The Income Tax Appellate Tribunal (ITAT), Kolkata bench has recently allowed income tax deduction towards the payment made by the company to its employees under the Voluntary Retirement Scheme (VRS).
Facts of the case:
The assessee, a company engaged in the business of manufacture and sale of foundry fluxes, foundry chemicals, and pro fax, paid Rs.2.86 crore towards payment on account of Voluntary Retirement Scheme (VRS) relating to employees of its Calcutta unit and filed the return claiming deduction of the said amount.
Interpretation of law:
As per the given case, the assessee who is a manufacturing concern has paid the tax liability of Rs.2.86 cr towards the VRS of the employee but the Assessing Officer, in the assessment completed u/s.143(3), did not allow deduction of Rs.2,86,86,055/- incurred on payment of VRS by treating the same as a capital expenditure. On the first appeal, the Commissioner of Income Tax (Appeals) dismissed the appeal.
The Tribunal observed that the assessee paid the above sum towards VRS of certain employees of the Calcutta unit.
“It is noticed that similar issue came up for consideration before the Tribunal in assessee‟s own case for the immediately succeeding assessment year. Vide order dated 26-03- 2010 (ITA No.4667/M/2005), the Tribunal has decided it in favour of the assessee. The Revenue carried the matter before the Hon’ble Bombay High Court against the said order of the Tribunal. Vide judgment dated 08-03-2013, the Hon’ble Bombay High Court dismissed the appeal of the Revenue.”
“It is seen that section 35DDA has been inserted by the Finance Act, 2001 providing for amortization of expenditure incurred on Voluntary Retirement Scheme. The assessment year under consideration is prior to the insertion of section 35DDA and hence cannot rule the position. The instant year would be governed by the earlier provisions,” as the Tribunal said.