1995 (5) TMI 48 - AT - Income Tax

ITAT Bombay Allows Deduction for Voluntary Retirement Scheme Payments, Emphasizes Business Continuity

The Appellate Tribunal ITAT Bombay ruled in favor of the assessee, allowing the deduction for payments made under the voluntary retirement scheme. The ... Accumulated Loss, Assessing Officer, Business Expenditure, Retrenchment Compensation Issues:1. Disallowance of payments to workers under the voluntary retirement scheme.Detailed Analysis:The judgment by the Appellate Tribunal ITAT Bombay addresses the issue of disallowance of payments made to workers under a voluntary retirement scheme. The assessee, engaged in fabrication on a job work basis, faced financial difficulties with accumulated losses and inadequate turnover. The company introduced a voluntary retirement scheme due to the uncompetitiveness in the market. The Assessing Officer disallowed the expenditure claimed under the scheme as business expenditure, citing the absence of continuity in the business activity. The Assessing Officer questioned the authenticity of bills presented by the assessee and doubted the continuity of business due to the use of sub-contractors. The CIT(A) upheld the Assessing Officer's decision, leading to an appeal before the ITAT.The ITAT analyzed the facts and legal precedents to determine the continuity of the business. It observed that the fabrication work at the customer's site and manufacturing activities at the shops were part of the same business, indicating unity in various aspects. The ITAT found no evidence to suggest a cessation of business, as the fabrication work continued even after the closure of the shops. The tribunal dismissed suspicions raised by lower authorities regarding fabricated bills, emphasizing the long-standing business relationships with the firms. The ITAT also considered financial records supporting the continuity of business in subsequent years, reinforcing the conclusion of no cessation of business during the relevant year.Furthermore, the ITAT referred to legal precedents, including the Madras High Court decision in a similar case, to support the assessee's claim. It highlighted that the nomenclature of the scheme was irrelevant, focusing on the commercial expediency and business nature of the expenditure. The tribunal distinguished the judgments relied upon by the revenue, emphasizing the unity of control and interdependence of businesses in the present case. Ultimately, the ITAT ruled in favor of the assessee, allowing the deduction for payments made under the voluntary retirement scheme. The judgment provides a detailed analysis of the factual circumstances, legal principles, and precedents to support its decision.