Contemporary Target Prafull Pvt.Ltd., Baroda V. The ACIT.,Circle-1(2), Baroda

ITA 2921/AHD/2009

• Counselvise Citation: 292120514 RSA 2009
• Duration Of Justice: 1 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 26-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S SOURYAVANSHI
• Assessee Lawyers: S N SOPARAKAR
• Keywords: Business expenditure; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD , . .! ' , #$ # % BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER ./ I.T.A. NO.2921/AHD/2009 ( ' ' ' ' / / / / ASSESSMENT YEAR : 2005-06) CONTEMPORARY TARGET PRAFULL PVT.LTD. C-2/20, INDUSTRIAL ESTATE, GORWA BARODA / VS. THE ACIT CIRCLE-1(2) BARODA ( #$ ./!) ./ PAN/GIR NO. : AAACP 0351 L ( (* / // / APPELLANT ) .. ( +,(*/ RESPONDENT ) (* - #/ APPELLANT BY : SHRI S.N. SOPARAKAR +,(* . - # / RESPONDENT BY : SHRI G.S.SOURYAVANSHI, SR.D.R. / . 0$/ // / DATE OF HEARING : 11/08/2011 12' . 0$ / DATE OF PRONOUNCEMENT : 21.10.2011 #3/ O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE W HICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-I BARODA DAT ED 14/09/2009 AND THE GROUNDS RAISED IS REPRODUCED BELOW:- (1) THE LEARNED CIT(A) HAS GROSSLY ERRED IN LAW A ND ON FACTS IN CONFIRMING ACTION OF THE ASSESSING OFFICER IN DISAL LOWING THE AMOUNT OF RS.36,00,969/- AS COMPENSATION TO EMPLOYEES . UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) OUGHT TO HAVE ALLOWED THE SAID EXPENSES AS THE RELEVANT EXPENDITURE AS RE SULTED IN TO THE ITA NO. 2921/AHD/2009 CONTEMPORARY TARGET PRAFUL PVT.LTD. VS. ACIT ASST.YEAR 2005-06 - 2 - BENEFIT OF THE ASSESSEE ON REVENUE ACCOUNT I.E. UNI NTEREPTED PRODUCTION AND CARRYING ON OF THE BUSINESS AND HAS RESULTED IN AVOIDING THE POSSIBLE LOSS DUE TO LABOUR DISPUTE/SUSPENSION OF M ANUFACTURING ACTIVITY. THE EXPENDITURE IS INCURRED WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF BUSINESS AND COMMERCIAL EXPEDIENCY. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T.ACT DATED 28/12/2007 WERE THAT THE ASSESSEE- COMPANY IS IN THE BUSINESS OF MANUFACTURING OF TOOT H-BRUSHES. AN INCOME OF RS.1,41,24,120/- WAS DECLARED, HOWEVER, T HE ASSESSMENT WAS MADE ON AN INCOME OF RS.1,78,25,093/- AN ADDITION OF RS.30,00,969/- WAS MADE ON ACCOUNT OF CLAIM OF COMPENSATION PAID TO RETIRING EMPLOYEES. ASSESSING OFFICERS QUERY WAS THAT THE SAID PAYME NT WAS AN EX-GRATIA PAYMENT, THEREFORE NOT ALLOWABLE. ASSESSING OFFIC ERS SECOND OBJECTION WAS THAT THE SAID EXPENDITURE WAS NOT INC URRED FOR EARNING THE INCOME OF THE YEAR UNDER CONSIDERATION. IN REPLY, ASSESSEE HAS EXPLAINED THAT THE COMPANY IS A CONTRACT MANUFACTURER OF COLG ATE PALMOLIVE INDIA LIMITED FOR MANUFACTURING OF TOOTH-BRUSH. THERE WAS GENERAL DISSATISFACTION AMONGST THE EMPLOYEES REGARDING THE IR PAY