2009 (7) TMI 74

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....laring a loss of Rs.44,37,666/-. The return was processed under Section 143(1)(a) of the Income Tax Act. Subsequently, the case was taken up for scrutiny and notices under Section 143(2) were issued on 29.10.2002 by the Assessing Officer. 2. During the assessment, the Assessing Officer, inter alia, found that the assessee company had claimed deduction of Rs.39,92,189/- representing payment to permanent workmen/staff members at Dalmia Puram, legal as well as ex-gratia compensation. The aforesaid amount of compensation was paid by the assessee in terms of Memorandum of Settlement arrived at between the assessee and its workmen under Section 18(1) of the Industrial Disputes Act. The Assessing Officer was of the opinion that since the amount....

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..... However, the assessee challenged the penalty order on the ground that the requirements of Section 271(1)(c) of the Act were not fulfilled and the penalty proceedings were illegally initiated by the Assessing Officer and consequently the penalty order passed also was not valid. In this behalf, submissions of the assessee was that the claim made by the assessee, treating the aforesaid payment as revenue expenses under Section 37(1) of the Income Tax Act, was a bona fide move. Two opinions were possible and in case it was held by the Assessing Officer that the claim is allowable under Section 35 DDA and not under Section 37, that would mean that the Assessing Officer was not right in initiating penalty proceedings. Contention of the assessee....

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....271 by the Finance Act, 2008. By this amendment, sub-section 1(B) is inserted to Section 271 of the Income Tax Act retrospectively with effect from 1st April, 1989 as per which it is not necessary for the Assessing Officer to record such a satisfaction. It is for this reason that on 18th July, 2008, this Court taking note of the aforesaid amendment observed that the matter is to be now examined on merits. 7. For this reason, we heard the counsel for the parties on merits. Section 35DDA inter alia states that where an assessee incurs any expenditure in any previous year by way of payment of any sum to an employee in connection with his voluntary retirement, in accordance with any scheme or schemes of voluntary retirement, one-fifth of the....

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.... In the present case, what we find from the orders of the Assessing Officer as well as C.I.T. (Appeals) that assessee is engaged in the business of manufacturing of cement pipes and fittings, agricultural activities and investment in shares. It had closed its Rockfort unit at Dalmia Puram. Because of its closure, closure notice was issued to its employees whose services were no longer required as a result of the aforesaid closure. It appears that this led to a dispute between the employees and the employer which resulted into settlement under Section 18(1) of the Industrial Disputes Act. It was because of this reason that the assessee believed that the payment made in a settlement arrived at under Section 18(1) of the Industrial Disputes ....