Deduction of VRS Compensation by Auto Dealer: ITAT Remands to Verify if Amount was Disallowed while Computing Income [Read Order]
ITAT restored the VRS compensation issue to the Assessing Officer for verification, directing a re-examination of whether the assessee had already disallowed the amount while computing taxable loss
![Deduction of VRS Compensation by Auto Dealer: ITAT Remands to Verify if Amount was Disallowed while Computing Income [Read Order]](https://images.taxscan.in/h-upload/2025/06/20/2051143-deduction-deduction-of-vrs-compensation-vrs-compensation-by-auto-dealer-taxscan.webp "Deduction of VRS Compensation by Auto Dealer: ITAT Remands to Verify if Amount was Disallowed while Computing Income [Read Order]")
The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) recently directed the Assessing Officer (AO) to re-examine whether the VoluntaryRetirement Scheme (VRS) issue compensation amount was disallowed while computing the taxable loss of the Assessee.
The assessee is a dealer in cars and motorbikes. The assessee company filed its return of income, admitting a total loss of ₹3,35,02,070. During the assessment proceedings, the AO noticed that the assessee claimed VRS payments amounting to ₹2,12,08,000. The assessee treated the entire amount as revenue expenditure. Still, the AO believed it gave long-term benefits and asked the assessee to explain why it shouldn’t be considered capital in nature.
The assessee contended that Section 35DDA of the Income Tax Act,1961 was only introduced from Assessing Year (A.Y.) 2001–02, so the expenditure should be treated as revenue in earlier years. They also argued it was a capital loss. However, the AO rejected this explanation and disallowed the entire ₹2,12,08,000, treating it as capital expenditure.
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On appeal, theCommissioner of Income Tax (Appeals) relied on the judgment of the Madras High Court in the case of CIT vs George Oaks Ltd (1992) and deleted the addition.
The Bench referred to the decision of the coordinate Bench in the assessee’s matter for AY 2000-01.
The assessee had argued that the sum of ₹76,55,667, disallowed by the AO and confirmed by the CIT(A), had already been added back while computing its taxable loss. Supporting documents were submitted to this effect. The Revenue agreed that the matter could be verified.
The bench of Manu Kumar Giri (Judicial Member) and Manoj Kumar Aggarwal (Accountant Member) observed that the facts of the present case being pari-materia the same case, restored the issue back to the AO for verification and allowed the ground for statistical purposes.
M. Karthikeyan, IRS represented the appellant-revenue, while R. Vijayaraghavan and S. Nagarajan represented the assessee.
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