DCIT, New Delhi V. M/s. Lumax Automotive Systems Ltd., New Delhi

ITA 1823/DEL/2014

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1655 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 02-08-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 27-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Additional evidence; Commercial expediency; Revenue expenditure
• Section: 37(1); 37

Judgement Text

ITA NO. 1823/DEL/2014 ASSESSMENT YEAR 2009-10 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 1823/DEL/2014 ASSESSMENT YEAR: 2009-10 DCIT VS LUMAX AUTOMOTIVE SYSTEMS LTD., CIRCLE-4(1), 63-64, GOKHLE MARKET, NEW DELHI. NEW DELHI-110054 (PAN: AAACL6930D) (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI PRADEEP SINGH GAUTAM, SR. DR ASSESSEE BY: NONE DATE OF HEARING: 23.08.2018 DATE OF PRONOUNCEMENT : 20.11.2018 ORDER PER SUDHANSHU SRIVASTAVA, J.M.: THIS APPEAL HAS BEEN PREFERRED BY THE DEPARTMENT AGAINST ORDER DATED 31/01/2014 PASSED BY THE LD. CO MMISSIONER OF INCOME TAX (APPEALS) XIX NEW DELHI FOR ASSESSM ENT YEAR 2009 10. 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS IN THE BUSINESS OF MANUFACTURING OF OIL AND AIR FILTERS, REAR-VIEW MIRRORS AND PLASTIC COMPONENTS. THE RETUR N OF INCOME WAS FILED DECLARING A TOTAL INCOME OF RS. 71,91,226 /-. ITA NO. 1823/DEL/2014 ASSESSMENT YEAR 2009-10 2 SUBSEQUENTLY, THE RETURN WAS REVISED DECLARING INCO ME OF RS. 1,58,62,441/-. THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER (AO) NOTED THAT THE ASSESSEE HAD MADE FULL CLAIM OF COMP ENSATION AMOUNTING TO RS. 1,54,22,290/- PAID ON ACCOUNT OF RETRENCHMENT/RETIREMENT OF EMPLOYEES IN ITS COMPUTA TION OF INCOME. THE AO NOTED THAT AS PER SCHEDULE 13 TO THE BALANCE SHEET, THE ASSESSEE HAD ITSELF MENTIONED THE AMOUNT OF RS. 1,54,22,290/- AS DEFERRED VOLUNTARY RETIREMENT SCHE ME (VRS) EXPENDITURE AND HAD WRITTEN OFF 1/5 TH OF THE SAME IN THE PROFIT AND LOSS ACCOUNT. THE AO WAS OF THE VIEW THAT THE A LLOWABILITY OF THE VRS EXPENDITURE WAS GOVERNED BY SPECIFIC PROVIS ION OF SECTION 35 DDA OF THE INCOME TAX ACT, 1961 (THE ACT) AND NOT SECTION 37(1) OF THE ACT. AS PER THE ADMITTANCE OF THE ASSE SSEE BEFORE THE AO, THE COMPANY HAD NO SCHEME OF VOLUNTARY RETIREME NT OR RETRENCHMENT. THE AO PROCEEDED TO MAKE AN ADDITION OF RS. 1,54,22,290/- TO THE INCOME OF THE ASSESSEE. 