STRUCTURE AND THE EMPLOYEES HAVE DEMANDED HIGHER WAGES. LOOKING TO THE MARGIN OF THE PROFIT AND CONSIDERING THE COST PLUS ARRANGEME NT WITH THE COLGATE PALMOLIVE INDIA LIMITED, THE COMPANY WAS NOT IN A P OSITION TO EXCEED TO THE DEMAND FOR HIGHER WAGES. THE COMPANY HAS OPTED TO RESOLVE THE MATTER AMICABLY WITH THE WORKERS. AS PER THE AMICA BLE SOLUTION THE COMPANY PAID COMPENSATION TO THE EMPLOYEES ON THEIR RESIGNATION FROM THE SERVICE. SUBSEQUENT TO THEIR RESIGNATION THE C OMPANY EMPLOYED NEW WORKERS SO THAT THERE SHOULD NOT BE ANY LOSS OF PRO DUCTION. ON THE BASIS OF THOSE FACTS, IT WAS SUBMITTED BEFORE THE ASSESSI NG OFFICER THAT THE EXPENDITURE OF RS.36,00,969/- WAS AN EXPENDITURE IN CURRED FOR AN UN- ITA NO. 2921/AHD/2009 CONTEMPORARY TARGET PRAFUL PVT.LTD. VS. ACIT ASST.YEAR 2005-06 - 3 - INTERRUPTED RUNNING OF THE BUSINESS. IT HAS ALSO B EEN EXPLAINED THAT THE COMPENSATION WAS PAID TO MAINTAIN THE CONTINUITY OF THE BUSINESS AND THE SAID PAYMENT WAS NOT MADE AT THE TIME OF THE CLOSUR E OF THE BUSINESS. IT HAS ALSO BEEN MENTIONED THAT THE PAYMENT WAS NOT UN DER ANY RETIREMENT SCHEME. IN SUPPORT, FEW CASE LAWS HAVE ALSO BEEN C ITED, E.G.:- 1. SHAHZADA NAND & SONS VS. CIT 108 ITR 358 (SC) 2. SASSOON J.DAVID & CO. (P) LTD. VS. CIT 118 ITR 261 (SC) 3. CIT VS. MACHINERY MANUFACTURING CORPN.LTD. 198 ITR 559 (CAL HIGH COURT) 4. CIT VS. BHOR INDUSTRIES LIMITED 264 ITR 180 (BOMBA Y HC) 5. P.I. INDUSTRIES LTD. VS. ACIT 294 ITR 206 6. CIT VS. SIMPSON AND CO.LTD. 230 ITR 703 7. CIT VS. ASSAM OIL CO.LTD. 154 ITR 647 2.1. HOWEVER, THE ASSESSING OFFICER WAS NOT CONVINC ED AND HELD THAT THE PAYMENT MADE TO EMPLOYEES WHO HAVE RESIGNE D FROM THE JOB WAS A VOLUNTARY COMPENSATION TO BE COVERED U/S. 35DD OF THE I.T.ACT. THE SAID AMOUNT WAS PAID TO 53 EMPLOYEES, WHICH WAS LIKE A VOLUNTARY RETIREMENT SCHEME, HENCE SUCH AN EXPEND ITURE IS TO BE ALLOWED IF PAID IN TERMS OF THE PROVISIONS OF SECTI ON 35DDA OF THE I.T.ACT. SINCE IN THE CASE OF THE ASSESSEE, AS PER ASSESSING OFFICER, NO SUCH CLAIM WAS APPROVED THEREFORE THE CLAIM WAS DISALLOWED. THE ASSESSING OFFICER HAS ALSO HELD THAT THE EXPEND ITURE WAS NOT A GENERAL EXPENDITURE AS PRESCRIBED U/S.37 OF THE I.T .ACT THEREFORE ALSO NOT TO BE ALLOWED. BEING AGGRIEVED THE MATTER HAD GONE IN FIRST APPEAL. ITA NO. 2921/AHD/2009 CONTEMPORARY TARGET PRAFUL PVT.LTD. VS. ACIT ASST.YEAR 2005-06 - 4 - 3. BEFORE THE LEARNED CIT(APPEALS) AGAIN IT WAS REI TERATED THAT AS A RESULT OF NEGOTIATIONS IT WAS AGREED THAT THE WORKERS WHO HAVE TAKEN VOLUNTARY RETIREMENT WOULD BE GRANTED COMPENS ATION IN ADDITION TO THE GRATUITY AND PF, ETC. HOWEVER, LD .CIT(A) WAS OF THE VIEW THAT W.E.F. 01/04/2001, I.E. ASSESSMENT YEAR 2 001-02 SECTION 35DDA OF THE I.T.ACT HAD BEEN INSERTED AND PROVIDED