M/s. M.S. Malik Bros. & Sons, Ahmedabad V. The Income tax Officer,Ward-2, Bharuch

ITA 2841/AHD/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2029 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 11-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S SURYAVANSHI SRDR
• Assessee Lawyers: ANIL R SHAH
• Keywords: Capital expenditure; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI A.N.PHAUJA, ACCOUNTANT MEMBER ITA NO.2841/AHD/2010 ASSESSMENT YEAR:2005-06 DATE OF HEARING:18.2.11 DRAFTED:22.2.11 M/S. M.S. MALIK BROS & SONS. NR. RLY FOOT BRIDGE, BHARUCH PAN NO.AADFM9694D V/S. INCOME TAX OFFICER, WARD-2, BHARUCH (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI ANIL R SHAH, AR RESPONDENT BY:- SHRI G.S. SURYAVANSHI, SR-DR O R D E R PER BENCH:- THIS APPEAL BY ASSESSEE IS ARISING OUT OF THE ORDE R OF COMMISSIONER OF INCOME-TAX(APPEALS)-VI, BARODA IN APPEAL NO.CAB/VI- 397/07-08 DATED 31-05- 2010. THE ASSESSMENT WAS FRAMED BY THE ITO WARD-2, BHARUCH U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO A S THE ACT) VIDE HIS ORDER DATED 13-12-2007 FOR THE ASSESSMENT YEAR 2005-06. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE OF RETRENCHMENT SALARY PAID TO LABOURERS AND WORKERS. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWIN G EFFECTIVE GROUNDS NO.1 & 2 :- 1. THE COMMISSION. OF INCOME-TAX (A) HAS ERRED BOT H IN LAW AND IN FACT IN CONFIRMING DISALLOWANCE OF RS.2,97,312 BEIN G RETRENCHMENT SALARY PAID TO LABORES AND WORKERS OF YOUR APPELLAN T. ITA 2841/AHD/2010 A.Y . 2005-06 M/S M.S. MALIK BROS & SONS V. ITO WD-2 BHARUCH PAGE 2 2. YOUR APPELLANT SUBMITS THAT THE LABOUR CONTRACT WITH GNFC HAD TERMINATED DURING THE ACCOUNTING YEAR RELEVANT TO T HE YEAR OF APPEAL AND AS PER TERMS AND CONDITIONS OF THE CONTRACT AND AS PER PROVISIONS OF LAW YOUR APPELLANT WAS REQUIRED TO MAKE PAYMENT OF RETRENCHMENT SALARY TO LABORERS AND WORKERS WHICH BEING A BUSINE SS EXPENDITURE INCURRED DURING COURSE OF BUSINESS OF YOUR APPELLAN T THE DISALLOWANCE OF THE SAME SHOULD HAVE BEEN DELETED BY THE COMM. OF I NCOME TAX APPEAL. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSEE IS ENGAGED IN THE BUSINESS OF SUPPLY LABOUR ON CONTRACT BASIS TO GUJARAT NARMADA VALLEY FERTILIZERS COMPANY LTD. (GNFC FOR SHORT) AND OTHER VARIOUS DEPARTMENTS. THE ASSESSEE IS MAINTAINING REGULAR BOOKS OF ACCOUNT, W HICH ARE DULY MAINTAINED U/S 44AB OF THE ACT. THE ASSESSEE IS HAVING LABOUR CONTRACT WITH GNFC FOR PROVIDING LABOUR FOR VARIOUS DEPARTMENTS AS UNDER:- A) RAIL B) S & P G BOILER C) HAZ D) BAGGING E) LOADING, AND F) S & PG COAL THE ASSESSING OFFICER NOTED THAT LABOUR CONTRACT WA S FOR FIXED TERM AND AT THE END OF PERIOD LABOUR CONTRACT MANDATES THAT THERE A RE CASES WHERE FRESH CONTRACT OF SUPPLY OF LABOUR IS GIVEN TO THE ASSESS EE. DURING THE YEAR UNDER APPEAL, THE LABOUR CONTRACT WAS ORIGINATING ON 01-1 1-2000 AND TERMINATION ON 30-11-2004. THE GNFC ISSUED COMPLETION CERTIFICATE DATED 12-12-2004 IN PROOFS OF TERMINATION OF CONTRACT. AS PER THE ASSES SEE THIS PROVES BEYOND DOUBT THAT LABOUR CONTRACT WITH GNFC IS FOR CONTRAC T OF BAGGING, STITCHING, HEAT SCALING & STRAG JOBS FOR UREA + NPP CAME TO AN END AND THIS RESULTED INTO LIABILITY TO PAY RETRENCHMENT COMPENSATION UNDER LA BOUR LAWS. THE ASSESSING OFFICER DISALLOWED THIS AMOUNT BY GIVING FOLLOWING FINDINGS IN PARA-3.2 OF HIS ASSESSMENT ORDER:- ITA 2841/AHD/2010 A.Y . 2005-06 M/S M.S. MALIK BROS & SONS V. ITO WD-2 BHARUCH PAGE 3 3.2 AS PER AGREEMENT BETWEEN GNFC AND NCPL THE ASSESSEE HAS TO COMPLY THE PROVISION OF INDUSTRIAL DISPUTE ACT. ASS PER INDUSTRIAL DISPUTE ACT, THE LABOUR WERE SAI D TO BE RETRENCHED WHEN THEY ARE REMOVED FROM THE JOB. IN T HE CASE OF THE ASSESSEE THE JOB IS NOT CEASED. THE LABOUR WERE REMOVED FROM ONE JOB TO OTHER JOB. THE ASSESSEE ITSELF HAD SUBMITTED THAT THE LABOURS WERE EMPLOYED FROM ONE JOB TO OTHER JOB . IN THIS CASE, IT CAN NOT BE SAID THAT THE LABOUR ARE REMOVED FROM THE JOB. FURTHER, THE ASSESSEE HAD NOT PRODUCED ANY AGREEMEN T BETWEEN THEM AND LABOUR FROM WHICH IT CAN BE ESTABLISHED TH AT THE RETRENCHMENT COMPENSATION IS TO BE PAID ON COMPLETI ON OF CONTRACT. ONUS LIES ON THE ASSESSEE TO PROVE THAT T HE EXPENDITURE IS GENUINE AND FAIR. THE ASSESSEE FAILED TO DISCHAR GE ITS ONUS. THUS, IT IS CLEAR THAT THE ASSESSEE HAS INFLATED IT S EXPENDITURES. ACCORDINGLY AN AMOUNT OF RS.2,97,312/- CLAIMED AS R ETRENCHMENT COMPENSATION IS DISALLOWED. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) ALSO CONFIRMED THE ACTION OF ASSESSING OFFICER BY GIVING FOLLOWING FINDINGS IN PARA- 4.3 OF HIS APPELLATE ORDER:- 4.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD. AR AND FACTS OF THE CASE AND THE REMAND REPORT OF THE AO THE AO, IN HIS REMAND REPORT ON THE ISSUE OF RETRENCHMENT COMPENSATION OF RS.2,97,3 12/- HAS MENTIONED AS UNDER:- IN CASE THE LABORERS WERE TERMINATED BY THE ASSESS EE PERMANENTLY AFTER COMPLETION OF CONTRACT WITH GNFC, THE ASSESSEES CLAIM THAT HE HAD TO PAY RETRENCHMENT CO MPENSATION MAYBE CORRECT. IN COURSE OF THE APPELLANT PROCEEDINGS, THE AUTHORI ZED REPRESENTATIVE HAS REITERATED THE SUBMISSIONS MADE BEFORE THE AO, ARGUMENTS, RETRENCHMENT AMOUNTS WERE PAID TO THE LABORERS, REC EIPTS FOR PAYMENTS HAVE BEEN SUBMITTED TO THE AO, THE PAYMENTS WERE AS PER THE AGREEMENT BETWEEN THE APPELLANT AND THE GNFC, THE G ENUINENESS OF THE PAYMENTS WERE NEVER QUESTIONED BY THE AO, THE A O IN FACT HAS TOED THE LINE OF ARGUMENTS OF THE AR THAT IN CASE THE LA BORERS WERE TERMINATED AFTER COMPLETION OF WORK THE CLAIM OF TH E APPELLANT MAY BE CORRECT, THE AGREEMENT IN QUESTION WAS EFFECTIVE FR OM 01-11-2001 TO 30- 11-2004 RELEVANT TO ASST. YEAR 2005-06, ON WHICH DA TE THE LABORERS WERE TERMINATED AND THE NEW CONTRACT WAS MADE ON 01 -12-2006 WITH GNFC AFTER A GAP OF ABOUT 36 MONTHS IS A FRESH CONT RACT AND IT CANNOT BE SAID THAT THE OLD WORKERS WERE NOT TERMINATED. A S IT IS UNDERSTOOD BY A LAYMAN, THERE ARE TWO OCCASION OF PAYMENT OF RETR ENCHMENT ITA 2841/AHD/2010 A.Y . 