MAHADEO AHILAJI VIR,PUNE V. ACIT, NFAC, PUNE

ITA 1532/PUN/2025

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The case revolves around the taxability of an ex gratia payment of Rs. 42,21,420 received by Mahadeo Ahilaji Vir from Racold Thermo Private Limited upon his resignation. The Income Tax Department treated this payment as taxable income, leading to an appeal by Vir. The Tribunal examined whether the payment constituted a capital receipt or taxable income, referencing a similar case and the employer's confirmation that the payment was made voluntarily and without any legal obligation. The Tribunal found that the payment was a capital receipt, not subject to income tax, and allowed the appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772187 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2018-2019
• Other Referred Cases: Collector, Land Acquisition vs. Master Katiji and Others, Inder Singh Vs State of Madhya Pradesh, Mahadev Vasant Dhangekar, ITA 472/PUN/2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARSHIT BARI
• Assessee Lawyers: BHAVESH LODHA; PRITESH RAKA
• Keywords: Condonation of delay; Set aside; Reasonable cause; Capital receipt; TDS; Bogus
• Section: 143(3); 142(1); 15

Judgement Text

" आयकर अपीलीय अधिकरण \"एस एम सी\" न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL \"SMC\" BENCH, PUNE BEFORE Dr. MANISH BORAD, ACCOUNTANT MEMBER AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील सं. / ITA No.1532/PUN/2025 धििाारण वर्ा / Assessment Year: 2018-19 Mahadeo Ahilaji Vir, 469, Balaji Nagar, Ganesh Nagar 2, Medankarwadi, Chakan Khed, Rajgurunagar, Pune-410501 Maharashtra PAN-AFDPV2328A Vs ACIT, NFAC, Pune Appellant Respondent Assessee by : Shri Bhavesh Lodha & Pritesh Raka Revenue by : Shri Harshit Bari, Addl. CIT Date of hearing : 21.08.2025 Date of pronouncement : 29.08.2025 आदेश/ORDER PER DR. MANISH BORAD, ACCOUNTANT MEMBER :- This appeal at the instance of the assessee is directed against the order passed by Ld. CIT(A) NFAC, Delhi dated 24.05.2024 u/s 250 of the Income Tax Act, 1961 and is arising out of assessment order passed u/s 143(3) r.w.s. 144B dated 17.08.2021. 2. Registry has informed that there is a delay of 323 days in filing of this appeal. Affidavit alongwith application for condonation of delay has been filed. Main reason for delay is on account of non communication about the impugned Printed from counselvise.com 2 ITA No.1532/PUN/2025 order by the consultant. It is stated that delay in filing the appeal is neither intentional nor deliberate. We have heard Ld. DR and perused the application for condonation of delay. Placing reliance on the judgement of Hon’ble Apex Court in the case of Collector, Land Acquisition vs. Master Katiji and Others(1987) 167 ITR 471(SC) (Supreme Court) and in the case of Inder Singh Vs State of Madhya Pradesh judgement dated 21.03.2025 (2025) INSC 382) and taking a liberal and justice oriented approach we find that the assessee has been prevented by reasonable cause in filing the appeal in time. We therefore condone the delay and admit the appeal for adjudication. 3. Sole issue for our consideration is that whether the ex- gratia received by the assessee from the employer at Rs.42,21,420/- is a taxable income or a capital receipt. 4. At the outset Ld. Counsel for the assessee referring to the letter given by the employer namely M/s Racold Thermo Private Limited dated 16.02.2021 which was filed before the Assessing Officer (AO) and also placing reliance on the decision of this Tribunal in the case of Mahadev Vasant Dhangekar, ITA 472/PUN/2022 dated 03.04.2023 wherein also similar issue of ex gratia received from same employer namely M/s Racold Thermao Private Limited was for consideration, this Tribunal has held in favour of the assessee. 5. On the other hand Ld. Departmental Representative (DR) supported the order of Ld. CIT(A) and submitted that alongwith alleged sum assessee has also received VRS compensation and that the employer has deducted the tax Printed from counselvise.com 3 ITA No.1532/PUN/2025 at source on the alleged sum and therefore the same deserves to be taxed in the hands of assessee. 6. We have heard rival contentions and perused the record placed before us. The issue before us is that whether the ex gratia amount received by the assessee is a taxable income or capital receipt. We observe that the assessee is an individual and return for A.Y. 2018-19 furnished on 31.08.2018. 7. Case selected for complete scrutiny followed by serving of valid notices u/s 142(2) and 142(1) of the Act. Ld. AO concluded the proceedings by observing that the assessee’s claim of capital receipt of Rs.42,21,420/- received as ex gratia payment is not allowable and accordingly made addition for the said sum and assessed the income accordingly. Assessee failed to get relief before Ld. CIT(A). The assessee before us has filed the letter given by the employer namely Racold Thermo Private Limited and the same is represented below:- Racold Reborn Everyday With Hot Water Date: 16-02-2021 TO WHOMSOEVER IT MAY CONCERN This is to confirm that, Mr. Mahadeo Ahilaji Vir having PAN AFDPV2328A was (hereinafter to be referred as an 'employee') employed with the Company since 1998. The employee has resigned in FY 2017-18 due to his personal difficulties in carrying out employment with the Company. We have paid voluntarily ex gratia of Rs. 42,21,420/- during the financial year 2017-18. We further confirm that, the payment is made by us out of our own sweet will as an appreciation to him for his quality of integrity and commitment in performance his duties for the entire tenure of his service with the Company. The said amount is not conditioned by any legal duty or legal obligation. Further, neither Printed from counselvise.com 4 ITA No.1532/PUN/2025 the terms of employment nor the service rules of the Company provide for making ex-gratia payment. For Racold Thermo Private Limited Gautam karkal Vice President-Human Resources Racold Thermo Private Limited (Erstwhile Racold Thermo Limited) Regd. Office & Works: Chakan-Talegaon Road, Chakan, Pune: 410 501 Tel: [phone] |Fax: [phone]Web: www.racold.com CIN: U31900PN2016FTC165930 Ariston Thermo Group 8. We further notice that the above letter of the employer was duly placed before the AO and he has discussed above in Para 5 of the assessment order. Now admittedly the employer has given alleged sum of Rs. 42,21,420/- to the assessee as ex-gratia payment out of his own sweet will and as an appreciation to him for his quality of integrity and commitment in performance of his duties for the entire tenure of his service with the Company. 