Disallowance of Rs. 2.3 Lakh Paid as Compensation to Workers During Strike Period: ITAT Allows Claim and Deletes Addition [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) deleted the addition and allowed the claim of Rs. 2.3 lakh paid as compensation to workers during the strike period.

Engineering Mazdoor Sabha, appellant-assessee, through the counsel submitted that it was a registered trade union under the Trade Union Act, 1926. As part of its objectives, the union assisted its members in times of genuine need, including providing financial support.

During the relevant year, the union paid subsistence allowances to 19 workers during strike, closure, or lay-off periods. The payments of Rs. 10,000/- or Rs. 15,000/- were made after a resolution passed in the general body meeting.

Details of the workers, signed vouchers, and affidavits from the general secretary and treasurer were furnished to support the claim. The union also highlighted that its accounts were audited and that its functioning was regulated under the Bombay Trade Union Regulation.

It was further pointed out that similar additions made in earlier years had already been deleted since they were not based on any incriminating material found during search proceedings.

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Despite this, the assessing officer (AO) disallowed the payments on the grounds that voucher numbers were missing and all payments were made on the same day, terming the evidence an afterthought without conducting any verification. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the disallowance without giving independent findings.

The departmental representative, however, supported the lower authorities’ orders, stressing that all payments were made on a single day.

A single member bench comprising Pawan Singh (Judicial Member) examined the submissions and records and noted that the assessee was a registered trade union. It had paid Rs. 15,000/- each to eight workers and Rs. 10,000/- each to eleven workers during the strike period to support them when wages were not paid. The details of workers, their employers, vouchers, and affidavits of the General Secretary and Treasurer were furnished.

The appellate tribunal observed that the AO had not verified these facts and had doubted the payments without any adverse material. It held that the union was empowered under the Trade Union Act to provide such assistance and that the payments were genuine. The addition was therefore deleted, and the appeal was allowed.

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