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Income Tax Appellate Tribunal, DELHI BENCH ‘C’ NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI L.P. SAHU
ORDER
Per L.P. Sahu, Accountant Member:
Appeal No. 2786/Del./2012 by the assessee is directed against the order dated 08.11.2010 of the ld. CIT(A)-XXVIII, New Delhi for the assessment year 2004-05, challenging the confirmation of disallowance of Rs.90,40,000/- made by the Assessing Officer on account of expenditure incurred on payment made to employees under Voluntary Separation Scheme (hereinafter referred to as ‘VSS’).
The appeal No. 6083/Del./2013 has been preferred by the Revenue against the order dated 30.08.2013 passed by ld. CIT(A)-XV, New Delhi, challenging the deletion of penalty of Rs.32,43,552/- levied u/s. 271(1)(c) of the IT Act for the assessment year 2004-05.
The brief facts of the case are the assessee is a Government of India Undertaking company established for the business of manufacturing fertilizers. The operation of the company was shut down following a decision by the Govt. of India in 2002.The assessee filed return of income for the relevant year on 20.10.2004 declaring total loss of Rs.815,49,10,915/- and claimed Rs.16,09,740/- as refund on account of tax deducted at source. The assessment of the assessee was completed u/s. 143(3) vide order dated 15.11.2006, assessing the total income of Rs.38,57,489/-. This assessment was revised by the learned CIT u/s. 263 of the Act vide order dated 23.03.2009 on the limited issue of deduction allowable u/s. 35DDA and restored the matter to the file of the Assessing Officer. Thereafter, the Assessing Officer after hearing the assessee passed fresh assessment order u/s. 143(3)/263 vide order dated 27.11.2009 by further making disallowance of Rs.90,40,000/- i.e., 4/5th of the total payments on account of expenditure on payment made to employees under VSS. This assessment order passed in pursuance to the directions given in the order u/s. 263 was confirmed by the ld. CIT(A) vide impugned order dated 08.11.2010. The appellant is a company (Govt. of India Undertaking) under BIFR(Board for Industrial & Financial Reconstruction) reference since 1992. Vide Circular No. HFC/CO/Pers/P-68/2218 dated 19.09.2002 and another circular No. HFC/CO/Pers/P-68/2224 dated 25.09.2002, the appellant company was sanctioned VSS. As per these circulars, all the employees have to opt for voluntary separation under this scheme during this period. Workers not availing the offer of Voluntary separation during this period shall be paid retrenchment compensation under ID Act, 1947 after obtaining permission from the competent authority. Officers not availing of the offer of Voluntary Separation shall be governed by their terms of appointment. The aggrieved assessee has challenged the impugned order by way of this appeal before us.
On the basis of this addition of Rs.90,40,000/- made vide assessment order dated 27.11.2009, the Assessing Officer, initiated penalty proceedings u/s. 271(1)(c) of the Act, observing that the assessee has tried to suppress its taxable income by making wrong claim which was not allowable as per law and as such the assessee has furnished inaccurate particulars of its income. He, therefore, imposed a penalty of Rs.32,43,552/- u/s. 271(1)(c) of the Act, representing 100% of the tax sought to be evaded by the assessee. The assessee preferred an appeal before the ld. CIT(A) against the penalty order, where the ld. CIT(A) deleted the penalty vide impugned order dated 30.08.2013. The Revenue was not satisfied with the order of CIT(A). Hence, this appeal before us.
The learned AR of the assessee submitted that the voluntary separation scheme of the Company was compulsory in nature to be opted by all the employees and workers not availing the offer, shall be paid retrenchment compensation which was evident from the above circular and hence, it should not strictly be interpreted with section 35DDA(1) of the IT Act. It was submitted that the business of the assessee has been closed down by the decision of the Govt. of India and there would be no income arising from the business in near future and losses would keep on increasing and such expenditure will never be set off. It was submitted that as per decision of Govt. of India, Ministry of Chemicals & Fertilizers (Department of Fertilizers) following approvals were conveyed vide OM No. 39/23/94-FCA-1 Vol. IX dated 10.09.2002 : (i). Closure of HFC including all its units, offices and establishments;
(ii). Disposal of assets of the company in accordance with the procedure prescribed under Sick Industrial Companies (Special Provisions) Act, 1985 and other applicable laws
(iii). Remission of VSS benefits to all the employees of the company.
(iv). Permission to extent VSS benefits to employees of all the units and offices of HFC pending final permission for closure by the competent authority and grant of retrenchment compensation under ID Act, 1947 to employees not availing of this offer within three months, after obtaining the required permission from the competent authority.
In view of these submissions, the ld. AR contended that the addition of Rs.90,40,000/- confirmed by the ld. CIT(A) is liable to be deleted. He also contended that the penalty imposed by the Assessing Officer u/s. 271(1)(c) has rightly been deleted by the ld. CIT(A).
The ld. DR, on the other hand, has relied upon the order of the lower authorities and submitted that the assessee has claimed an expenditure of Rs.1.13 crores on account of payment to employees under VSS. This amount should have been deferred over the period of five years and 4/5th of the amount should have been added to the total income after allowing 1/5th u/s. 35DDA(1). The provisions of section 35DDA clearly provide that only 1/5th of the amount paid in accordance with the scheme of Voluntary Retirement could be allowed in the year under consideration. He further stated that the appellant has introduced the scheme named as VSS , but it was compulsory in nature to be opted by all the employees is not acceptable. Para 2 of the circular dated 19.09.2002 says that workers not available the voluntary separation during this period shall be paid retrenchment compensation under the Industrial Dispute Act after obtaining the permission from the competent authority – officers not availing voluntary separation shall be governed by their terms of appointment. This shows that the circular did provide other options for employees who did not opt for voluntary separation under this scheme. In view of these facts, it cannot be said that the scheme was compulsory in nature. Further, the assessee failed to explain how the deduction is allowable even if the scheme was compulsory. Therefore, in view of the clear provisions of section 35DDA and the above arguments, the authorities below are justified in making the addition. It was also contended that once the impugned addition has been sustained by the ld. CIT(A), there was no good reason for him to delete the penalty imposed by the Assessing Officer u/s. 271(1)(c) of the Act for furnishing inaccurate particulars of income.
We have considered the rival submissions of both the parties and have gone through the material available on record. We find that the assessee company is a government company and the same was closed as per Government order referred to above. The company had issued Voluntary Separation Scheme for their employees, which was applicable to all the employees as on that date. In this scheme, the Company has claimed deduction of expenditure of Rs.1.13 crores toward payment made to employees under this scheme. For the sake of convenience we reproduce section 35DDA hereunder :
35DDA. (1) Where an assessee incurs any expenditure in any previous year by way of payment of any sum to an employee in connection with his voluntary retirement, in accordance with any scheme or schemes of voluntary retirement, one-fifth of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year, and the balance shall be deducted in equal installments for each of the four immediately succeeding previous years.
After considering the submissions of the assessee in the light of above section and the facts on record, it is seen that section 35DDA pre-supposes that there is a continuance and existence of business for next relevant years on going concern concept basis, which is not the fact in the assessee’s case. Here, the Govt. of India has decided to close the business and the scheme is not voluntary in nature. It was compulsory and was to be opted by all the employees and if it is not available by certain employees, then in that circumstance, those employees will be compulsorily retrenched. Hence, from the spirit of the scheme, it is seen that it is not voluntary in nature and accordingly, in the circumstances, when the assets are in the process of being sold out, the employees are made to go and the business is being in the process of closure down. In these circumstances, the appellant’s contention that their case is not covered by the scheme contemplated by section 35DDA has to be accepted. As a result, the grounds raised by the assessee in this regard are liable to be allowed and accordingly, the appeal of the assessee deserves to be allowed, thereby deleting the impugned addition.
Adverting to the departmental appeal challenging the penalty imposed u/s. 271(1)(c), we find that once the impugned addition on the basis of which the penalty was imposed by the Assessing Officer, stands deleted by us, there remains no justification to hold that the assessee had furnished inaccurate particulars of its income. Therefore, the very basis for imposition of penalty stands collapsed. We, therefore, find no reason to interfere with the order of the ld. CIT(A) in deleting the impugned penalty imposed u/s. 271(1)(c) of the Act. As a result, the appeal filed by the Revenue deserves to be dismissed.
In the result, the appeal of the assessee is allowed and that of the Revenue is dismissed. Order pronounced in the open court on 22.09.2015.