Chandrashekhar D. Shende, Nashik V. Deputy Commissioner of Income-tax,

ITA 150/PUN/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0449 (ITAT-PUNE)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 19-10-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 02-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMITRA BANERJI
• Section: 43B; 28; 139

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC , PUNE , BEFORE MS. SUSHMA CHOWLA, JM . / ITA NO. 1 50 /PN/201 6 / ASSESSM ENT YEAR : 20 1 1 - 1 2 SHRI CHANDRASEKHAR D. SHENDE, 3179, VITHAL MANDIR ROAD, SARAF BAZAR, YEOLA, DIST. NASHIK - 423401 . / APPELLANT PAN: A BLPS3964M VS. THE DY. COMMISSIONER INCOME TAX , CIRCLE 3, MALEGAON . / RESPONDENT / APPELLANT BY : NONE (WRITTEN SUBMISSIONS) / RESPONDENT BY : SMT. SUMITRA BANERJI / DATE OF HEARING : 1 9 . 1 0 .201 6 / DATE OF PRONOUNCEMENT: 18 . 1 1 .201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT (A) - 1 , NASHIK , DATED 04 . 1 1 .20 1 5 RELATING TO ASSESSMENT YEAR 20 1 1 - 1 2 AGAINST ORDER PASSED UNDER SECTION 1 4 3(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE AS SESSEE HAS RAISED THE FOLLOWING GROUND S OF APPEAL : - ITA NO. 150 /PN/20 1 6 SHRI CHANDRASEKHAR D. SHENDE 2 1 ] THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF BONUS OF RS.9,40,000/ - U/S 43B. 2] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE APPELLANT HAD CREDITED THE BONUS PAYABLE TO THE EMPLOYEES TO THEIR RESPECTIVE ACCOUNTS IN THE BOOKS OF THE APPELLANT THROUGH JOURNAL ENTRIES AND THUS, THERE WAS NO REASON TO DISALLOW THE BONUS U/S 43B. 3] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE BONUS WAS NOT APPEARING IN THE BALANCE SHEET AS ON 31 ST MA RCH, 2011 AS A LIABILITY AND THIS INDICATED THAT THE BONUS WAS PAID. 4] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE RESPECTIVE EMPLOYEES HAD ALSO CONFIRMED THE RECEIPT OF BONUS AND THUS, THERE WAS NO REASON TO DISALLOW THE SAME U/S 43B. 3. THE APPE AL OF ASSESSEE WAS FIXED FOR HEARING BUT NONE APPEARED ON BEHALF OF THE ASSESSEE. HOWEVER, WRITTEN SUBMISSIONS WERE FILED ON RECORD, WHICH HAVE BEEN CONSIDERED FOR DECIDING THE ISSUE. 4. THE ONLY ISSUE WHICH ARISES IN THE PRESENT APPEAL IS AGAINST THE DI SALLOWANCE OF RS. 9,40,000/ - MADE UNDER SECTION 43B OF THE ACT ON ACCOUNT OF BONUS . 5. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS AN INDIVIDUAL AND WAS DEALING IN PURCHASE AND SALE OF GOLD AND SILVER ORNAMENTS. FOR THE YEAR UNDER CONSIDERATION, T HE ASSESSEE HAD FURNISHED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 28,54,280/ - . THE CASE OF ASSESSEE WAS TAKEN UP FOR SCRUTINY. THE ASSESSEE HAD DEBITED EXPENDITURE UNDER THE HEAD BONUS AMOUNTING TO RS.9,40,000/ - . THE SAID EXPENDITURE WAS TO THE FAMILY MEMBERS, WHO WERE WORKING IN THE PROPRIETARY CONCERN OF ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS REGARDING PAYMENT OF BONUS. IN RESPONSE, THE ASSESSEE POINTED OUT THAT THE PROVISIONS OF SECTION 43B OF THE ACT WERE NOT APPLICABLE TO THE BONUS ACCOUNT. HE LATER POINTED OUT THAT THE SAID BONUS AMOUNT WAS CREDITED TO THE EMPLOYEES ITA NO. 150 /PN/20 1 6 SHRI CHANDRASEKHAR D. SHENDE 3 ACCOUNT, WHICH IN TURN, MEANS THE SAME WAS PAID TO THEM. FURTHER, WITH REGARD TO PROOF OF PAYMENT, THE ASSE SSEE SUBMITTED THAT EACH EMPLOYEE HAD SHOWN THE SAID INCOME IN THEIR PERSONAL RETURN OF INCOME AND PAID TAXES ACCORDINGLY. THE ASSESSEE FURTHER POINTED OUT THAT WHEREVER NECESSARY, TDS WAS DEDUCTED AND PAID TO THE GOVERNMENT ACCOUNT. THE ASSESSING OFFICE R WAS OF THE VIEW THAT THE ASSESSEE HAD NOT MADE ACTUAL PAYMENT OF AMOUNT SHOWN AS BONUS BUT HAD MERELY CREDITED THE BONUS AMOUNT. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAME WAS IN CONTRAVENTION OF PROVISIONS OF SECTION 43B OF THE ACT AND HENCE, THE SAME IS NOT TO BE ALLOWED AS DEDUCTION IN THE HANDS OF ASSESSEE. IN VIEW THEREOF, THE ASSESSEE WAS SHOW CAUSED AND THE REPLY OF ASSESSEE IN THIS REGARD WAS THE SAME AND THE ASSESSING OFFICER DISALLOWED SUM OF RS.9,40,000/ - UNDER SECTION 43B OF THE ACT . 6. THE CIT(A) REFERRED TO THE EXPLANATION (2) TO SECTION 43B OF THE ACT TO OBSERVE THAT THE ASSESSEE COULD CLAIM THE SAID DEDUCTION WHEN IT IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE OF FILING THE RETURN UNDER SECTION 139(1) OF THE ACT. THE ASSESSEE WAS FURTHER REQUIRED TO FURNISH THE PROOF OF ACTUAL PAYMENT ALONG WITH RETURN OF INCOME. AS PER THE CIT(A), THIS WAS MANDATORY REQUIREMENT ON THE PART OF ASSESSEE AND SINCE THE ASSESSEE HAS NOT DISCHARGED THE SAID ONUS AND HAD NOT FURNISHED ANY PROOF OF PAYMENT OF BONUS ALONG WITH RETURN OF INCOME, THEN THE ASSESSEE IS NOT ENTITLED TO THE SAID CLAIM UNDER SECTION 43B OF THE ACT. 7. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A) AND HAS FILED WRITTEN SUBMISSIONS. AS PER SAID SUBMISSIO NS, THE ASSESSEE POINTED OUT THAT THE BONUS OF RS.9,40,000/ - WAS PAID BY DEBITING PROFIT & LOSS ACCOUNT AND BY CREDITING RESPECTIVE CURRENT ACCOUN T MAINTAINED FOR THE EMPLOYEES. THE ITA NO. 150 /PN/20 1 6 SHRI CHANDRASEKHAR D. SHENDE 4 ASSESSEE STRESSED THAT THE AMOUNT OF BONUS WAS CREDITED TO THE ACCOUNTS OF EMPLOYEES WITHIN THE YEAR ITSELF AND ONCE THE SAID AMOUNT IS CREDITED TO THEIR ACCOUNTS, THE ASSESSEE HAS NO CONTROL OVER THE SAME. HE STRESSED THAT THERE IS NO PROVISION OF BONUS PAYABLE AND ALSO THERE IS NO STIPULATION IN SECTION 43B OF THE ACT THAT AC TUAL PAYMENT SHOULD BE MADE IN CASH ONLY. FURTHER, THE ASSESSEE RELIED ON CONFIRMATIONS FILED OF THE EMPLOYEES, WHO IN TURN, HAD DISCLOSED THE SAID AMOUNTS IN THEIR RESPECTIVE RETURNS AND HAD PAID THE TAXES. THE ASSESSEE ALSO CLAIMED TO HAVE DEDUCTED THE TAXES AT SOURCE AND PAID THE