts in the case of similarly situated various other employees of M/s Pfizer Healthcare Pvt. Ltd., coordinate benches of this Tribunal has already allowed the relief to the other assessees. In this regard, Ld. Counsel of the assesse placed reliance on the decision of coordinate bench of this Tribunal passed in the case of Ashok Raghunathrao Kulkarni vs. ITO in ITA No.117/PUN/2024 for assessment year 2019-20 order dated 12.08.2024 wherein the Tribunal allowed the appeal by observing as under :- “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, reasons of which are already reproduced in the preceding paragraphs. The CIT(A) / NFAC also rejected the alternate claim of the assessee that such amount being a capital receipt cannot be brought to tax. It is the submission of the Ld.

6 ITA No.2299/PUN/2026 Counsel for the assessee that in case of various other employees who have received similar compensation, the same has been accepted as capital receipt by the respective AOs in re-assessment proceedings and no addition has been made. Further, various Co-ordinate Benches of the Tribunal in similarly placed employees have also treated such compensation received on termination of service as capital in nature and not falling u/s 17(3) of the Act. 24. We find the Assessing Officer in the case of Sharad D. Magar, who also resigned voluntarily from service of Pfizer Healthcare India Pvt. Ltd., Aurangabad has accepted the compensation received at Rs.30,49,176/- as capital in nature by observing as under: “Brief facts of the case: The assessee, Shri Sharad Daulatrao Magar, having PAN: ASHPM1986C, an salaried individual, had filed ITR-1 u/s. 139(1) for AY 2019-20 on 29.07.2019 declaring total income of Rs.32,03,150/-. Further, Rs.35,54,140/- was shown as Gross Salary. The assessee was employee of M/s Pfizer Healthcare India Pvt Ltd, Aurangabad during FY2018-19. The company launched VRS beneficial to the employees on planned closure of its unit. The assessee voluntarily resigned from service w.e.f 08.02.2019 and received compensation and out of that compensation he claimed Rs.30,49,176/- being salary claimed in Advance as exempt u/s 89 from taxation in his ITR u/s 139(1) of the Act. …….. 14. The submissions made by the assessee have been examined. As the assessee has submitted corroborative and binding judicial pronouncements in support of his claim that the amount of Rs.30,49,176/- received by him from his employer at the time of cessation of his employment due to closure of the manufacturing unit was a capital receipt, not subject to tax. The assessee has also placed reliance on various case laws, in support of his above claim, and court has held as under "The amounts received were due to loss of employment & not recurring in nature & are not paid in lieu of any salary hence it does not come under the preview of sec. 17(3)(i) as amount of compensation. The said amounts have not been paid against any services of the assessee. 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

7 ITA No.2299/PUN/2026 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. Ltd., the CIT(A) / NFAC is not justified in sustaining the addition made by the Assessing Officer. 26. We further find the Hon’ble Calcutta High Court in the case of CIT vs. Ajit Kumar Bose (supra) has observed as under: “4. The amount in question was received by the assessee from his employer. It was received by him in connection with the termination of his service. But the question still remains whether it was compensation. Since it was received by the assessee in connection with the termination of his employment, the term "compensation" would be referable to that event. In other words, it is to be seen whether the amount was paid as compensation for the termination or in lieu of the termination of the employment. 5. The letter issued by the employer dated July 3, 1969, stated that the amount was being paid ex gratia. There is nothing to indicate that the assessee was entitled to continue in the employment of the company up to any particular age. Under the conditions of service, his services were liable to be terminated on giving three months' notice without assigning any reason. Under the circumstances, it cannot be said that the assessee was entitled to remain in service for any period longer after the requisite notice has been given or that the employer was under any obligation to pay anything to the assessee in connection with the termination of his employment other than the salary for the period of notice. Under the circumstances, in its true nature and character, the payment was ex gratia, that is to say, totally voluntary; it was not compensation which implies some sort of an obligation to pay. 6. In this view, it cannot be said that the amount in question was profits in lieu of salary within the meaning of Clause (3) of Section 17. It was not taxable as such. The finding of the Tribunal that the amount was a capital receipt or that it was payment of a casual and non-recurring nature was in the circumstances not necessary. We, hence, do not express any opinion on it.

8 ITA No.2299/PUN/2026 7. The question of law referred to us in this case, namely : "Whether, on the facts and in the circumstances of the case, the amount of Rs. 24,933 received by the assessee could be treated as income under the charging section or under the section dealing with the computation of income of the assessee ?" 8. is answered in the negative, in favour of the assessee and against 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 exgratia 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, therefore, set aside the order of the CIT(A) / NFAC and direct the Assessing Officer to delete the addition. The grounds raised by the assessee are accordingly allowed. 29. In the result, the appeal filed by the assessee is allowed.” 7. Respectfully following the above decision of coordinate bench of this Tribunal passed in the case of Ashok Raghunathrao Kulkarni (supra), we find force in the argument of Ld. Counsel of the assessee 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

9 ITA No.2299/PUN/2026 assessee in terms of any service rule and therefore, would not amount to compensation in terms of section 17(3) of the Act. Accordingly, we deem it appropriate to set-aside the order passed by Ld. CIT(A)/NFAC and direct the Assessing Officer to delete the addition of Rs.23,92,487/- (Rs.23,73,947/- + Rs.18,540/-). Thus, the grounds of appeal raised by the assessee are allowed. 8. In the result, the appeal filed by the assessee is allowed. Order pronounced on this 06th day of October, 2026. Sd/- Sd/- (R. K. PANDA) (VINAY BHAMORE) VICE PRESIDENT JUDICIAL MEMBER पुणे / Pune; �दनांक / Dated : 06th October, 2026. Sujeet/DOC Sujeet Kumar Digitally signed by Sujeet Kumar Sharma Sharma Date: 2026.10.08 11:03:07 +05'30' आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The Pr. CIT concerned. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “SMC” ब�च, 4. पुणे / DR, ITAT, “SMC” Bench, Pune. गाड� फ़ाइल / Guard File. 5. आदेशानुसार / BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.