2.1 THE AO FURTHER NOTED THAT THE ASSESSEE HAD ALS O CLAIMED EXPENDITURE OF RS. 75,79,037/- PERTAINING T O EXPENDITURE ON RETRENCHED/RETIRED EMPLOYEES WHEREAS NO PROVISIO N HAD BEEN MADE BY THE ASSESSEE IN ITS ACCOUNTS FOR THE ASSESS MENT YEAR. ITA NO. 1823/DEL/2014 ASSESSMENT YEAR 2009-10 3 THE ASSESSEE HAD DEBITED RS. 7,98,181/- AND RS. 67, 80,856/- UNDER PRIOR PERIOD EXPENSES AND DEFERRED VRS EXPENS ES IN ITS BOOKS FOR THE NEXT ASSESSMENT YEAR I.E. AY 10-11. T HE AO NOTED THAT THIS AMOUNT WAS NOT AN ASCERTAINED OR ACCRUED LIABILITY FOR THE YEAR UNDER CONSIDERATION AS THE COMPENSATION-LI ABILITY HAD CRYSTALLISED ONLY DURING THE SUCCEEDING ASSESSMENT YEAR. THE AO PROCEEDED TO ADD BACK THIS AMOUNT ALSO TO THE INCOM E OF THE ASSESSEE. THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS. 3,89,38,510/- AFTER MAKING TWO MORE ADDITIONS RELAT ING TO DISALLOWANCE OF CHARITY AND DONATION AND SALES TAX DEMAND. 2.2 AGGRIEVED, THE ASSESSEE APPROACHED THE LD. FIR ST APPELLATE AUTHORITY AND THE LD. COMMISSIONER OF INC OME TAX (APPEALS) HELD IN FAVOUR OF THE ASSESSEE BY HOLDING THAT BOTH THE AMOUNTS OF RETRENCHMENT COMPENSATION/RETIREMENT COMPENSATION AMOUNTING TO RS. 1,54,22,290/- AS WELL RS. 75,79,037/- FOR WHICH NO PROVISION HAD BEEN MADE IN THE BOOKS OF ACCOUNTS DURING THE YEAR UNDER CONSIDERATION WAS AN ALLOWABLE EXPENDITURE. 2.3 NOW, THE DEPARTMENT IS IN APPEAL BEFORE THE IT AT AND HAS CHALLENGED THE ACTION OF THE LD. CIT (APPEALS) IN DELETING BOTH THE ADDITIONS. ITA NO. 1823/DEL/2014 ASSESSMENT YEAR 2009-10 4 3.0 NONE WAS PRESENT ON BEHALF OF THE ASSESSEE/RESPONDENT WHEN THE APPEAL WAS CALLED OUT FOR HEARING. NO ADJOURNMENT APPLICATION WAS ALSO RECEIVED ON BEH ALF OF THE ASSESSEE/RESPONDENT. THE LD. SENIOR DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT THE ASSESSEE COM PANY WAS IN THE PROCESS OF LIQUIDATION AND THAT THE NOTICE OF H EARING OF THIS APPEAL HAD BEEN SERVED ON THE OFFICIAL LIQUIDATOR. THE LD. SENIOR DEPARTMENTAL REPRESENTATIVE PLACED ON RECORD EVIDEN CE OF SERVICE OF NOTICE ON THE OFFICIAL LIQUIDATOR. ACCORDINGLY, IN VIEW OF THE FACTS, WE DEEM IT APPROPRIATE TO HEAR THE APPEAL EX PARTE QUA THE ASSESSEE/RESPONDENT. 4.0 THE LD. SENIOR DEPARTMENTAL REPRESENTATIVE REA D OUT EXTENSIVELY FROM THE ASSESSMENT ORDER AND VEHEMENTL Y ARGUED THAT THE LD. CIT (APPEALS) HAD ERRED GREATLY IN DEL ETING THE IMPUGNED DISALLOWANCE WITHOUT APPRECIATING THE OBSE RVATIONS OF THE AO AS WELL AS THE SETTLED LEGAL POSITION. 5.0 HAVING HEARD THE LD. SENIOR DEPARTMENTAL REPRESENTATIVE AND HAVING PERUSED THE ORDERS OF THE AUTHORITIES BELOW, WE NOTE THAT THE RETRENCHMENT COMPENSATION O F RS. 1,54,22,290/- WAS PAID TO THE EMPLOYEES UPON THE CL OSURE OF ASSESSEES UNIT AT 29, DLF INDUSTRIAL AREA, FARIDAB AD AND WAS ITA NO. 1823/DEL/2014 ASSESSMENT YEAR 2009-10 5 NOT A PAYMENT WITH REFERENCE TO THE VOLUNTARY RETIR EMENT OF THE EMPLOYEES AT THE SITE UNIT. THE DLF UNIT WAS CLOSED W.E.F. 5 TH OF DECEMBER 2008 AND THE MATTER WAS SETTLED WITH THE W ORKERS UNION ON 20 TH OF