SAME TO THE GOVERNMENT , WHERE APPLICABLE . THE ASSESSEE HAS FURTHER STRESSED THAT UNDER SECTION 36(1)(II) OF THE ACT, THERE IS NO STIPULATION THAT THE BONUS PAYMENT SHOULD BE IN CASH OR BY CHEQUE. WHERE THE ASSESSEE HAD CREDI TED THE ACCOUNTS OF EMPLOYEES IN RESPECT OF SAID BONUS AND COMPLIED WITH THE PROVISIONS OF THE ACT IN RESPECT THEREOF, THE SAID EXPENDITURE TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MERITS TO BE ALLOWED. ANOTHER CONTENTION W HICH WAS RAISED BY WAY OF WRITTEN SUBMISSIONS WAS THAT THE PROVISIONS OF BONUS ACT WERE NOT APPLICABLE TO THE ASSESSEE AS HE HAD NOT EMPLOYED 20 OR MORE AT ANY TIME. HE STRESSED THAT IN THE ABSENCE OF THE SAME, THE BONUS AT BEST COULD BE SAID TO BE AN INC ENTIVE PAID BY THE ASSESSEE. IN THIS REGARD, RELIANCE WAS PLACED ON DIFFERENT DECISIONS OF VARIOUS HIGH COURTS. THE ASSESSEE STRESSED THAT WHERE THE EXPENDITURE WAS NEITHER BOGUS NOR GENUINE, IT COULD NOT BE DISALLOWED. ANOTHER ASPECT OF THE ISSUE WAS T HAT WHERE THE WITHDRAWALS ARE MADE BY RESPECTIVE EMPLOYEES, THEN THE SAME IS TO BE TREATED AS ACTUALLY PAID. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. ITA NO. 150 /PN/20 1 6 SHRI CHANDRASEKHAR D. SHENDE 5 9. ON PERUSAL OF RECORD AND WRITTEN SUBMISSIONS FILED BY THE ASSESSEE ALONG WITH ANNEXURES AND AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE, THE ISSUE WHICH ARISES FOR ADJUDICATION IN THE PRESENT APPEAL IS THE ALLOWABILITY OF BONUS OF RS.9,40,0 00/ - . THE ASSESSEE WAS CARRYING ON HIS BUSINESS IN SOLE PROPRIETARY CONCERN AND FOR THE YEAR UNDER CONSIDERATION HAD EMPLOYED HIS FAMILY MEMBERS IN ASSISTING HIS BUSINESS. THE ASSESSEE HAD PAID SALARY TO THE TUNE OF RS.9,90,000/ - TO FIVE EMPLOYEES , IN AD DITION BONUS OF RS.9,40,000/ - WAS CLAIMED TO HAVE BEEN PAID BY THE ASSESSEE BY CREDITING RESPECTIVE ACCOUNTS OF EMPLOYEES. THE TOTAL REMUNERATION I.E. SALARY PLUS BONUS PAID BY THE ASSESSEE TO THE SAID EMPLOYEES WAS RS. 19,30,000/ - . THE AMOUNT HAD BEEN CR EDITED TO THE RESPECTIVE ACCOUNTS OF EMPLOYEES AND THE ASSESSEE CLAIMS THAT ONCE THE SAME IS SO CREDITED, THEN IT IS OUT OF CONTROL OF ASSESSEE AND THE EMPLOYEES ARE AT LIBERTY TO WITHDRAW AT THEIR CONVENIENCE. THE ASSESSEE STRESSED THAT NO PROVISION WAS MADE ON ACCOUNT OF BONUS PAYABLE BUT THE SAID BONUS WAS CREDITED TO THEIR ACCOUNTS. ANOTHER ASPECT WHICH HAS BEEN RAISED BY THE ASSESSEE IN THIS REGARD IS THAT SINCE IT WAS NOT EMPLOYING PERSONS MORE THAN 20, THE PROVISIONS OF BONUS ACT WERE NOT ATTRACTED . THE PAYMENT AT BEST COULD BE SAID TO HAVE AN INCENTIVE TO THE EMPLOYEES OR EX - GRATIA PAYMENT TO THE EMPLOYEES AND THE PROVISIONS OF SECTION 43B OF THE ACT ARE NOT APPLICABLE. ANOTHER POINT RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSE E WAS THAT UNDER THE PROVISIONS OF THE ACT, THERE IS NO REQUIREMENT TO MAKE CASH / CHEQUE PAYMENTS TO THE EMPLOYEES IN ORDER TO ENTITLE ANY PERSON TO CLAIM THE SAID DEDUCTION. THE PROVISIONS OF SECTION 43B OF THE ACT READS AS UNDER: - 43B. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF (A) ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEE, BY WHATEVER NAME CALLED, UNDER ANY LAW FOR THE TIME BEING IN FORCE , OR ITA NO. 150 /PN/20 1 6 SHRI CHANDRASEKHAR D. SHENDE 6 (B) ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR GRATUITY FUND OR ANY OTHER FUND FOR THE WELFARE OF EMPLOYEES, OR (C) ANY SUM REFERRED TO IN CLAUSE (II) OF SUB - SECTION (1) OF SECTION 36 , OR (D) ANY SUM PAYABLE BY THE ASSESSEE AS INTEREST ON ANY LOAN OR BORROWING FROM ANY PUBLIC FINANCIAL INSTITUTION OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTMENT CORPORATION, IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE AGREEMENT GOVERNING SUCH LOAN OR BORROWING, OR (E) ANY SUM PAYABLE BY THE ASSESSEE AS INTEREST ON ANY LOAN OR ADVANCES FROM A SCHEDULED BANK IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE AGREEMENT GOVERNING SUCH LOAN OR ADVANCES, OR (F) ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER IN LIEU OF ANY LEAVE AT THE CREDIT OF HIS EMPLOYEE, SHALL BE ALLOWED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY T O PAY SUCH SUM WAS INCURRED BY THE ASSESSEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM) ONLY IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF THAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM : PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUB - SECTION (1) OF SECTION 139 IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED AS AFORESAID AND THE EVID ENCE OF SUCH PAYMENT IS FURNISHED SUM WAS INCURRED AS AFORESAID AND THE EVID ENCE OF SUCH PAYMENT IS FURNISHED BY THE ASSESSEE ALONG WITH SUCH RETURN. 10. THE SAID PROVISIONS ARE TO BE APPLIED NOTWITHSTANDING CONTAINED IN ANY OTHER PROVISIONS OF THE ACT. IT IS PROVIDED UNDER CLAUSE (C) TO SECTION 43B OF THE ACT THAT WHERE ANY SU M REFERRED TO IN SECTION 36(1)(II) OF THE ACT I.E. SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDERED, THEN THE SAME SHALL BE ALLOWED AS DEDUCTION, OF THE PREVIOUS YEAR IN WHICH SUCH SUM WAS ACTUALLY PAID BY THE ASSESSEE, IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE. THE PROVISO THEREUNDER FURTHER PROVIDES THAT IN CASE THE SAID AMOUNT IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME UNDER SEC TION 139(1) OF THE ACT AND EVIDENCE IN RESPECT THEREOF IS FURNISHED, THEN THE SAME IS TO BE ALLOWED AS DEDUCTION IN THE HANDS OF ASSESSEE. ITA NO. 150 /PN/20 1 6 SHRI CHANDRASEKHAR D. SHENDE 7 11. THE CASE OF ASSESSEE BEFORE THE TRIBUNAL IS THAT THOUGH THE TERM USED IS BONUS BUT IN ACTUAL FACT, THE AMOUN T PAID WAS BY WAY OF AN INCENTIVE TO THE SERVICES RENDERED BY THE SAID EMPLOYEES, WHO ADMITTEDLY, WERE HIS FAMILY MEMBERS AND WERE WORKING IN HIS PROPRIETARY CONCERN. ALTHOUGH THE TERM USED BY THE ASSESSEE WHILE DEBITING THE PROFIT & LOSS ACCOUNT IS BONU S BUT THE NATURE OF PAYMENT WAS NOT BONUS AS IN THE FIRST INSTANCE, THE ASSESSEE CLAIMS THAT THE PROVISIONS OF BONUS ACT ARE NOT APPLICABLE WHERE TOTAL NUMBER OF EMPLOYEES EMPLOYED BY HIM WERE LESS THAN 20. THERE IS MERIT IN THE PLEA OF ASSESSEE IN THIS REGARD. MERELY BECAUSE THE TERM USED BY THE ASSESSEE IS BONUS, THEN THE SAME DOES NOT PARTAKE THE NATURE OF BONUS. IN THIS REGARD, IT IS NECESSARY TO LOOK INTO THE REMUNERATION PAID BY THE ASSESSEE ON A SALARY OF RS.1,50,000/ - DUE TO SAU. MANDAKINI C. SHENDE , BONUS IS PAID AT RS.1 LAKH , ON A SALARY DUE TO SHRI RAJESH C. SHENDE AND SHRI SHRIPAD C. SHENDE OF RS.3,60,000/ - EACH, BONUS IS PAID TO THE EXTENT OF RS. 3,60,000/ - EACH. SIMILARLY TO SAU. MANALI SHRIPAD CHENDE AND SAU. MADHAVI RAJESH CHENDE, SALAR Y WAS RS.60,000/ - EACH AND BONUS WAS PAID TO THE EXTENT OF RS.60,000/ - EAC H. UNDER THE PROVISIONS OF BONUS ACT, LIMITATION IS PROVIDED AND THE MAXIMUM BONUS WHICH IS PAYABLE IS 20% OF SALARY. HOWEVER, IN THE FACTS OF T HE PRESENT CASE, IT IS NOT SO AND TH E AMOUNT OF INCENTIVE IS BEING PAID TO THE EXTENT OF SALARY. IN SUCH CIRCUMSTANCES, WHERE THE SAID PAYMENT HAS BEEN MADE IN MAJORITY AS EQUIVALENT TO THE SALARY DUE, CANNOT BE TERMED AS BONUS. THIS IS AN INCENTIVE WHICH HAS BEEN PAID BY THE ASSESSEE OUT OF HIS BUSINESS CONSIDERATION AND WOULD NOT PARTAKE THE NATURE OF BONUS , M ERELY BECAUSE THE NOMENCLATURE APPLIED BY THE ASSESSEE IS BONUS. THE SECOND ASPECT IS THAT THE SAID AMOUNT ALLEGEDLY CLAIMED AS BONUS HAS BEEN CREDITED TO THE ACCOUNTS OF EMPLOYEES AND NOTHING IS SHOWN AS PAYABLE IN THE BOOKS OF ACCOUNT BY THE ASSESSEE. IN THE ENTIRETY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, THERE IS NO MERIT IN ITA NO. 150 /PN/20 1 6 SHRI CHANDRASEKHAR D. SHENDE 8 APPLYING THE PROVISIONS OF SECTION 43B OF THE ACT WHICH ARE STRICTLY APPLICABLE TO THE PAYMENT OF BONU S. THE NATURE OF PAYMENT MADE BY THE ASSESSEE TO THE EMPLOYEES IS NOT BONUS AND IS NOT COVERED UNDER THE BONUS ACT AND HENCE, NO MERIT IN DISALLOWANCE OF EXPENDITURE CLAIMED BY THE ASSESSEE. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLA IM OF ASSESSEE IN ENTIRETY. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 1 2 . IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 18 TH DAY OF NOVEMBER , 201 6 . SD/ - (SUSHMA CHOWLA) / JUDICIAL MEMBER / PUNE ; DATED : 18 TH NOVEMBER , 201 6 . / PUNE ; DATED : 18 TH NOVEMBER , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESP ONDENT; 3. ( ) / THE CIT(A) - 1 , NASHIK ; 4. / THE PR. CIT - I , NASHIK ; 5. 6. , , , - / DR SMC , ITAT, PUNE; / GUARD FILE . / BY ORDER , // TRU E COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE