Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1996-97 - Assessee-company incurred expenses on Voluntary Retirement Scheme ('VRS') and claimed it as revenue expenditure - As per annual report, VRS expenses were to be written off within a period of 60 months - Assessing Officer amortized said expenses over a period of five years and allowed deduction only on a small amount and disallowed claim for balance amount - Whether VRS expenditure, being a revenue expenditure, incurred wholly and exclusively for purpose of business, must be allowed in its entirety in year in which it is incurred and it cannot be spread over a number of years even though assessee has written it off in its books over a period of years - Held, yes FACTS The assessee-company incurred V.R.S. expenses and claimed it as revenue expenditure. As per the annual report, those expenses were to be written off within a period of 60 months. In the past, the company had incurred such expenditure for other plants, and in the books of the company, such expenses were written off over a period of 36 months. Therefore, when for the accounting year in question, VRS expenses came to be written off within 60 months, the Assessing Officer disallowed most of the said expense. On appeal, the Commissioner (Appeals) agreed with the order of the Assessing Officer. On further appeal, the Tribunal took the view that the V.R.S. expense was not incurred for acquiring asset, but it was incurred in order to reduce the cost, it also found that the VRS had been approved by the Commissioner. Therefore, the Tribunal allowed the assessee's appeal. On appeal under section 260A : HELD The department contended that the Voluntary Retirement Scheme expend-iture was not deductible as it was capital in nature. The Department was estopped from raising that contention. The assessee claimed deduction for accounting year ending 31-3-1996. However, the Assessing Officer restricted the deduction and, consequently, he disallowed it as an excess claim. The assessee preferred an appeal to the Commissioner (Appeals) against the said disallowance. No appeal was preferred by the department…

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