TaxTMI 
TaxTMI 
2017 (5) TMI 1731
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....assessee is a limited company and engaged in the manufacturing business of various industrial and medical gases. The assessee was having several manufacturing units. However, a few of them were closed down in the earlier years but a manufacturing unit located at Chennai was closed in the year under consideration vide Memorandum of Settlement dated 30th September 2005 between the assessee and its union of employees. Other manufacturing units of the assessee were continuing. The reason for the closing down the unit was the continuous losses incurred by the assessee and there was no possibility for making the profit in the future. As a result of closure of the unit VRS amount was determined at Rs. 1,28,89,938/- which was claimed by the assessee in terms of the provisions of Section 35 DDA of the Act i.e. 1/5 of the total Voluntary Retirement Scheme in five equal installments. 3.1 The assessee besides the VRS has also incurred an amount of Rs. 55,96,775/- representing ex-gratia / additional settlement payments to the employees of Chennai unit which was claimed as deduction u/s 37(1) of the Act. However, the AO observed that that the aforesaid additional payments made to the employees ....
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....h is incurred wholly and exclusively for purpose of business m9ust be allowed in its entirely in year in which it is incurred; it cannot be spread over a number of years even if assessee has written it off in its books over a period of number of years. In the case of CIT v. Budhraja & Co. (1993) 204 ITR 656 (Ori), it has been held that payment of accrued liability to pay retrenchment compensation under section 25F of Industrial Disputes Act is an allowable deduction as business expenditure - CIT v. J.C. Budharaj & Co. (1993) 204 ITR 656 (Ori), - where services are terminated by payment of compensation with the result that a recurring liability is got rid of, the Hon'ble Bombay High Court in the case of Life Insurance Corporation of India v. CIT [1979] 119 ITR 900 (Bom) held that the amount paid by way of compensation is in the nature of revenue expenditure. The ratio laid down in the cases cited here are, in my view, applicable to the facts of the case. Further, the foremost condition that in order to sustain a claim for deduction by way of business expenditure under sec. 37(1) of the Act, the expenditure must have been incurred for the purpose of a business which was in existe....
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....dgment is reproduced below : "The Tribunal went on to hold that the facts were sufficient to establish a nexus between the payment and the business. The Tribunal noted, correctly, that it was for the assessee to decide how he would conduct his business. For the purposes of continuing his business, he had to reduce the number of units from ten to six. Any incidental expenses in reducing those units was an expenditure incurred in the course of conducting the business and allowable under s. 37." Similarly we also find support & guidance from the judgment of Hon'ble Calcutta High Court in the case of Jayshree Tea & Industries Limited vs. CIT reported in 143 taxman 143 has decided the issue in favour of assessee. The relevant extract of the judgment is reproduced below : "The assessee was carrying on business through 21 units. Such business consisted of different kinds of business but all were being assessed at the hands of the assessee as one business or in other words the assessee was being assessed for the income of all the different units together at the hands of the assessee as of one assessee though the accounts may be kept separately for each unit. Admittedly, in the busines....
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.... observed that these advances were written off on the ground that the recoveries or adjustment were not made due to lack of information. Thus the AO found that these were written off due to negligence of the assessee and they did not become irrecoverable in a normal course of business. Therefore, the AO disallowed a sum of Rs.36.99 lakh and added to the total income of assessee. 9. Aggrieved, assessee preferred an appeal before Ld . CIT(A). The assessee before Ld. CIT(A) submitted that all the items of advance were directly connected with the business operation and therefore they were incidental to the business. Ld. CIT(A) after considering the submission of assessee deleted the addition made by AO by observing as under:- "5.2.4 Decision: Now, the case of the Assessing Officer is that the first item is only trade advance, whereas the balance represented by small items which were written off because collection or adjustment could not be made due to lack of information/persuasion, and, therefore, the same were not allowable as business loss. The case of the appellant. On the other hand is that the first item was business loss because the bank guarantee provided as security was e....
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....ted advances given to the parties for the purchase of raw materials, advance to employees, security deposited with the landlord, electricity and telephones etc. The advances were given during the course of business. The amount became irrecoverable from the parties to whom the advances were made. Thus, the advances were totally connected with the business activities of the assessee. The learned CIT (Appeals) was justified in observing that the amount of advance was a trading loss. After seeing the details of amounts, it is observed that the assessee was not required to take a lengthy litigation for recovering the small amounts. In our opinion, therefore, the approach of the learned CIT (Appeals) is justified. In this connection we also rely in the order of assessee's own case in ITA No. 131/Kol/2010 for A.Y. 2004-05 dated 16.10.2015 wherein the relevant extract is reproduced below:- "8. The learned counsel for the Assessee has also submitted before us in the course of hearing that the Ghatkopar unit of the Assessee was sold during the previous year due to several problems including labour problems and the advances and expenses written oil related to this unit and this unit remaine....