Appeal details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 3776 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 6 month(s) 16 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
06-11-2020
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
C
Next Hearing Date
04-11-2020
Assessment Year
2013-2014
Appeal Filed On
20-04-2018
Judgement Text
ITA NO.1292/BANG/2018 OCWEN FINANCIAL SOLUTIONS PVT. LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.1292/BANG/2018 ASSESSMENT YEAR: 2013-14 OCWEN FINANCIAL SOLUTIONS PVT. LTD. 6 TH FLOOR OF WING A & 5 TH FLOOR OF WING B, BLOCK NO.12, PRITECH PARK SURVEY NO.51-64/4, BELLANDUR VILLAGE SARJAPUR MARATHAHALLI OUTER RING ROAD BANGALORE, KARNATAKA 560 103 PAN NO : AAACO3764E VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-5(1)(2) APPELLANT RESPONDENT APPELLANT BY : SHRI K.R. VASUDEVAN, A.R. RESPONDENT BY : SMT. R. PREMI, D.R. DATE OF HEARING : 04.11.2020 DATE OF PRONOUNCEMENT : 06.11.2020 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 01/02/2018 PASSED BY LD. CIT(A)-V, BENGALURU AND IT RELATES TO THE ASSESSMENT YEAR 2013-14. 2. AT THE TIME OF HEARING, THE LD. A.R. DID NOT PRE SS GROUND NO.1. ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. REMAINING GROUNDS GIVE RISE TO FOLLOWING ISSUES. A) DISALLOWANCE OF PROVISION FOR RETENTION BONUS. B) ADDITION OF INTEREST INCOME. ITA NO.1292/BANG/2018 OCWEN FINANCIAL SOLUTIONS PVT. LTD., BANGALORE PAGE 2 OF 5 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVI DING IT ENABLED SERVICES IN THE FORM OF BACK OFFICE OPERATIONS IN T HE AREA OF LOAN SERVICING. 4. THE FIRST ISSUE RELATES TO DISALLOWANCE OF PROVI SION FOR RETENTION BONUS. THE A.O. NOTICED THAT THE ASSESSEE HAS CLAI MED A SUM OF RS.1,14,18,059/- AS EXPENDITURE TOWARDS PROVISION F OR RETENTION BONUS. THE ASSESSEE EXPLAINED THAT IT RELATES TO R ETENTION BONUS PAYABLE TO ITS EMPLOYEES WHO HAVE ALREADY RENDERED SERVICES FOR THE YEAR UNDER CONSIDERATION. THE A.O. TOOK THE VIEW T HAT THE PROVISION SO CREATED IS AN UNASCERTAINED LIABILITY AND FURTHE R THE ASSESSEE HAS NOT PAID THE RETENTION BONUS BEFORE THE DUE DATE FO R FILING THE RETURN OF INCOME. ACCORDINGLY, HE DISALLOWED THE ABOVE SA ID CLAIM OF RS.1,14,18,059/-. 5. BEFORE LD. CIT(A), THE ASSESSEE EXPLAINED THAT T HE RETENTION BONUS SCHEME HAS BEEN DEVISED BY THE ASSESSEE AS PA RT OF ITS H.R. STRATEGY IN ORDER TO RETAIN THE TALENT FORCE. THE AMOUNT PAYABLE TO THE EMPLOYEES AS ON 31.3.2013 HAS BEEN PROVIDED FOR IN THE BOOKS OF ACCOUNTS AS PER MERCANTILE SYSTEM OF ACCOUNTING. I T WAS SUBMITTED THAT, IF ANY OF THE EMPLOYEES RESIGNS PRIOR TO THE RECEIPT OF BONUS, THE RELEVANT RETENTION BONUS SHALL BE REVERSED AND OFFE RED TO TAX. THE ASSESSEE ALSO RELIED ON THE DECISION RENDERED IN TH E CASE OF TAVANT TECHNOLOGIES INDIA PVT. LTD. IN ORDER TO SUBMIT THA T THE PROVISION MADE TOWARDS ACCRUED BONUS CANNOT BE TREATED AS UNC ERTAIN. THE ASSESSEE FURTHER SUBMITTED THAT THE PROVISIONS OF S ECTION 43B OF THE ACT SHALL APPLY ONLY TO THE STATUTORY LIABILITY AND NOT TO THE RETENTION BONUS. 6. THE LD. CIT(A), BY PLACING RELIANCE ON THE DECIS ION RENDERED BY HONBLE SUPREME COURT IN THE CASE BHARAT EARTH MOVE RS, HELD THAT ITA NO.1292/BANG/2018 OCWEN FINANCIAL SOLUTIONS PVT. LTD., BANGALORE PAGE 3 OF 5 THE PROVISION MADE FOR RETENTION BONUS IS AN ASCERT AINED LIABILITY AND IS ALLOWABLE CLAIM. HE FURTHER HELD THAT THE RETEN TION BONUS SHALL FALL UNDER THE PURVIEW OF SECTION 43B OF THE ACT. THE L D. CIT(A) NOTICED THAT THE ASSESSEE HAS MOVED AN APPLICATION U/S 154 OF THE INCOME- TAX ACT,1961 ['THE ACT' FOR SHORT] BEFORE THE A.O. REQUESTING HIM TO RESTRICT THE DISALLOWANCE TO RS.97,05,992/-, BEING THE AMOUNT NOT PAID BEFORE THE DUE DATE FOR FILING RETURN OF INCOM E. ACCORDINGLY, THE LD. CIT(A) DIRECTED THE A.O. TO RESTRICT THE DISALL OWANCE TO RS.97,05,992/-. 7. THE LD. A.R. CONTENDED THAT THE PROVISION FOR RE TENTION BONUS IS ALLOWABLE AS DEDUCTION U/S 37(1) OF THE ACT. HE FURTHER SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN APPLYING T HE PROVISIONS OF SECTION 43B OF THE ACT TO THIS CLAIM OF THE ASSESSE E. ON THE CONTRARY, THE LD. D.R. SUBMITTED THAT THE PROVISION FOR BONUS IS COVERED BY THE PROVISIONS OF SECTION 43B OF THE ACT AND HENCE THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE A.O. TO RESTRICT THE DIS ALLOWANCE TO RS.97,05,992/-. 8. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED T HE RECORD. A PERUSAL OF PROVISION OF SECTION 43B OF THE ACT WOUL D SHOW THAT CLAUSE (C) RELATES TO THE SUM REFERRED TO IN 36(1)(II) OF THE ACT, WHICH IN TURN RELATES TO ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDERED. ADMITTEDLY IN THE INSTANT CASE, PROVISION FOR RETENTION BONUS IS PAYABLE TO AN EMPLOYEE FOR SERVI CES RENDERED BY HIM DURING THE YEAR UNDER CONSIDERATION. HENCE, TH E RETENTION BONUS IS ALLOWABLE AS DEDUCTION U/S 36(1)(II) OF THE ACT ONLY AND NOT U/S 37(1) AS CONTENDED BY LD A.R. FURTHER THE PROVISION S OF SECTION 43B OF THE ACT WOULD ALSO APPLY TO THE PROVISION FOR RE TENTION BONUS. AS PER THE PROVISIONS OF SECTION 43B OF THE ACT, THE P ROVISION FOR RETENTION BONUS IS NOT ALLOWABLE AS DEDUCTION. HOW EVER, AS PER THE ITA NO.1292/BANG/2018 OCWEN FINANCIAL SOLUTIONS PVT. LTD., BANGALORE PAGE 4 OF 5 PROVISO TO SEC.43B, THE AMOUNT PAID BEFORE THE DUE DATE FOR FILING RETURN OF INCOME OUT OF THE PROVISION SO CREATED IS ALLOWABLE AS DEDUCTION. ADMITTEDLY, THE ASSESSEE HAS PAID A SUM OF RS.17,12,067/-, OUT OF THE PROVISION SO CREATED, BE FORE THE DUE DATE FOR FILING RETURN OF INCOME. ACCORDINGLY, WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE A.O. TO R ESTRICT THE DISALLOWANCE TO RS.97,05,992/-, BEING THE AMOUNT NO T PAID BEFORE THE DUE DATE FOR FILING RETURN OF INCOME OUT OF PRO VISION FOR RETENTION BONUS CLAIMED BY THE ASSESSEE. ACCORDINGLY, WE UPH OLD THE ORDER OF LD. CIT(A) ON THIS ISSUE. 9. THE NEXT ISSUE RELATES TO ADDITION OF INTEREST I NCOME OF RS.67,942/- ON THE GROUND THAT THE SAME IS NOT OFFE RED TO TAX BY THE ASSESSEE, EVEN THOUGH IT IS REFLECTED IN FORM 26 AS AND THE TDS RELATING TO THE SAME WAS CLAIMED. 10. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE LD. CIT(A) HAS NOT DISPOSED OF THIS GROUND IN HIS ORDER. NEVERTHELESS THE LD. A.R. SUBMITTED THAT THE INTERE ST INCOME WAS RECEIVED FROM M/S. TATA POWER COMPANY LTD., WHICH W AS ADJUSTED AGAINST ELECTRICITY BILLS RAISED BY THE ABOVE SAID COMPANY. SINCE THE ASSESSEE HAD ACCOUNTED FOR NET AMOUNT OF ELECTRICIT Y BILLS, THE INTEREST INCOME WAS NOT SEPARATELY DISCLOSED IN THE PROFIT & LOSS ACCOUNT. ACCORDINGLY, THE LD. A.R. SUBMITTED THAT THE IMPUGNED INTEREST INCOME HAS ACTUALLY BEEN OFFERED BY THE AS SESSEE BY WAY OF REDUCTION IN THE ELECTRICITY BILL. 11. WE HEARD THE LD. D.R. ON THIS ISSUE. SINCE THE SUBMISSIONS MADE BY LD. A.R. REQUIRE VERIFICATION OF FACTS, WE RESTORE THIS ISSUE TO THE FILE OF A.O. FOR EXAMINING IT AFRESH. ITA NO.1292/BANG/2018 OCWEN FINANCIAL SOLUTIONS PVT. LTD., BANGALORE PAGE 5 OF 5 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH NOV, 2020 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 6 TH NOV, 2020. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.
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