In DCIT v. M/s Linde India Ltd, the ITAT Kolkata bench held that ex-gratia/additional Payments made by a company in connection with VRS due to closure of Business is allowable as Expenditure under section 37(1) of the Income Tax Act.
Assessee made payment under VRS to its employees, in consequent to the closure of its business units due to loss. While filing returns, the assessee claimed deduction of the said amount under section 35DDA of the Income Act. Beside this, assessee also incurred ex-gratia / additional settlement payments to the employees of Chennai unit and claimed deduction u/s 37(1) of the Act in respect of such payments which was disallowed by the AO b holding that these payments are nothing but representing the payment in connection with the VRS and therefore it is eligible for deduction in pursuance to the provisions of Section 35DDA of the Income Tax Act.
Before the Tribunal, the assessee strongly contended that any extra payments made in connection with VRS is not covered under section 35DDA since the provision provides only for the payments made to the employees in the nature of voluntary retirement scheme.
After considering the arguments from both sides, the Tribunal noted that the assessee was having several units and few of them were close down. All the units of the assessee constitute a single business. It was further noted that the impugned payment was paid over & above the VRS payment and therefore, it cannot be covered under section 35DDA of the Income Tax Act.
Relying on the Calcutta High Court decision in the case of Jayshree Tea & Industries Limited vs. CIT, the extra payment is eligible for deduction under section 37(1) of the Income Tax Act.
Read the full text of the Order below.
