2025 (7) TMI 761 - AT - Income Tax

Deduction u/s 10(10B) - assessee received VRS amount from HMT Ltd. - receipt was claimed to be compensation on termination of employment since it was stated to be received on closure of Tractor division of HMT Ltd - assessee had initially offered the compensation to tax and claimed relief u/s 89(1) but during first appeal the full amount was claimed to be exempt u/s 10(10B) - CIT(A) did not agree with assessee s claim for want of sufficient explanations / submissions from the assessee. HELD THAT - Assessee received compensation of Rs. 27, 67, 681/- out of which amount of Rs. 5 Lacs was claimed exempt and remaining amount of Rs. 22, 67, 681/- was offered to tax. The assessee claimed relief u/s 89(1) for Rs. 2, 67, 501/-. The claim of the assessee is that remaining amount of Rs. 22, 67, 681/- is also exempt from tax since it is nothing but compensation received on closure of undertaking though the compensation was styled as VRS. We find that this issue is covered in assessee s favor by the decision of this Tribunal in bunch of appeals titled as Shri Suresh Pal Chauhan 2023 (9) TMI 1524 - ITAT CHANDIGRH wherein considering the decision of Hindustan Photo Film Workers 2017 (3) TMI 1270 - MADRAS HIGH COURT held that whole amount received form HMT Ltd. would be exempt u/s 10(10B). Facts being pari-materia the same we would hold that the remaining compensation would also be exempt u/s 10(10B). The relief u/s 89(1) as claimed by the assessee would stand revised accordingly

Summary

The Appellate Tribunal (ITAT Chandigarh) allowed the assessee's appeal for AY 2017-18 concerning the claim of deduction under section 10(10B) of the Income Tax Act. The assessee received a Voluntary Retirement Scheme (VRS) compensation of Rs. 27,67,681 from HMT Ltd., related to the closure of its Tractor division. Initially, only Rs. 5 lakhs were claimed exempt and the balance offered to tax with relief under section 89(1). The assessee later claimed the entire amount as exempt under section 10(10B).The CIT(A) had rejected the exemption claim due to insufficient explanations. However, the Tribunal relied on its earlier decision in Shri Suresh Pal Chauhan vs. ITO (ITA Nos.83/Chd/2023 & ors. dated 20-09-2023), which, following the Madras High Court ruling in Hindustan Photo Film Workers (WP No.18566/2015), held that compensation received on closure of an undertaking is fully exempt under section 10(10B). Applying this precedent, the Tribunal held that the entire compensation amount is exempt under section 10(10B), and directed the Assessing Officer to recompute income and revise the demand accordingly.The appeal was thus allowed, affirming that compensation received on closure of an undertaking qualifies for full exemption under section 10(10B).