ITAT DELHI BENCH ‘C’: EXPENSES ALLOWED IN EARLIER YEAR CANNOT BE DISALLOWED IN SUBSEQUENT YEARS IF FACTS ARE SAME (In Favour of Assessee)

In its judgment dated 11^th January, 2013 ITAT DELHI BENCH ‘C’ in the case of Assistant Commissioner of Income-tax vs. Hindustan Fertilizer Corpn.Ltd. held that if facts are same in the subsequent years as in earlier years, than expense allowed in earlier years cannot be disallowed in subsequent years.

Facts of the Case

·       In the present case two appeals were filed by the assessee. The grounds of appeal raised by the assessee are common in both the appeals.

·      The ground of appeal was, if the expenses were allowed in earlier year than they should be allowed in the subsequent years also if the facts are same.

·         The first appeal was filed in respect of disallowance of depreciation and the second appeal was filed in respect of deduction for Voluntary Separation Scheme u/s 35DDA (1).

·        Assessee is a Government of India undertaking. It is engaged in the business of manufacture of fertilizer.

·         Due to heavy losses, the company had stopped the manufacturing activity since earlier years.

·         The Government of India has decided to close the business due to heavy losses 

·         The facts of the first appeal are:

o  During the accounting year relevant to assessment year under consideration, the Assessing Officer disallowed depreciation on several assets, viz., building, roads and culverts, water system, office appliances etc.

o   However in AY 2004-05, the assessee had claimed the depreciation on all the assets including plant & machinery, which was allowed by A.O except depreciation on plant & machinery because the assessee company had stopped the manufacturing activity. However, the depreciation on other assets viz., building, office appliances, roads and culverts, drainage system etc. was allowed.

o   The assessee accepted the view of the Department taken in AY 2004-05 and in the year under consideration did not claim depreciation on plant & machinery but claimed on other assets.

o   However, in the year under consideration, the Assessing Officer, taking a different view than the view taken in AY 2004-05 disallowed depreciation on all the assets.

o   Assessee file an appeal with CIT (A) against this order of AO, however CIT (A) also agreeing with the decision of AO.

o   Therefore assessee files an appeal before ITAT.

·         The facts of the second appeal are:

o    During the financial year 2006-07, relevant to assessment year 2007-08, the assessee made a payment of Rs. 9, 94, 63,000/- under the Voluntary Separation Scheme (VSS).

o       On the above scheme, the provisions of Section 35DDA were applicable and therefore, the Assessing Officer, following the provisions of Section 35DDA, allowed 1/5th of the payment made under VSS in the year under consideration.

o      However CIT (A) directed the AO to allow entire payment made under VSS, on the ground that Section 35DDA presupposes that there should be continuance and existence of business for the next five years and scheme is not voluntary but compulsory.

o     CIT(A) states that the Govt. of India has decided to close the business and the scheme is not voluntary in nature, it is compulsory and is to be opted by all the employees and if it is not availed by certain employees then in that circumstance those employees will be compulsorily retrenched.

o      Assessee files an appeal before ITAT.

Judgment

After considering the facts and circumstances of the case Tribunal is of the opinion that if facts and circumstances of the case are same in the year under consideration with that of any earlier years, than the same decisions will be squarely applicable in subsequent years.

Observation of ITAT in the First Appeal:-

·     The Assessing Officer is not justified in taking a view inconsistent with the view taken by the Department in AY 2004-05.

·       In fact, the assessee did not claim the depreciation on the assets on which the depreciation was disallowed by the Revenue in AY 2004-05.

·        If the Assessing Officer has to take a different view than the view taken in earlier years, on the identical facts, then there has to be a specific reason there for.

·   We do not find mention of any such specific reason in the order for the year under consideration.

·        In view of the above, we deem it proper to set aside the orders of the authorities below on this point and restore the matter to the file of the Assessing Officer.

·      We order accordingly and direct the Assessing Officer to allow depreciation on the assets on which depreciation was allowed in AY 2004-05.

Observation of ITAT in the Second Appeal:-

For the applicability of sec 35 DDA the following conditions are to be satisfied:-

 (i)  The assessee incurs any expenditure in any previous year;

 (ii) The expenditure should be by way of payment of any sum to the employee; and

(iii) The payment should be in connection with the voluntary retirement in accordance with any

      scheme of voluntary retirement.

·       As per findings there is no dispute with regard to fulfillment of condition Nos. (i) and (ii). The only dispute by the CIT(A) is that the scheme was not voluntary but compulsory in nature.

·        From the above finding, it cannot be said that the scheme was not voluntary. If the scheme is compulsory, there is no question of any option to the employees. It may be a different thing that the government persuaded or pressurized all the employees to accept the scheme giving threat of retrenchment.

·    From the perusal of Section 35DDA, we do not find any condition that there should be continuous existence of business for the next five years.

·        It is only the presumption and inference of the learned CIT(A) which does not find anywhere in the provisions of Section 35DDA.

·         In view of the above, we hold that on the facts of the assessee’s case section 35DDA is clearly applicable in respect of payment under VSS

Therefore decision of CIT (A) in both the appeals were reversed and decision goes in favour of assessee

Regards

CA. Mona Singhal

Partner

Arpit Gupta & Associates

Chartered Accountants

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