The DCIT, Central Circle-II, Ludhiana v. M/s Diamond Resorts Pvt.Ltd
[Citation -2016-LL-1003-48]

Citation 2016-LL-1003-48
Appellant Name The DCIT, Central Circle-II, Ludhiana
Respondent Name M/s Diamond Resorts Pvt.Ltd.
Court ITAT-Chandigarh
Relevant Act Income-tax
Date of Order 03/10/2016
Assessment Year 2011-12
Judgment View Judgment
Keyword Tags retrenchment compensation • business expenditure • additional evidence • allowable deduction • assessment record
Bot Summary: Briefly the facts of the case are that the Assessing Officer noted that assessee had disclosed an amount of Rs. 75 lacs for the year under consideration and same has been credited to the Profit Loss Account under the head other incomes but still, the return is filed at Rs. 1,02,252/- which was largely on account of expenditure debited to the Profit Loss Account to the tune of Rs. 2 64,09,524/- under the head Retrenchment Expenses. 3(ii) The submissions of the assessee were forwarded 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. DR relied upon order of the Assessing Officer and submitted that assessee has not furnished all the relevant details and agreement before Assessing Officer it is violation of Rule 46A and Department could revise the ground of appeal. Since the agreement was not filed before Assessing Officer matter may be restored to the Assessing Officer for further examination. Counsel for the assessee reiterated the submissions made before authorities below and submitted that Assessing Officer himself has written in the assessment order that he has examined the submissions of the assessee and details of payment and provision of staff. The retrenchment compensation has been paid, 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 entering into the agreement for replacement of the existing staff for the purpose of business and all the payments are subjected to receipts, vouchers and payments have been made through banking channel. The evidences filed by the assessee before Assessing Officer at the assessment stage as well as in the remand proceedings have not been doubted by the Assessing Officer.


I N T H E I N C O M E T X AP P EL L AT E T R I BU N L D I VI S I O N B EN C H , C H D I G AR H BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No. 656/CHD/2015 Assessment Year: 2011-12 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 order of ld. CIT(Appeals)-5 Ludhiana dated 31.03.2015 for assessment year 2011-12, challenging deletion of addition of Rs. 64,09,524/- made on account of disallowance of retrenchment expenses. 2. Briefly facts of case are that Assessing Officer noted that assessee had disclosed amount of Rs. 75 lacs for year under consideration and same has been credited to Profit & Loss Account under head other incomes but still, return is filed at Rs. 1,02,252/- which was largely on account of expenditure debited to Profit & Loss Account to tune of Rs. 2 64,09,524/- under head Retrenchment Expenses . Assessing Officer further noted that assessee failed to justify debiting of such expenses. Assessing Officer also observed that assessee had submitted that due to change of policies adopted by management, staff strength was reduced leading to retrenchment of large number of employees and therefore, impugned expenses have been incurred. Assessing Officer, however, on examination of details of expenses of payment and provisions of staff found that although expenditure under head Bonus , Employer s contribution to EPF etc. have been wiped off or reduced, expenditure under head Salary and Wages have increased albeit marginally. It goes to mean that there could be retrenchment of regular staff but business 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 form of salary and wages has increased also, therefore, retrenchment compensation has nothing to do with running of business. Assessing Officer, therefore, disallowed above amount under section 37 of Act. 3. addition was challenged before ld. CIT(Appeals) and written submission of assessee is reproduced in impugned order in which assessee briefly explained that it is allowable expenditure incurred for 3 purpose of business of assessee and Assessing Officer has wrongly disallowed amount. It is fact that assessee company has entered into agreement with M/s Country Inn & Suites by Carlson through Country Development and Management Services Pvt. Ltd., International chain of hotel and took its franchise on terms and conditions as per agreement dated 27.08.2008. Accordingly, it has changed and replaced existing staff/employees as per their specification for benefit of company and it paid salary and compensation etc. to existing staff and employees on their retrenchment/termination by entering into compromise to avoid any future litigation, pecuniary losses or commercial inconvenience to enable business to continue as was before. retrenchment expenses are, therefore, incurred for purpose of business and allowable deduction under section 37 of Income Tax Act. detailed chart of amount paid to employees and staff, compromising receipts, vouchers, cheque issued to each employee have been filed. All payments have been made through banking channel. 3(i) assessee relied upon large number of decisions in support of contention that such expenditure is allowable deduction under section 37 of Act. conclusion of submission of assessee was that these expenditures have been incurred to bring profits or monetary advantage either today or tomorrow and 4 assessee avoided possible litigation and future losses. efficiency in working have increased, therefore, expenditures incurred were for purpose of business and allowable deduction. 3(ii) submissions of assessee were forwarded to Assessing Officer for his comments in which Assessing Officer submitted that assessee failed to submit documentary evidences during course of assessment proceedings and did not substantiate same. 4. ld. CIT(Appeals), considering explanation of assessee and material on record deleted entire addition. His findings in para 2.3 of impugned order are reproduced as under : 2.3 perusal of assessment order reveals that A.O. has commended at para 4.1 that assessee failed to justify debiting of expenses despite given various opportunities in this regard. However, in para 4.2 this view has been contradicted by A.O. by observing that assessee had submitted explanation on issue. perusal of comments of A.O. in remand report also show that evidence filed in support of having paid Retrenchment Compensation has not been contradicted at all. It is also seen that entire evidence in this respect had been before A.O. at time of "assessment stage. Retrenchment Compensation has been paid which is fact which has not been contradicted by A.O. at assessment stage. issue whether Retrenchment Compensation is an' allowable expenditure u/s 37(i) or not has to be adjudicated. It is quite apparent from facts of case that hotel of appellant company had been taken over for management purpose by M/s Country Inn & Suites by Carlson through Country Development and Management Services Private Limited and consequences of said taking over entire management had to be reoriented and for said purpose certain staff was retrenched. compensation to them was necessitated to avoid protracted litigation on this account and management to allow 5 new management to proceed with business of running hotel without any hindrance so as to maximize profits. It is regular expenditure incurred wholly and exclusively for purpose of business. various judicial pronouncements relied upon by AR are directly o issue of compensation to be paid to ensure smooth running of business. It is also seen that assessee has provided retrenchment list of employees, agreement of compromise and other detains in pursuance of which payment made to them. In circumstances, there is nothing to hold impugned expenditure to be either capital in nature or for purpose of other than business of appellant company. disallowance made is therefore, directed to be deleted. 5. ld. DR relied upon order of Assessing Officer and submitted that assessee has not furnished all relevant details and agreement before Assessing Officer, therefore, it is violation of Rule 46A and Department could revise ground of appeal. It was also submitted that when assessee entered into his agreement on 27.08.2008, most of employees were required to be retrenched in that financial year or at most in next financial year 2009-10, as such retrenchment expenses may not be allowed in assessment year under appeal. Since agreement was not filed before Assessing Officer, therefore, matter may be restored to Assessing Officer for further examination. 5(i) On other hand, ld. counsel for assessee reiterated submissions made before authorities below and submitted that Assessing Officer himself has written in assessment order that he has examined submissions of 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 Act. 6. We have heard ld. Representatives of both parties and perused material available on record. Assessing Officer considered issue of retrenchment expenses in assessment order. Assessing Officer has mentioned in assessment order that he has carefully examined submissions of assessee and also critically examined details of payment made to staff. It is, therefore, clear that assessee furnished evidences and material before Assessing Officer at assessment stage in order to claim retrenchment expenses as allowable deduction under section 37 of Act. ld. CIT(Appeals), therefore, on perusal of comments of Assessing Officer in remand report correctly found that evidences were filed in support of retrenchment expenses which have not been contradicted at all. ld. CIT(Appeals), on examination of record also found that entire evidences in this respect had been before Assessing Officer at assessment stage. These findings of fact recorded by ld. CIT(Appeals) and examination of remand report and assessment record have not been rebutted by Revenue Department through any evidence or material on record. retrenchment compensation has been paid, is fact which has not been contradicted by Assessing Officer at assessment stage because 7 assessee explained that amount was paid after entering into agreement for replacement of existing staff for purpose of business and all payments are subjected to receipts, vouchers and payments have been made through banking channel. No case is made out by Assessing Officer that no compensation is paid in year under consideration therefore, contention of ld. DR is not tenable that compensation should be paid in preceding financial years 2008-09 or 2009-10. Further, when all evidences which were before Assessing Officer at assessment stage, were forwarded again to Assessing Officer for filing of remand report 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 raised by revenue against findings of ld. CIT(Appeals) for admitting any additional evidence in violation of Rule 46A of IT Rules. 6(i) facts explained before authorities below as well as before Tribunal clearly show that assessee company had taken over management of other hotel in consequences of which certain staff of existing hotel have been retrenched. In order to avoid protracted litigation and to allow new management to work smoothly and run business without any hindrance to maximize profit, if certain existing staff have been removed and retrenchment expenses have been paid to them, same 8 would be allowable deduction under section 37 of Act because same have been incurred wholly and exclusively for purpose of business. evidences filed by assessee before Assessing Officer at assessment stage as well as in remand proceedings have not been doubted by Assessing Officer. Therefore, no infirmity have been pointed out in order of ld. CIT(Appeals) in deleting addition. assessee relied upon large number of decisions before ld. CIT(Appeals) which have been quoted in impugned order, also support case of assessee. None of decisions relied upon before ld. CIT(Appeals) have been distinguished on behalf of revenue. 7. Considering totality of facts and circumstances, we do not find any merit in departmental appeal. Same is, accordingly, dismissed. 8. In result, departmental appeal is dismissed. Order pronounced in Open Court. Sd/- Sd/- (ANNAPURNA GUPTA) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 3rd October,2016. Poonam Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT,DR Assistant Registrar, ITAT/CHD DCIT, Central Circle-II, Ludhiana v. M/s Diamond Resorts Pvt.Ltd
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