9. We also note that similar type of payment made by the employer to another employer namely Mahadev Vasant Dhangekar was also claimed as a capital receipt but denied by the revenue authorities but this Tribunal in ITR 472/PUN/2022 dated 03.04.2023 has held the ex-gratia payment as a capital receipt not liable to be taxed. Relevant finding of this Tribunal reads as under:- “6. We have heard rival submissions, considered relevant materials/documents on record, analysed the facts and circumstances in this case. The assessee had received Rs. 47,21,154/- from his erstwhile company as ex-gratia and from this amount claimed Rs. 5,00,000/- u/s 10(10C) VRS compensation/termination of Service and balance remaining amount of Rs. 47,21,154/- from ex-gratia taken as capital receipt. The Id. A.O taxed the amount u/s 17(3)(ii) of the Act by Printed from counselvise.com 5 ITA No.1532/PUN/2025 treating it as additional compensation received by the assessee from his employer as profit in lieu of salary u/s 17(3) (iii) of the Act. Section 17(3)(iii) of the Act provides as follows: \"17. For the purposes of sections 15 and 16 of this section (1)--------------- (3) \"profits in lieu of salary\" includes ------------ (iii) any amount due to or received, whether in lump sum or otherwise, by any assessee from any person (A) before his joining any employment with that person or (B) after cessation of his employment with that person. Therefore, as per the aforesaid provision, it is clearly evident that any payment received whether in lump sum or otherwise by an assesses from any person after cessation of his employment with that person is also considered as profit in lieu of salary and is to be brought to tax accordingly being defined inclusively as per the Act. The Ld. A.O has invoked this provision and has brought to tax the deputed amount. The NFAC while upholding the addition has discussed that the amount received by the assessee is part and parcel of Form No. 16 issued to him and that The TDS has also been paid in respect of the said amount and that further the letter which was produced by the assessee was signed by Vice President (Human Resources) only surfaced once the scrutiny started and notices u/s 143(2) and 143(1) were issued to the assessee. On the other hand, it is contended by the assessee that the payment has been made voluntarily by the employer out of his own sweet will and not bound by any or condition by any legal duty or legal obligations which are on sympathetic reason or otherwise, Further, neither the terms of employment nor the service rules of the employer company provides for making ex- gratia payment. Thus, the said amount is totally voluntary and it is not compensation. 7. Admittedly, the amount was received by the assessee after cessation of his employment with the employer company. In the normal course, section 17(3)(iii) of the Act would apply and the payment would be covered within the definition of profit in lieu of salary as brought out by the department. However, in this case, the letter which has been issued by the employer clearly stated that the payment of the amount has been made voluntarily to the assessee and is not the compensation. This letter has not been doubted by the department. Neither, the Id. A.O nor the NFAC conducted any independent inquiry regarding the veracity of this letter and none of the authorities have held this letter issued by the employer to the assessee as bogus. Without establishing the letter as non-genuine or without examining the sanctity of the payment made simply invoking the provisions of the Act for making addition is not appropriate for a quasi-judicial authority. The revenue should have verified and examined the genuineness of the letter which was produced by the assessee wherein the Printed from counselvise.com 6 ITA No.1532/PUN/2025 employer had stated that it is a voluntary payment made as per appreciation for the employee without entering into this exercise simply invoking the provision of the Act is not legally tenable and takes the colour of arbitrariness. The Id. D.R could not produce any documents/evidences on record to show that the payment received from the employer nor voluntary in nature or that the payment was coupled with some legal obligation on the part of the employer to pay to the employee. No such facts were produced before us. We are of the considered view, therefore, in this case, when the employer itself stated that the payment has been made voluntarily by them out of appreciation for the employee thus falls outside the rigours of section 17(3) (iii) of the Act. In view thereof, we set aside the order of the NFAC and direct the Id. A.O to delete the addition from the hands of the assessee. The grounds of appeal of the assessee are allowed. 8. In the result, appeal of the assessee is allowed.” 10. Now examining the facts of the instant case in the light of the above decision we find that the same is squarely applicable on the facts of the assessee in the instant case and therefore respectfully following the said decision we are inclined to hold that the alleged sum of Rs. 42,21,420/- received by the assessee from his employer as ex gratia payment is a capital receipt and not liable to be taxed. Grounds of appeal raised by the assessee are allowed. 11. In the result appeal of the assessee are allowed. Order pronounced on this 29th day of August, 2025. Sd/- Sd/- (VINAY BHAMORE) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे/ Pune; दििांक / Dated: 29th August, 2025. Neeta आिेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to: 1. अपीलार्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT concerned. Printed from counselvise.com 7 ITA No.1532/PUN/2025 4. धवभागीय प्रधिधिधि, आयकर अपीलीय अधिकरण, \"SMC\" बेंच, पुणे / DR, ITAT, \"SMC\" Bench, Pune. 5. गार्ा फाइल / Guard File. आिेशािुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अधिकरण, पुणे / ITAT, Pune. Printed from counselvise.com "