2005-06 M/S M.S. MALIK BROS & SONS V. ITO WD-2 BHARUCH PAGE 4 COMPENSATION. IT MAY BE NOTED HERE THAT INITIALLY T HE RETRENCHMENT COMPENSATION WAS NOT ALLOWED AS AN EXPENDITURE ON T HE GROUND THAT IT WAS A CAPITAL EXPENDITURE. BUT, HOWEVER, NOW IT HAS BECOME SETTLED THAT IT IS AN ALLOWABLE EXPENDITURE PROVIDED THAT THE IN GREDIENTS OF THE RETRENCHMENT COMPENSATION WERE FULFILLED. NOW COMIN G TO THE TWO OCCASIONS, WHERE IT IS TREATED AS AN ALLOWABLE EXPE NDITURE, ONE IS WHEN THE EMPLOYER FOR REASONS BEYOND HIS CONTROL HAS TO SHUT DOWN HIS OPERATIONS AND HAS TO SEND HOME HIS EMPLOYEES. IN C ASE OF SUCH AN UNFORESEEN CIRCUMSTANCES, THE EMPLOYER NEGOTIATES W ITH HIS EMPLOYEES, PRESIDED OVER BY LABOUR INSPECTOR AND COME TO A CON CLUSION OF THE AMOUNTS PAYABLE TO THE EMPLOYEES AS A FINAL SETTLEM ENT TAKING INTO ACCOUNT THE LENGTH OF SERVICE, THE NATURE OF AREAS OF WORK ASSIGNED, ADVERSE CONDITIONS FACED BY THE EMPLOYER, WHICH HAS PROMPTED HIM TO CLOSE HIS BUSINESS ETC. AND ETC. THE OTHER OCCASION IS IN SPITE OF THE FACT THAT THE EMPLOYER WAS ABLE TO MANAGE HIS AFFAIRS WE LL, BECAUSE OF THE PUBLIC POLICY OF THE GOVERNMENT OF THE DAY, SAY FOR EXAMPLE THE GOVERNMENT HAS BANNED TANNERIES OF A PARTICULAR ARE A AS THEY WERE CAUSING ACUTE POLLUTION OF AIR, WATER, SOIL ETC. TH EN THE EMPLOYER WAS FORCED TO SHUT DOWN HIS OPERATIONS AND NEGOTIATE WI TH HIS EMPLOYEES FOR FINALIZING THE PAYMENTS TO BE MADE TO EACH OF THEM BASED ON THE CRITERION MENTIONED ALREADY HEREINABOVE. THERE ARE THE TWO OCCASIONS WHERE RETRENCHMENT COMPENSATION IS AN ALLOWABLE EXP ENDITURE. COMING TO THE FACTS OF THE PRESENT CASE, NO DOUBT THERE WA S AN AGREEMENT BETWEEN THE APPELLANT AND THE GNFC FOR SUPPLY OF LA BOUR. THE AGREEMENT IN QUESTION WAS VALID FROM 01-11-2001 TO 30-11-2004. THERE WERE NO ADVERSE REMARKS BY THE GNFC IN THE MATTER O F FULFILLMENT OF CONDITIONS IN THE AREA OF SUPPLY OF LABOUR BY THE A PPELLANT. IN CASE THE AGREEMENT WAS VIOLATED BY THE APPELLANT AND IN CASE THERE WAS AN OCCASION OF GNFC TELLING THE APPELLANT TO DISCONTIN UE SUPPLY OF LABOUR BEFORE EXPIRY OF THE AGREEMENT, THEN THERE MAY BE S OME INGREDIENTS OF RETRENCHMENT OF LABOUR FORCE WHICH WAS OTHERWISE RE NDERING PROPER SERVICES, WHICH WAS NOT THE CASE IN HAND. IN FACT T HE APPELLANT HAS RENDERED EXCELLENT SERVICES, PROBABLY FOR WHICH, TH E CONTRACT WAS RENEWED. IT IS THE CASE OF THE APPELLANT THAT THE L ABOUR RENDERING SERVICES TO GNFC FROM 01-11-2001 TO 30-11-2004 WERE TERMINATED ON 30-11-2004 AND AS SUCH THE COMPENSATION PAID TO THE M ON 30-11-2004 WAS AN ALLOWABLE EXPENDITURE, FOR WHICH A CLAUSE IN THE AGREEMENT WAS CITED. MAKING A CLAUSE IN THE AGREEMENT, OR PAYMENT OF CERTAIN AMOUNTS CALLING THEM RETRENCHMENT COMPENSATION, OR NOT DENY ING THE PAYMENT TO THE LABOUOR FORCE BY THE AO, OR RECOMMENDING BY THE AO OF THE SAME IN CASE THE TERMS OF THE AGREEMENT WERE FULFILLED AS S EEN IN THE REMAND REPORT, OR NOT MAKING ANY COMMENTS BY THE ADDITIONA L CIT OF THE CONCERNED RANGE ON THE ISSUE OF ALLOWABILITY OF THE SAID RETRENCHMENT COMPENSATION, WOULD NOT MAKE A NON ALLOWABLE EXPEND ITURE AS ALLOWABLE ONE PROVIDED THAT THE PAYMENT WAS NOT MAD E UNDER ANY OF THE TWO OCCASIONS MENTIONED HEREIN ABOVE. MOREOVER, AT LEAST I HAVE ITA 2841/AHD/2010 A.Y . 2005-06 M/S M.S. MALIK BROS & SONS V. ITO WD-2 BHARUCH PAGE 5 NOT HEARD OF ANY RETRENCHMENT COMPENSATION VIS--VI S PAYMENT TO LABOR FORCE, IN A CASE WHERE ALL THE TERMS AND CIRCUMSTAN CES HAVE BEEN FULFILLED BETWEEN THE LABOR FORCE AND THE CONCERNED CONTRACTOR (IN THIS CASE THE APPELLANT) ON ONE HAND AND RENDERING OF LA BOUR SERVICES BY THE APPELLANT THROUGH LABOR HIRED BY HIM FROM 01-11-200 1 TO 30-11-2004 TO GNFC ON THE OTHER HAND. IN VIEW OF THE FACTS, CIRCU MSTANCES AND THE ELABORATE NARRATION MADE ABOVE, I AM OF THE CONSIDE RED OPINION THAT THE ACTION OF THE AO IN THIS REGARD NEEDS NO INTERVENTI ON AND AS SUCH THE SAME IS CONFIRMED. AGGRIEVED, ASSESSEE PREFERRED SECOND APPEAL BEFORE TRIBUNAL. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSE E HAS NOT ESTABLISHED THE RETRENCHMENT COMPENSATION IS TO BE PAID AS PER THE AGREEMENT. THE ASSESSEE COULD NOT PRODUCE THE AGREEMENT SO AS TO THE CLAIM OF THE ASSESSEE COULD HAVE BEEN VERIFIED. THE EXPENDITURE IS TO BE PROVED BY THE ASSESSEE AND FOR THIS HE IS REQUIRED TO PRODUCE THE AGREEMENT FOR RE TRENCHMENT COMPENSATION AND IN THE ABSENCE OF THE SAME, EVEN NOW, WE CANNOT DECIDE THE ISSUE. ACCORDINGLY, THIS ISSUE OF ASSESSEES APPEAL IS SET ASIDE TO THE FILE OF ASSESSING OFFICER, KEEPING IN VIEW PRINCIPLES OF NA TURAL JUSTICE, AND ASSESSING OFFICER IS DIRECTED TO DECIDE THE ISSUE AFTER VERIF YING THE AGREEMENT FOR RETRENCHMENT COMPENSATION, WHICH IS PAID IN ACCORDA NCE WITH THE SAME AS PER ASSESSEE. ACCORDINGLY, APPEAL OF ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. 5. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 22 /02/2011 SD/- SD/- (A.N.PHAUJA) (MAHAVIR SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 22/02/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. ITA 2841/AHD/2010 A.Y . 2005-06 M/S M.S. MALIK BROS & SONS V. ITO WD-2 BHARUCH PAGE 6 2. THE RESPONDENT. 3. THE CIT(APPEALS)-VI, BARODA 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD