DCIT, Ludhiana V. M/s Diamond Resorts Pvt. Ltd., Mussoorie

ITA 656/CHANDI/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9073 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 22-03-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 19-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure; Additional evidence; Assessment record
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 656/CHD/2015 ASSESSMENT YEAR: 2011-12 THE DCIT, VS M/S DIAMOND RESORTS PVT.LTD., CENTRAL CIRCLE-II, ROSEMARY COTTAGE, LUDHIANA. CONVENT ROAD, MUSSOORIE. PAN: AACCD0523E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUSHIL KUMAR RESPONDENT BY : SHRI SUDHIR SEHGAL DATE OF HEARING : 27.09.2016 DATE OF PRONOUNCEMENT : 03.10.2016 O R D E R THIS APPEAL BY REVENUE HAS BEEN DIRECTED AGAINST THE ORDER OF LD. CIT(APPEALS)-5 LUDHIANA DATED 31.03.2015 FOR ASSESSMENT YEAR 2011-12, CHALLENGING THE DELETION OF ADDITION OF RS. 64,09,524/- MADE ON ACC OUNT OF DISALLOWANCE OF RETRENCHMENT EXPENSES. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SING OFFICER NOTED THAT ASSESSEE HAD DISCLOSED AN AMOUNT OF RS. 75 LACS FOR THE YEAR UNDER CONSIDERATION AND SA ME HAS BEEN CREDITED TO THE PROFIT & LOSS ACCOUNT UNDE R THE HEAD OTHER INCOMES BUT STILL, THE RETURN IS FILED AT RS. 1,02,252/- WHICH WAS LARGELY ON ACCOUNT OF EXPENDIT URE DEBITED TO THE PROFIT & LOSS ACCOUNT TO THE TUNE OF RS. 2 64,09,524/- UNDER THE HEAD RETRENCHMENT EXPENSES. THE ASSESSING OFFICER FURTHER NOTED THAT ASSESSEE F AILED TO JUSTIFY THE DEBITING OF SUCH EXPENSES. THE ASSE SSING OFFICER ALSO OBSERVED THAT ASSESSEE HAD SUBMITTED T HAT DUE TO CHANGE OF POLICIES ADOPTED BY THE MANAGEMENT , STAFF STRENGTH WAS REDUCED LEADING TO RETRENCHMENT OF LARGE NUMBER OF EMPLOYEES AND THEREFORE, IMPUGNED EXPENSES HAVE BEEN INCURRED. THE ASSESSING OFFICER , HOWEVER, ON EXAMINATION OF THE DETAILS OF EXPENSES OF PAYMENT AND PROVISIONS OF STAFF FOUND THAT ALTHOUGH EXPENDITURE UNDER THE HEAD BONUS, EMPLOYERS CONTRIBUTION TO EPF ETC. HAVE BEEN WIPED OFF OR RED UCED, EXPENDITURE UNDER THE HEAD SALARY AND WAGES HAVE INCREASED ALBEIT MARGINALLY. IT GOES TO MEAN THAT THERE COULD BE RETRENCHMENT OF REGULAR STAFF BUT THE BUSI NESS WAS NOT ALLOWED TO BE HAMPERED BECAUSE OF SUCH PURPORTED RETRENCHMENT. TO SPEAK OTHER WAY ROUND, BUSINESS INCOME IS ALSO INCREASED AND BUSINESS EXPENDITURE IN THE FORM OF SALARY AND WAGES HAS INCREASED ALSO, THEREFORE, RETRENCHMENT COMPENSATIO N HAS NOTHING TO DO WITH THE RUNNING OF THE BUSINESS. THE ASSESSING OFFICER, THEREFORE, DISALLOWED THE ABOVE AMOUNT UNDER SECTION 37 OF THE ACT. 3. THE ADDITION WAS CHALLENGED BEFORE LD. CIT(APPEA LS) AND WRITTEN SUBMISSION OF THE ASSESSEE IS REPRODUCE D IN THE IMPUGNED ORDER IN WHICH THE ASSESSEE BRIEFLY EXPLAINED THAT IT IS ALLOWABLE EXPENDITURE INCURRED FOR 3 THE PURPOSE OF BUSINESS OF THE ASSESSEE AND ASSESSI NG OFFICER HAS WRONGLY DISALLOWED THE AMOUNT. IT IS A FACT THAT ASSESSEE COMPANY HAS ENTERED INTO AN AGREEMENT WITH M/S COUNTRY INN & SUITES BY CARLSON THROUGH COUNTRY DEVELOPMENT AND MANAGEMENT SERVICES PVT. LT D., AN INTERNATIONAL CHAIN OF HOTEL AND TOOK ITS FRANCH ISE ON TERMS AND CONDITIONS AS PER AGREEMENT DATED 27.08.2 008. ACCORDINGLY, IT HAS CHANGED AND REPLACED THE EXISTI NG STAFF/EMPLOYEES AS PER THEIR SPECIFICATION FOR THE BENEFIT OF THE COMPANY AND IT PAID SALARY AND COMPENSATION ETC. TO THE EXISTING STAFF AND EMPLOYEES ON THEIR RETRENCHMENT/TERMINATION BY ENTERING INTO COMPROMIS E TO AVOID ANY FUTURE LITIGATION, PECUNIARY LOSSES OR COMMERCIAL INCONVENIENCE TO ENABLE THE BUSINESS TO CONTINUE AS WAS BEFORE. THE RETRENCHMENT EXPENSES ARE, THEREFORE, INCURRED FOR THE PURPOSE OF BUSINESS AND ALLOWABLE DEDUCTION UNDER SECTION 37 OF THE INCOME TAX ACT. THE DETAILED CHART OF THE AMOUNT PAID TO THE EMPLOYEES AND STAFF, COMPROMISING RECEIPTS, VOUCHER S, CHEQUE ISSUED TO EACH EMPLOYEE HAVE BEEN FILED. AL L THE PAYMENTS HAVE BEEN MADE THROUGH BANKING CHANNEL. 3(I) THE ASSESSEE RELIED UPON LARGE NUMBER OF DEC ISIONS IN SUPPORT OF THE CONTENTION THAT SUCH EXPENDITURE IS ALLOWABLE DEDUCTION UNDER SECTION 37 OF THE ACT. T HE CONCLUSION OF THE SUBMISSION OF THE ASSESSEE WAS TH AT THESE EXPENDITURES HAVE BEEN INCURRED TO BRING PROF ITS OR MONETARY ADVANTAGE EITHER TODAY OR TOMORROW AND 4 ASSESSEE AVOIDED POSSIBLE LITIGATION AND FUTURE LOS SES. THE EFFICIENCY IN WORKING HAVE INCREASED, THEREFORE , EXPENDITURES INCURRED WERE FOR THE PURPOSE OF BUSIN ESS AND ALLOWABLE DEDUCTION. 3(II) THE SUBMISSIONS OF THE ASSESSEE WERE FORWA RDED TO THE ASSESSING OFFICER FOR HIS COMMENTS IN WHICH ASSESSING OFFICER SUBMITTED THAT ASSESSEE FAILED TO SUBMIT DOCUMENTARY EVIDENCES DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND DID NOT SUBSTANTIATE THE SAME. 4. THE LD. CIT(APPEALS), CONSIDERING EXPLANATION OF THE ASSESSEE AND MATERIAL ON RECORD DELETED THE ENTIRE ADDITION. HIS FINDINGS IN PARA 2.3 OF THE IMPUGNED ORDER ARE REPRODUCED AS UNDER : 2.3 THE PERUSAL OF THE ASSESSMENT ORDER REVEALS TH AT THE A.O. HAS COMMENDED AT PARA 4.1 THAT THE ASSESSEE FAILED TO J USTIFY THE DEBITING OF EXPENSES DESPITE GIVEN VARIOUS OPPORTUN ITIES IN THIS REGARD. HOWEVER, IN PARA 4.2 THIS VIEW HAS BEEN CONTRADICTE D BY THE A.O. BY OBSERVING THAT THE ASSESSEE HAD SUBMITTED EXPLANATI ON ON THE ISSUE. THE PERUSAL OF THE COMMENTS OF THE A.O. IN THE REMAND R EPORT ALSO SHOW THAT EVIDENCE FILED IN SUPPORT OF HAVING PAID THE RETREN CHMENT COMPENSATION HAS NOT BEEN CONTRADICTED AT ALL. IT IS ALSO SEEN T HAT THE ENTIRE EVIDENCE IN THIS RESPECT HAD BEEN BEFORE THE A.O. AT THE TIME O F 'ASSESSMENT STAGE. THE RETRENCHMENT COMPENSATION HAS BEEN PAID WHICH IS A FACT WHICH HAS NOT BEEN CONTRADICTED BY THE A.O. AT THE ASSESSMENT STAGE. T HE ISSUE WHETHER RETRENCHMENT COMPENSATION IS AN' ALLOWABLE EXPENDIT URE U/S 37(I) OR NOT HAS TO BE ADJUDICATED. IT IS QUITE APPARENT FROM THE FA CTS OF THE CASE THAT THE HOTEL OF THE APPELLANT COMPANY HAD BEEN TAKEN OVER FOR MA NAGEMENT PURPOSE BY M/S COUNTRY INN & SUITES BY CARLSON THROUGH COUNTRY DEVELOPMENT AND MANAGEMENT SERVICES PRIVATE LIMITED AND CONSEQUENCE S OF THE SAID TAKING OVER THE ENTIRE MANAGEMENT HAD TO BE REORIENTED AND FOR THE SAID PURPOSE CERTAIN STAFF WAS RETRENCHED. THE COMPENSATION TO T HEM WAS NECESSITATED TO AVOID PROTRACTED LITIGATION ON THIS ACCOUNT AND MAN AGEMENT TO ALLOW 5 THE NEW MANAGEMENT TO PROCEED WITH THE BUSINESS OF RUNNING THE HOTEL WITHOUT ANY HINDRANCE SO AS TO MAXIMIZE THE PROFITS . IT IS A REGULAR EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE AR ARE DIRECTLY O THE ISSUE OF COMPENSATION TO BE PAID TO ENSURE SMOOTH RUNNING OF THE BUSINESS . IT IS ALSO SEEN THAT THE ASSESSEE HAS PROVIDED RETRENCHMENT LIST OF EMPLOYEE S, THE AGREEMENT OF COMPROMISE AND OTHER DETAINS IN PURSUANCE OF WHICH THE PAYMENT MADE TO THEM. IN THE CIRCUMSTANCES, THERE IS NOTHING TO HOLD THE IMPUGNED EXPENDITURE TO BE EITHER CAPITAL IN NATURE OR FOR THE PURPOSE OF OTHE R THAN THE BUSINESS OF THE APPELLANT COMPANY. THE DISALLOWANCE MADE IS THEREFO RE, DIRECTED TO BE DELETED. 5. THE LD. DR RELIED UPON ORDER OF THE ASSESSING OF FICER AND SUBMITTED THAT ASSESSEE HAS NOT FURNISHED ALL T HE RELEVANT DETAILS AND AGREEMENT BEFORE ASSESSING OFF ICER, THEREFORE, IT IS VIOLATION OF RULE 46A AND DEPARTME NT COULD REVISE THE GROUND OF APPEAL. IT WAS ALSO SUB MITTED THAT WHEN ASSESSEE ENTERED INTO HIS AGREEMENT ON 27.08.2008, MOST OF THE EMPLOYEES WERE REQUIRED TO BE RETRENCHED IN THAT FINANCIAL YEAR OR AT THE MOST IN NEXT FINANCIAL YEAR 2009-10, AS SUCH RETRENCHMENT EXPENS ES MAY NOT BE ALLOWED IN ASSESSMENT YEAR UNDER APPEAL. SINCE THE AGREEMENT WAS NOT FILED BEFORE ASSESSING OFFICER, THEREFORE, MATTER MAY BE RESTORED TO THE ASSESSING OFFICER FOR FURTHER EXAMINATION. 5(I) ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSE E REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMITTED THAT ASSESSING OFFICER HIMSELF HAS WR ITTEN IN THE ASSESSMENT ORDER THAT HE HAS EXAMINED THE SUBMISSIONS OF THE ASSESSEE AND DETAILS OF PAYMENT AND PROVISION OF STAFF. THEREFORE, ALL EVIDENCES WERE FILED 6 BEFORE ASSESSING OFFICER AS WELL AS BEFORE LD. CIT( APPEALS) AND EXPENSES ARE ALLOWABLE UNDER SECTION 37 OF THE ACT. 6. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. THE ASSESSING OFFICER CONSIDERED ISSUE OF RETRENCHM ENT EXPENSES IN THE ASSESSMENT ORDER. THE ASSESSING OFF ICER HAS MENTIONED IN THE ASSESSMENT ORDER THAT HE HAS CAREFULLY EXAMINED SUBMISSIONS OF THE ASSESSEE AND ALSO CRITICALLY EXAMINED THE DETAILS OF PAYMENT MADE TO THE STAFF. IT IS, THEREFORE, CLEAR THAT THE ASSESSEE F URNISHED EVIDENCES AND MATERIAL BEFORE ASSESSING OFFICER AT THE ASSESSMENT STAGE IN ORDER TO CLAIM RETRENCHMENT EXPENSES AS ALLOWABLE DEDUCTION UNDER SECTION 37 OF THE ACT. THE LD. CIT(APPEALS), THEREFORE, ON PERUSAL O F THE COMMENTS OF THE ASSESSING OFFICER IN THE REMAND REP ORT CORRECTLY FOUND THAT EVIDENCES WERE FILED IN SUPPOR T OF THE RETRENCHMENT EXPENSES WHICH HAVE NOT BEEN CONTRADICTED AT ALL. THE LD. CIT(APPEALS), ON EXAM INATION OF THE RECORD ALSO FOUND THAT ENTIRE EVIDENCES IN T HIS RESPECT HAD BEEN BEFORE ASSESSING OFFICER AT THE ASSESSMENT STAGE. THESE FINDINGS OF FACT RECORDED BY THE LD. CIT(APPEALS) AND EXAMINATION OF THE REMAND REPO RT AND ASSESSMENT RECORD HAVE NOT BEEN REBUTTED BY THE REVENUE DEPARTMENT THROUGH ANY EVIDENCE OR MATERIAL ON RECORD. THE RETRENCHMENT COMPENSATION HAS BEEN PAI D, IS A FACT WHICH HAS NOT BEEN CONTRADICTED BY THE ASSESSING OFFICER AT ASSESSMENT STAGE BECAUSE THE 7 ASSESSEE EXPLAINED THAT AMOUNT WAS PAID AFTER ENTER ING INTO THE AGREEMENT FOR REPLACEMENT OF THE EXISTING STAFF FOR THE PURPOSE OF BUSINESS AND ALL THE PAYMENTS AR E SUBJECTED TO RECEIPTS, VOUCHERS AND PAYMENTS HAVE B EEN MADE THROUGH BANKING CHANNEL. NO CASE IS MADE OUT BY THE ASSESSING OFFICER THAT NO COMPENSATION IS PAID IN THE YEAR UNDER CONSIDERATION THEREFORE, CONTENTION OF L D. DR IS NOT TENABLE THAT COMPENSATION SHOULD BE PAID IN PRECEDING FINANCIAL YEARS 2008-09 OR 2009-10. FURT HER, WHEN ALL THE EVIDENCES WHICH WERE BEFORE ASSESSING OFFICER AT THE ASSESSMENT STAGE, WERE FORWARDED AGA IN TO THE ASSESSING OFFICER FOR FILING OF THE REMAND REPO RT AND ASSESSING OFFICER SUBMITTED REMAND REPORT THEREON, THERE MAY NOT BE ANY VIOLATION OF RULE 46A IN SUCH CIRCUMSTANCES AND FURTHER, NO GROUND HAS BEEN RAISE D BY THE REVENUE AGAINST THE FINDINGS OF THE LD. CIT(APP EALS) FOR ADMITTING ANY ADDITIONAL EVIDENCE IN VIOLATION OF RULE 46A OF IT RULES. 6(I) THE FACTS EXPLAINED BEFORE AUTHORITIES BELOW A S WELL AS BEFORE THE TRIBUNAL CLEARLY SHOW THAT ASSESSEE COMPANY HAD TAKEN OVER THE MANAGEMENT OF OTHER HOTE L IN CONSEQUENCES OF WHICH CERTAIN STAFF OF THE EXIST ING HOTEL HAVE BEEN RETRENCHED. IN ORDER TO AVOID PROT RACTED LITIGATION AND TO ALLOW NEW MANAGEMENT TO WORK SMOO THLY AND RUN THE BUSINESS WITHOUT ANY HINDRANCE TO MAXIM IZE THE PROFIT, IF CERTAIN EXISTING STAFF HAVE BEEN REM OVED AND RETRENCHMENT EXPENSES HAVE BEEN PAID TO THEM, THE S AME 8 WOULD BE ALLOWABLE DEDUCTION UNDER SECTION 37 OF TH E ACT BECAUSE THE SAME HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE EVIDE NCES FILED BY THE ASSESSEE BEFORE ASSESSING OFFICER AT T HE ASSESSMENT STAGE AS WELL AS IN THE REMAND PROCEEDIN GS HAVE NOT BEEN DOUBTED BY THE ASSESSING OFFICER. THEREFORE, NO INFIRMITY HAVE BEEN POINTED OUT IN TH E ORDER OF THE LD. CIT(APPEALS) IN DELETING THE ADDIT ION. THE ASSESSEE RELIED UPON LARGE NUMBER OF DECISIONS BEFORE LD. CIT(APPEALS) WHICH HAVE BEEN QUOTED IN T HE IMPUGNED ORDER, ALSO SUPPORT THE CASE OF THE ASSESS EE. NONE OF THE DECISIONS RELIED UPON BEFORE LD. CIT(AP PEALS) HAVE BEEN DISTINGUISHED ON BEHALF OF THE REVENUE. 7. CONSIDERING TOTALITY OF THE FACTS AND CIRCUMSTAN CES, WE DO NOT FIND ANY MERIT IN THE DEPARTMENTAL APPEAL . SAME IS, ACCORDINGLY, DISMISSED. 8. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (ANNAPURNA GUPTA) (BHAVNESH SAINI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 3 RD OCTOBER,2016. POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT,DR ASSISTANT REGISTRAR, ITAT/CHD