DECEMBER 2008 WHEREBY AS PER THE RETRENCHMENT SETTLEMENT THE WORKERS WERE ENTITLED T O RETRENCHMENT COMPENSATION OF 30 DAYS FOR EACH YEAR OF SERVICE ALREADY RENDERED, ONE MONTH NOTICE PAY AND GRATUITY AS PER LAW. THUS, IT WAS IN CONSEQUENCE TO THE SETTLEMENT THAT PAYMENT WAS MADE TO 62 WORKERS WERE MADE ON THIS ACCOUNT. ALTHO UGH, THE EXPENDITURE WAS REFLECTED UNDER VOLUNTARY RETIREMEN T COMPENSATION, THE SAME WAS NOT VOLUNTARY RETIREMENT COMPENSATION AND THE SAME WAS COMPENSATION PAID ON ACCOUNT OF COMMERCIAL EXPEDIENCY TO SAVE FUTURE BUSINESS LO SSES AND, THUS, WAS ALLOWABLE AS A DEDUCTION UNDER SECTION 37 (1) OF THE ACT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS ADMITTED ADDITIONAL EVIDENCES DURING THE COURSE OF APPELLATE PROCEEDINGS AND HAS ALSO NOTED THAT THE AO WAS CALLED UPON TO E XAMINE THESE EVIDENCES AND FURNISH A REMAND REPORT IN TERMS OF 4 6A OF THE INCOME TAX RULES, 1962 BUT THE AO CHOSE NOT TO RESP OND. IT HAS BEEN NOTED BY THE LD. CIT (APPEALS) THAT THERE WERE DOCUMENTARY EVIDENCES TO THE EFFECT THAT CONSIDERABLE DISPUTE H AD ARISEN ITA NO. 1823/DEL/2014 ASSESSMENT YEAR 2009-10 6 BETWEEN THE WORKERS OF THE FARIDABAD UNIT AND THE M ANAGEMENT OF THE ASSESSEE COMPANY AS THE MANAGEMENT HAD TAKEN A DECISION TO CLOSE DOWN ITS FARIDABAD UNIT WHICH WAS NO LONGER A VIABLE COMMERCIAL UNIT IN TERMS OF PROFITABILITY. T HE LD. CIT (APPEALS) HAS PLACED RELIANCE ON THE JUDGEMENT OF T HE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VERSUS DALMIA A GENCIES (PRIVATE) LIMITED IN ITA 329/2006 WHILE ALLOWING TH E ASSESSEES CLAIM WHEREIN THE HONBLE DELHI HIGH COURT HAD HELD THAT PAYMENT MADE IN SETTLEMENT UNDER THE INDUSTRIAL DIS PUTES ACT WOULD QUALIFY AS REVENUE EXPENDITURE UNDER SECTION 37 OF THE INCOME TAX ACT. WE FIND NO REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT (APPEALS) IN THIS REGARD. WE ALSO NO TE THAT THE HONBLE APEX COURT HAS HELD IN THE CASE OF KEDARNAT H JUTE MANUFACTURING CO LTD REPORTED IN 83 ITR 263 (SC) TH AT THE ALLOWANCE OF DEDUCTION IS NOT DEPENDENT ON THE NATU RE OF ENTRIES IN THE BOOKS OF ACCOUNTS AND THE DEDUCTION/ALLOWANC E CAN AS WELL BE CLAIMED BY THE ASSESSEE IN THE COMPUTATION OF INCOME FILED. ACCORDINGLY WE DISMISS GROUND NO. 1 OF THE D EPARTMENTS APPEAL. 5.1 COMING TO THE SECOND ISSUE BEFORE US WHICH IS THE DELETION OF DISALLOWANCE OF RS. 75,79,037/- ON ACCO UNT OF SERVICE ITA NO. 1823/DEL/2014 ASSESSMENT YEAR 2009-10 7 COMPENSATION AND OTHER ALLOWANCES PAYABLE TO THE EM PLOYEES OF THE COMPANY WHO WERE RETRENCHED DURING THE YEAR UND ER APPEAL. THESE EXPENSES WERE DISALLOWED ON THE GROUND THAT T HE SAID EXPENSES WERE ASCERTAINED/ACCRUED LIABILITY IN AY 2 009-10 I.E. THE YEAR UNDER APPEAL BUT NO PROVISION HAD BEEN MAD E FOR THE SAME IN THE BOOKS OF ACCOUNT IN THAT YEAR BUT WERE SHOWN AS DEFERRED VRS EXPENDITURE/ PRIOR PERIOD EXPENDITURE IN AY 2010- 11 AND SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE EXPENDITURE COULD NOT BE ALLOWED. I T HAS BEEN NOTED BY THE LD. CIT (APPEALS) THAT THIS AMOUNT PER TAINED TO WORKERS AND STAFF AT 29, DLF INDUSTRIAL AREA, FARID ABAD WHICH WAS CLOSED IN DECEMBER 2008. THUS, IT WAS A PROVISI ON FOR EXPENDITURE WHICH HAD CRYSTALLISED DURING THE YEAR UNDER CONSIDERATION. BEFORE THE LD. CIT (APPEALS), THE AS SESSEE HAD SUBMITTED THAT THIS EXPENDITURE HAD ACCRUED AND AND WAS SCERTAINED DURING ASSESSMENT YEAR 2008-2009 ITSELF BUT DUE TO OVERSIGHT AND INADVERTENCE THE PROVISION OF THE SAM E WAS NOT MADE IN THE BOOKS OF ACCOUNTS.. THE LD. CIT (APPEAL S) HAS ACCEPTED THE ASSESSEES CONTENTION AND WHILE PLACIN G RELIANCE ON THE JUDGEMENT OF THE HONBLE APEX COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING COMPANY LIMITED VERSUS CIT ITA NO. 1823/DEL/2014 ASSESSMENT YEAR 2009-10 8 (SUPRA) HELD THAT THE IMPUGNED AMOUNT WHICH HAD ACC RUED AND ASCERTAINED IN THE YEAR UNDER CONSIDERATION WAS AN ALLOWABLE EXPENDITURE. WE NOTE THAT THE HONBLE APEX COURT HA S HELD IN THE CASE OF METAL BOX COMPANY VS. THEIR WORKMEN REPORTE D IN 73 ITR 53 (SC) HAS HELD THAT IN CASE OF AN ASSESSEE MA INTAINING HIS ACCOUNTS ON MERCANTILE SYSTEM, A LIABILITY ALREADY ACCRUED, THOUGH TO BE DISCHARGES AT A FUTURE DATE, WOULD BE A PROPER DEDUCTION. JUST AS ACTUAL RECEIPTS AS WELL AS ACCRU ED DUE ARE BROUGHT IN FOR INCOME TAX ASSESSMENT, SO ALSO THE L IABILITIES ACCRUED DUE WOULD HAVE TO BE TAKEN INTO ACCOUNT. IT IS NOT THE CASE OF THE DEPARTMENT THAT THIS AMOUNT HAD NOT CRY STALLISED FOR PAYMENT DURING THE YEAR UNDER CONSIDERATION AND THE ONLY ERROR WAS THAT THE PROVISION FOR THE SAME HAD NOT BEEN MA DE IN THE BOOKS OF ACCOUNTS. WE ARE OF THE OPINION THAT THE A SSESSEE DESERVES TO SUCCEED ON THIS ISSUE ALSO. PLACING REL IANCE AND RESPECTFULLY FOLLOWING THE RATIO OF THE AFORESAID J UDGEMENT OF THE HONBLE APEX COURT IN THE CASE OF METAL BOX COMPANY , WE FIND NO REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CI T (APPEALS) IN THIS REGARD AND WE DISMISS GROUND NO. 2 RAISED BY T HE DEPARTMENT. ITA NO. 1823/DEL/2014 ASSESSMENT YEAR 2009-10 9 6.0 IN THE FINAL RESULT THE APPEAL OF THE DEPARTME NT STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH NOVEMBER, 2018. SD/- SD/- (G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA) VICE PRESIDENT JUDICIAL M EMBER DATED: 20TH NOVEMBER, 2018 GS COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT BY ORDER ASSTT. REGISTRAR