FOR AMORTIZATION OF EXPENDITURE INCURRED UNDER VOLUNTAR Y RETIREMENT SCHEME (VRS). THE LEARNED CIT(APPEALS) HAS CONCLUD ED IN THE FOLLOWING MANNER:- IT IS QUITE APPARENT FROM A PLAIN READING OF THE S ECTION THAT (A) THE ENTIRE EXPENDITURE INCURRED ON PAYMENT OF COMPENSATION AT THE TIME OF VOLUNTARY RETIREMENT OF EMPLOYEES WOULD NO LONGER BE ALLOWABLE, (B) SUCH EXPENDITURE WOULD BE AMORTIZED OVER FIVE YEARS @ 1/5 TH OF THE AMOUNT FOR EACH YEAR, AND (C) THE EXPENDITURE WOULD BE ALLOWABLE ONLY IF IT WAS INCURRED IN CONNECTION WITH THE VOLUNTARY RETIREMEN T OF EMPLOYEES IN ACCORDANCE WITH ANY SCHEME OR SCHEME OF VOLUNTARY RETIREMENT. IN THE INSTANT CASE, NO SCH EME OF VOLUNTARY RETIREMENT WAS FRAMED BY THE APPELLANT CO MPANY. BY USING THE EXPRESSION IN ACCORDANCE WITH ANY SCH EME OR SCHEMES OF VOLUNTARY RETIREMENT, THE INTENTION OF THE LEGISLATURE IS MANIFEST: IT IS NOT INTENDED THAT VO LUNTARY RETIREMENT SHOULD BE UNDERTAKEN IN AN UN-REGULATED OR ARBITRARY MANNER, BUT IT SHOULD BE IN A REGULATED A ND TRANSPARENT MANNER. IN THE INSTANT CASE, THE APPEL LANT HAS ITSELF ADMITTED THAT THERE WAS NO SCHEME OF VOLUNTA RY RETIREMENT UNDER WHICH THE COMPENSATION WAS PAID. ACCORDINGLY, IN MY OPINION, NOT ONLY WOULD THE ASSE SSEE NOT BE ENTITLED TO CLAIM THE ENTIRE EXPENDITURE ON COMPENS ATION BUT IT WOULD NOT ALSO BE ELIGIBLE TO BE AMORTISED @ 1/5 TH OF THE EXPENDITURE OVER FIVE YEARS. IN THIS VIEW OF THE M ATTER, IT IS ITA NO. 2921/AHD/2009 CONTEMPORARY TARGET PRAFUL PVT.LTD. VS. ACIT ASST.YEAR 2005-06 - 5 - HELD THAT THE AO WAS JUSTIFIED IN MAKING THE DISAL LOWANCE OF RS.36,00,659/- WHICH IS CONFIRMED. 4. FROM THE SIDE OF THE ASSESSEE LD.AR MR.S.N.SOPAR KAR APPEARED AND PLACED RELIANCE ON A DECISION OF ITAT MUMBAI G BENCH IN THE CASE OF DY.CIT VS. WARNER LAMBERT (INDIA) (P) LTD. (2011) 26 DTR (MUMBAI)(TRIB) 121. THE LEARNED AUTHORISED REPRESENTATIVE HAS ALSO PLACED RELIANCE ON A DECISI ON OF THE HON'BLE BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF CIT VS . BHOR INDUSTRIES LTD. 264 ITR 180 (BOM) :: [ 180 CTR 508] (BOM). 5. ON THE OTHER HAND, FROM THE SIDE OF THE REVENUE, LD. SR.DR MR.G.S.SOURYAVANSHI HAS PLACED RELIANCE ON THE DECI SION OF HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. O E N INDI A LTD. [2011] 196 TAXMAN 131 (KER.) AND OF CIT VS. TRAVANCORE TIT ANIUM PRODUCTS LTD. [1993] 70 TAXMAN 80 (KER.). 6. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, IT IS AN ADMITTED FACT THAT THERE IS NO DISPUTE ABOUT THE NA TURE AND THE CORRECTNESS OF THE IMPUGNED PAYMENT WHICH WAS MADE TO THE WORKERS WHO HAVE RESIGNED FROM THE JOB AND ON THEIR RESIGNATION THE ASSESSEE-COMPANY HAS DECIDED TO RESOLVE THE ISS UE BY MAKING A PAYMENT OF COMPENSATION OF RS.36,00,969/-. IT HAS A LSO NOT BEEN DISPUTED THAT THE AMOUNT IN QUESTION WAS NOT UNDER ANY SCHEME, SUCH AS, VRS. WE HAVE NOTICED THAT IN THIS REGARD THE REVENUE AUTHORITIES HAVE CITED A PROVISION OF IT ACT, NAMEL Y SECTION 35DDA ITA NO. 2921/AHD/2009 CONTEMPORARY TARGET PRAFUL PVT.LTD. VS. ACIT ASST.YEAR 2005-06 - 6 - WHICH IS IN RESPECT OF AMORTIZATION OF EXPENDITUR E INCURRED UNDER VOLUNTARY RETIREMENT SCHEME. THIS SECTION PRESCRIBE S THAT WHERE AN ASSESSEE INCURS ANY EXPENDITURE IN ANY PREVIOUS YEA R BY WAY OF PAYMENT OF ANY SUM TO AN EMPLOYEE IN CONNECTION WIT H HIS VOLUNTARY RETIREMENT IN ACCORDANCE WITH ANY SCHEME OR SCHEMES OF VOLUNTARY RETIREMENT, 1/5 TH OF AN AMOUNT SO PAID SHALL BE DEDUCTED IN COMPUTING THE PROFITS AND GAINS OF THE BUSINESS. TH IS SECTION ALSO PRESCRIBES THAT THE BALANCE SHALL BE DEDUCTED IN EQ UAL INSTALLMENTS FOR EACH OF THE FOUR IMMEDIATELY SUCCEEDING YEARS. ON PLAIN READING OF THIS SECTION, IT IS CLEAR THAT THE SCOPE OF THIS SECTION IS LIMITED ONE. THIS SECTION REFERS TO AN EXPENDITURE MADE IN ACCORDANCE WITH AN SCHEME OF VOLUNTARY RETIREMENT. MEANING THEREBY A SCHEME IS REQUIRED TO BE FLOATED FOR THE EMPLOYEES SEEKING VOLUNTARY RETIREMENT. MEANING THEREBY THE SCHEME ME NTIONED U/S.35DDA OF THE I.T.ACT IS ALTOGETHER MEANT FOR AN EXPENDITURE INCURRED ONLY AS AUTHORIZED AND RECOGNIZED UNDER A SPECIFIC SCHEME. ACCORDING TO OUR HUMBLE UNDERSTANDING SECTION 35DDA OF THE I.T.ACT DO NOT COVER AN EXPENDITURE MADE TO WORKERS ON THEIR RESIGNATION AND CLAIMED AS AN EXPENDITURE INCURRED U/S.37(1) OF THE I.T.ACT. WE, THEREFORE HOLD THAT THE EXPENDITURE I N QUESTION, I.E., COMPENSATION PAID TO THE EMPLOYEES ON THEIR RESIGNA TION AND NOT ON THEIR RETIREMENT WAS AN EXPENDITURE TO BE CONSIDERE D UNDER THE PROVISIONS OF SECTION 37(1) OF THE I.T.ACT, THAT WH ETHER IT WAS AN EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF THE BUSINESS. ITA NO. 2921/AHD/2009 CONTEMPORARY TARGET PRAFUL PVT.LTD. VS. ACIT ASST.YEAR 2005-06 - 7 - AFTER TAKING THIS STAND NOW WE HAVE TO E XAMINE WHETHER THE EXPENDITURE IN QUESTION IS ALLOWABLE U/S.37(1) OF T HE I.T.ACT. THIS ASPECT HAS ALSO BEEN MINUTELY CONSIDERED BY US. RE VENUE HAS NOT ALLEGED THAT THE PAYMENT WAS BOGUS IN NATURE OR THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE GENUINENESS OF THE EXPEN DITURE. ONCE IT WAS SO, THEN THE ONLY AREA FOR OUR CONSIDERATION IS THAT WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY FOR THE RUNN ING OF THE BUSINESS. THIS FACT HAS ALSO NOT BEEN DISPUTED THA T THE ASSESSEE- COMPANY CONTINUED ITS BUSINESS OF MANUFACTURING OF TOOTH-BRUSH. IT IS ALSO NOT IN DISPUTE THAT THE IMPUGNED PAYMENT WA S NOT MADE AT THE TIME OF CLOSURE OF THE BUSINESS. IT IS ALSO NO T THE CASE THAT AN EX- GRATIA PAYMENT WAS MADE AS A CHARITY TOWARDS EMPLOYEES. IT WAS A BUSINESS DECISION TAKEN BY THE ASSESSEE TO RUN THE MANUFACTURING ACTIVITY WITHOUT ANY OBSTACLE OR HINDRANCE. TO RESO LVE THE DISPUTE WITH THE WROKERS, IT WAS AMICABLY SETTLED TO PAY TH E COMPENSATION IN ADDITION TO THE SALARY, ETC. TO THOSE WORKERS WHO H AVE OPTED TO RESIGN FROM THE SERVICE. 7. WITH THIS BACKGROUND, WE HAVE EXAMINED A DECISI ON OF ITAT B BENCH BOMBAY IN THE CASE OF BHOR INDUSTRIES LTD. (ITA NO.114/MUM/2000,A.Y. 1996-97) ORDER DATED 21/01/200 2, AUTHORED BY ONE OF US, WHEREIN A DECISION CITED WAS MACHINER Y MANUFACTURING CORPORATION LTD. 198 ITR 559 FOR THE PROPOSITION THAT THE PAYMENT OF COMPENSATION TO INDUCE WORKMEN TO RETIRE PREMATURELY IS AN ITEM OF EXPENDITURE INCURRED BY T HE COMPANY ON THE GROUND OF COMMERCIAL EXPEDIENCY IN ORDER TO FAC ILITATE THE ITA NO. 2921/AHD/2009 CONTEMPORARY TARGET PRAFUL PVT.LTD. VS. ACIT ASST.YEAR 2005-06 - 8 - CARRYING ON THE BUSINESS AND THEREFORE IT WAS HELD AS AN ALLOWABLE REVENUE EXPENDITURE. AN ANOTHER DECISION CITED WAS GEORGE OAKES LIMITED 197 ITR 289 (MAD.) FOR THE LEGAL PROPOSITIO N THAT IF THE PURPOSE OF RETRENCHING THE NINE WORKMEN WAS ONLY TO CONTAIN THE LOSS AND TO REORGANIZE THE BRANCH BY REDUCING THE S TAFF, THEN THOSE WERE THE MATTER OF THE DECISION BY THE MANAGEMENT A ND PERTAINED TO BUSINESS CONSIDERATION HENCE NOTHING BUT FOR THE PU RPOSE OF BUSINESS EXPEDIENCY THEREFORE ALLOWABLE AS REVENUE EXPENDITU RE. ONE MORE DECISION WAS CITED VIZ. RAMAVILAS SERVICES 211 ITR 763 (MAD.) WHEREIN IT WAS HELD THAT THE RETRENCHMENT COMPENSA TION OR THE NOTICE PAY TO THE EMPLOYEES OPTED FOR VOLUNTARILY RETIREMENT AS PER THE TERMS AGREED BETWEEN THE MANAGEMENT AND THE EMP LOYEES IS A DEDUCTIBLE EXPENDITURE. THE TONE AND TONER OF THES E DECISIONS WERE THAT THE NATURE OF SUCH PAYMENT WAS MADE IN ORDER T O EFFECT THE ECONOMY OF A MANUFACTURING UNIT AS ALSO TO RATIONAL IZE ITS PERSONNEL. ALMOST A UNANIMOUS VIEW HAS ALSO BEEN TAKEN THAT BY MAKING SUCH PAYMENT NO ASSET OF ENDURING NATURE CAME INTO EXIS TENCE. MERE ECONOMIC BENEFIT COULD NOT BE TREATED AS A CREATION OF AN ASSET, HENCE, COURTS HAVE SAID THAT RETRENCHMENT COMPENSAT ION WAS ALLOWABLE AS REVENUE EXPENDITURE. THAT DECISION OF THE TRIBUNAL HAS BEEN CONFIRMED BY THE HONBLE BOMBAY HIGH COURT REP ORTED AS CIT VS. BHOR INDUSTRIES LTD. 264 ITR 180 (180 CTR 508)[ BOM], WHEREIN IT WAS CONCLUDED AS UNDER:- ITA NO. 2921/AHD/2009 CONTEMPORARY TARGET PRAFUL PVT.LTD. VS. ACIT ASST.YEAR 2005-06 - 9 - IN THE CASE OF CIT VS. ASHOK LEYLAND (SUPRA) COMPE NSATION WAS PAID FOR TERMINATION OF THE SERVICES OF MANAGING AG ENTS IN ORDER TO SAVE BUSINESS EXPENDITURE IN THE ACCOUNTING PERIOD AS WELL AS DURING THE SUBSEQUENT YEARS. IT WAS HELD THAT BY A VOIDING CERTAIN BUSINESS EXPENDITURE, THE COMPANY DID NOT ACQUIRE A NY BENEFIT OF ENDURING NATURE. IT WAS HELD THAT BY AVOIDING CERT AIN BUSINESS EXPENDITURE THE COMPANY DID NOT ACQUIRE ANY INCOME-YIELDING ASSET. IT WAS, THEREFORE, HELD BY THE SUPREME COURT THAT THE EXPENDITURE WAS OF A REVENUE NATURE AND, IT WAS AN ALLOWABLE DEDUCTION IN COMPUTING THE PROFIT OF THE ASSESSEE-C OMPANY. APPLYING THE RATIO OF THE JUDGMENT OF THE SUPREME C OURT TO THE FACTS OF THIS CASE, IN THE PRESENT MATTER, THE VRS EXPENSES WAS INCURRED BY THE COMPANY TO SAVE ON THE EXPENSE. TH IS EXPENSE WAS NOT REFERABLE TO ANY INCOME-YIELDING ASSET. IT IS WELL SETTLED THAT, ORDINARILY, REVENUE EXPENDITURE, WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS, MUST BE A LLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED AND IT CANNOT BE SPREAD OVER A NUMBER OF YEARS EVEN THOUGH THE ASSESSEE HAS WRITTEN IF OFF IN ITS BOOKS OVER A PERIOD OF YEAR. IT IS ONLY IN CASES OF SPECIAL TYPE OF ASSETS THAT THE SPREAD OVER IS WARRANTED. IN THE CASE OF EMPIRE JUTE CO.LTD. VS. CIT (1980) 17 CTR (SC) 113: (1980) 124 ITR 1 (SC), IT HAS BEEN HELD BY THE SUPREME COURT THAT THERE ARE CASES WHERE THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. IN THAT CASE, EXPENDITURE WAS INCURRED TO REMOVE CERTAIN RE STRICTIONS ON THE NUMBER OF WORKING HOURS SO THAT THE ASSESSEE CO ULD INCREASE ITS PROFITS. THE COMPANY WAS A MEMBER OF INDIAN JUT E MILLS ASSOCIATION WHICH WAS FLOATED TO PROTECT THE TRADE. THE MEMBERS OF THE ASSOCIATION HAD UNDERTAKEN TO WORK THEIR LOO MS FOR A LIMITED HOURS EVERY WEEK. THE LOOM HOURS WERE BOUGHT BY THE ASSESSEE FROM ANOTHER MEMBER TO INCREASE THE PROFITS. THE Q UESTION WHICH AROSE BEFORE THE SUPREME COURT WAS WHETHER THE PURC HASE PRICE PAID CONSTITUTED REVENUE EXPENDITURE. IT WAS HELD BY THE SUPREME COURT THAT PURCHASE OF ADDITIONAL LOOM HOURS DID NOT ADD TO THE FIXED CAPITAL OF THE ASSESSEE AND NOR DID IT MAKE A NY ADDITION TO THE EXISTING PROFIT-MAKING APPARATUS. IT WAS HELD BY THE SUPREME COURT THAT IN CERTAIN CASES, THE TEST OF ENDURING B ENEFIT MAY NOT APPLY. IN OUR VIEW, IN THIS CASE ON FACTS, THE JUDGEMENT O F THE SUPREME COURT IN EMPIRE JUTE MILLS CASE (SUPRA) WO ULD APPLY. ITA NO. 2921/AHD/2009 CONTEMPORARY TARGET PRAFUL PVT.LTD. VS. ACIT ASST.YEAR 2005-06 - 10 - 8. FROM THE SIDE OF THE REVENUE A DECISION OF OEN INDIA LTD. 196 TAXMAN 131(KER.) HAS BEEN CITED, WHEREIN THE QUESTI ON WAS IN RESPECT OF PAYMENT UNDER VRS COVERED BY A LATER AMENDMENT IN T HE ACT BY THE INTRODUCTION OF SECTION 35DDA W.E.F. 01/04/2001. I N THAT CONTEXT, IT WAS HELD THAT SECTION 33DDA IS A VIRTUAL DECLARATION OF THE FACT THAT EXPENDITURE INCURRED UNDER VRS SHOULD NOT BE ALLOWE D AS A REVENUE EXPENDITURE IN ONE YEAR AND HELD THAT IT IS IN THE NATURE OF A CAPITAL EXPENDITURE TO BE AMORTISED IN THE COURSE OF FEW Y EARS. THERE THE ISSUE WAS SLIGHTLY DIFFERENT FROM THE FACTS OF THE PRESEN T APPEAL BECAUSE THE PAYMENT WAS NOT UNDER VRS AND THE HONBLE COURT WAS NOT CONSIDERING THE APPLICABILITY OF THE PROVISIONS OF SECTION 37(1 ) VIS-A-VIS THE INTRODUCTION OF SECTION 35DDA IN THE STATUTE, BUT O NLY THE PROVISIONS OF SEC.35DDA. ONE MORE DECISION HAS BEEN CITED BY R EVENUE OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. TRAVANCORE TITANIUM PRODUCTS LTD. 70 TAXMAN 80 (KER.) AND THE QUESTION WAS EX-GRATIA BONUS PAYMENT TO EMPLOYEES ARISING OUT OF AN ORDER OF THE GOVERNM ENT. THE HONBLE COURT WAS OF THE VIEW THAT AS REGARDS THE ADMISSIBI LITY OF THE EXPENDITURE U/S.37(1), THE SECTION BEING A RESIDUAL PROVISION, ITS AID COULD NOT BE RESTORED TO UNLESS AND UNTIL ESTABLISHED THAT NONE OF THE PROVISIONS OF SECTIONS 30 TO 36 WAS APPLICABLE. IT WAS NOTED BY THE COURT THAT HAVING FOUND THAT THE EX-GRATIA PAYMENT OF BONUS WAS COVER ED UNDER SECTION 36 AND THE EXPENDITURE WAS DEDUCTIBLE U/S.36(1)(II) TH EREFORE THE ASSESSEE COULD NOT MAKE USE OF THE PROVISIONS CONTAINED IN S ECTION 37(1) OF THE IT ACT. EVEN THIS PRECEDENT IS NOT APPLICABLE. RATH ER A DECISION OF CIT VS. WARNER LAMBERT (INDIA) (P) LTD. 56 DTR 121 (TRI)[BO M] IS TO BE APPLIED BECAUSE A PAYMENT TO EMPLOYEES ON VOLUNTARY RETIRE MENT WAS HELD AS DEDUCTIBLE U/S.37(1) OF THE ACT. IN VIEW O F THE TOTALITY OF THE ITA NO. 2921/AHD/2009 CONTEMPORARY TARGET PRAFUL PVT.LTD. VS. ACIT ASST.YEAR 2005-06 - 11 - CIRCUMSTANCES OF THE CASE AND THE REASONS ASSIGNED HEREINABOVE, WE HEREBY HOLD THAT THE EXPENDITURE IN QUESTION WAS IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AFTER TAKING INTO CONSIDERATION THE COMMERCIAL EXPEDIENCY OF THE BUSI NESS AS ALSO FOR THE SMOOTH RUNNING OF MANUFACTURING ACTIVITY OF THE COM PANY. THIS GROUND IS THEREFORE ALLOWED . 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 21/10/2011. SD/- SD/- ( A.N. PAHUJA ) ( MU KUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBE R PRONOUNCED IN THE COURT SD/-[AM] SD/- [JM] (A.K.G.) (M.K.S.) DATED 21/ 10 /2011 40.. , . ../ T.C. NAIR, SR. PS #3 . +5 6#5' #3 . +5 6#5' #3 . +5 6#5' #3 . +5 6#5'/ COPY OF THE ORDER FORWARDED TO : 1. (* / THE APPELLANT 2. +,(* / THE RESPONDENT. 3. 7 / CONCERNED CIT 4. 7() / THE CIT(A)-I, BARODA 5. 5:; + , , / DR, ITAT, AHMEDABAD 6. ;< =/ / GUARD FILE. #3 #3 #3 #3 / BY ORDER, ,5 + //TRUE COPY// > >> >/ // / ! ! ! ! ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION.. 03/10/2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 04/10/2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 21.10.11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 21.10.11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER