TaxTMI 
TaxTMI 
2026 (6) TMI 417
X X X X Extracts X X X X
X X X X Extracts X X X X
....g the facts, submissions, evidence and binding precedents. 2. The Learned CIT(A) erred in restricting the deduction of Rs. 5.43 crores paid as one-time settlement to contractors to 1/5th during the year under consideration and amortising the balance, despite accepting the expenditure as allowable u/s. 37(1). The entire amount, being revenue in nature and incurred wholly and exclusively for the purpose of business, ought to have been allowed in full in the year of incurrence. 3. The learned CIT(A), while accepting the allowability of the one-time settlement (OTS) expenditure, erred in directing its amortisation over five years by drawing an analogy with payments made under Voluntary Separation Schemes (VSS). The impugned OTS payments were made to contractors, which fall outside the scope of section 35DDA and Rule 2BA. Consequently, the comparison is misconceived and the direction to spread the deduction over five years is unsustainable in law. 4. The learned CIT(A) further erred in failing to appreciate that amortisation of revenue expenditure, in the absence of a specific enabling provision under the Act, is not permissible and contrary to settled judicia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w in not appreciating that no business advantage or enduring benefit accrued to the assessee from the said expenditure as the manufacturing unit at Taratala was closed post restructuring and no further operations were carried out. 5 Whether in facts and circumstances of the case, the Ld.CIT(A) has erred in law in ignoring that as per settled judicial principles, employee compensation/settlement payments connected with retrenchment/ closure are not deductible as business expenses u/s. 37 of the Act. 6. Whether in facts and circumstances of the case, the Ld.CIT(A) has erred in law in relying upon the judgement in the case of SA Builders vs CIT (288 ITR1) (SC) without appreciating that the said ratio applies only where expenses are incurred out of commercial expediency in furtherance of business, whereas in the instant case no business purpose was served. 7. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored." 2. The assessee is a company engaged in the business of manufacture of welding electrodes and components. The assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he purpose of business and therefore there is no reason for the CIT(A) to allow only 1/5th of the expenditure. The Ld. AR further submitted that the onetime settlements are in the nature of contract payments on which the assessee has deducted tax at source u/s. 194C of the Act. The Ld. AR in order of substantiate the fact that the expenditure incurred towards one time settlement are for the purpose of business drew our attention to the agreement entered into with the contractors and also to the internal correspondence (additional evidence), where it is stated that the contract workers are unhappy with the restructuring of business which prompted the assessee to make one time settlement in order to ensure smooth running of business. Accordingly, the Ld. AR argued that when the expenditure is incurred for the purpose of business the entire expenditure needs to be allowed as a deduction. 6. The Ld. Departmental Representative (DR), on the other hand, argued that when there is employer and employee relationship, the claim of the assessee that the onetime settlement is to buy peace cannot be accepted since it is responsibility of the contractor to settle in case of retrenchment of wo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e that the CIT(A) has allowed only 1/5th stating that since the assessee had claimed only 1/5th of the payments made to employees to strengthen to principle of the equitable amortization only 1/5th of the payments made to the contractors should be allowed. We notice that the onetime settlement to the employees of the assessee is done under Voluntary Suppression Scheme which as per Section 35DDA of the Act is entitled for 1/5th of the deduction. However, the onetime settlement to the contractors does not fall within the purview of section 35DDA of the Act and therefore the said payment need to be examined in the light of the provisions of Section 37 of the Act. We have already held that the impugned payment is incurred by the assessee wholly and exclusively for the purpose of business and accordingly we are of view that allowing only 1/5th merely for the reason that there should be equitable amortization cannot be sustained. Accordingly we direct the A.O to delete the disallowance made towards 4/5th of the expenditure incurred towards one time settlement to contractors. Disallownce u/s. 14A of the Act - Ground No. 5 to 8 in assessee's appeal 8. The assessee during the year....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egard to the assessee not making any disallowance towards indirect expenses and therefore, the contention is that no satisfaction is recorded is not tenable. 11. We have heard the parties, and perused the material available on record. The A.O from the return of income filed by the assessee noticed that there has not been any disallowance towards exempt income and called on the assessee by issue of notice u/s. 142(1) of the Act to justify the applicability of disallowance u/s. 14A of the Act. From the perusal of the reply filed by the assessee, we notice that the assessee has given submissions with regard to the applicability of disallowance u/s. 14A of the Act to its case by placing reliance on certain decisions. However, it is noticed that the assessee has not made any submissions with regard to the suo-moto disallowance made by the assessee and the relevant workings. We also notice from the findings of the A.O that the A.O proceeded to consider the disallowance u/s. 14A on the premise that the assessee has not made any suo-moto disallowance without considering that the computation of income contains the details with regard to the suo-moto disallowance. It is also relevant to n....