Harita NTI Limited , Chennai V. CIT(A)-6, Chennai

ITA 2114/CHNY/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6569 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-02-2018
• Assessment Year: 2006-2007
• Appeal Filed On: 30-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HOMI RAJVANSH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Commercial expediency; Set aside
• Section: 43B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.2114/CHNY/2017 ( )( / ASSESSMENT YEAR : 2006-07 M/S HARITA NTI LIMITED, NO.29, JAYALAKSHMI ESTATES, HADDOWS ROAD, CHENNAI - 600 006. PAN : AAACH 7991 L V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2(2), CHENNAI - 600 034. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SH. R. VIJAYARAGHAVAN, ADVOCATE -.+, / 0 / RESPONDENT BY : SHRI HOMI RAJVANSH, CIT 1 / 2% / DATE OF HEARING : 11.04.2019 3') / 2% / DATE OF PRONOUNCEMENT : 30.04.2019 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) -6, CHENNA I, DATED 30.06.2017 AND PERTAINS TO ASSESSMENT YEAR 2006-07. 2. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE ONLY ISSUE ARISES FOR CONSIDERAT ION IS 2 I.T.A. NO.2114/CHNY/17 DISALLOWANCE OF INCENTIVE GIVEN TO THE EMPLOYEES. ACCORDING TO THE LD. COUNSEL, TWO EMPLOYEES, NAMELY, SHRI N. SRIRAM AND SHRI SUNDER BALAKRISHNA WERE PROMOTED TO GRADE M5 WITH E FFECT FROM 1 ST APRIL, 2003. AS PER THE ORDER OF PROMOTION, ACCORD ING TO THE LD. COUNSEL, THEY ARE ELIGIBLE FOR REVISED SALARY AND I N ADDITION TO SALARY, THEY ARE ELIGIBLE FOR ONE ANNUAL PERFORMANCE INCENT IVE TO THE EXTENT OF 3,60,000/-. HOWEVER, IN THE BOOKS OF ACCOUNT, 3 LAKHS WAS PAID TO SHRI SUNDER BALAKRISHNA AND 6,00,000/- TO SHRI N. SRIRAM. ACCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ONLY ON THE GROUND THAT IT IS ONLY A PROVISION AND THE AMOUNT WAS NOT ACTUALLY PAID. ACCORDING TO THE LD. COUNSEL, IT IS NOT A BONUS, THEREFORE, THE PROVISIO NS OF SECTION 43B OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') WOULD NOT APPLY. ACCORDING TO THE LD. COUNSEL, INCENTIVE BONUS IS NO THING BUT A PART OF SALARY, THEREFORE, THE ASSESSEE HAS A LIABILITY TO PAY, HENCE, EVEN THE PROVISION MADE HAS TO BE ALLOWED AS DEDUCTION W HILE COMPUTING THE TAXABLE INCOME. THE LD.COUNSEL PLACED HIS RELI ANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN DCIT V. M/S SRI SH ANMUGAVEL MILLS LTD. 2011-TIOL-542-HIGH COURT-MAD-IT, A COPY OF WHICH IS AVAILABLE AT PAGE 11 OF THE PAPER-BOOK.. THE LD.CO UNSEL HAS ALSO PLACED HIS RELIANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN CIT V. 3 I.T.A. NO.2114/CHNY/17 KASTURI MILLS LTD. (1998) 234 ITR 538 AND SUBMITTED THAT THE PAYMENT WAS MADE DUE TO COMMERCIAL EXPEDIENCY, THER EFORE, IT WOULD NOT CONSTITUTE BONUS AND EVEN THE PROVISION M ADE IN THE ACCOUNTS ARE ELIGIBLE TO BE DEDUCTED. 3. ON THE CONTRARY, SHRI HOMI RAJVANSH, THE LD. DEP ARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE HAS MAD E ONLY A PROVISION TO THE EXTENT OF 9,00,000/-. NO ACTUAL PAYMENT WAS MADE. ACCORDING TO THE LD. D.R., THE LIABILITY IS NOT ASCERTAINED ON THE LAST DAY OF FINANCIAL YEAR. THE ASSESSEE HAS N OT PAID ANY AMOUNT. IN FACT, THE AMOUNT WAS SAID TO BE PAID LA TER IN SEPTEMBER, 2006 AND DECEMBER, 2006. THEREFORE, ACCORDING TO T HE LD. D.R., THE LIABILITY WAS NOT CRYSTALISED ON THE LAST DATE OF FINANCIAL YEAR, HENCE, THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE A DDITION MADE BY THE ASSESSING OFFICER. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER THE INCENTIVE T O THE EMPLOYEES IS A STATUTORY BONUS OR IT IS A PART OF SALARY? IT IS NOT IN DISPUTE THAT IF IT IS A STATUTORY BONUS, UNLESS IT IS PAID BY THE ASSE SSEE, IT CANNOT BE CLAIMED AS DEDUCTION IN VIEW OF PROVISIONS OF SECTI ON 43B OF THE ACT. 4 I.T.A. NO.2114/CHNY/17 IN CASE, THE INCENTIVE IS NOT A STATUTORY BONUS AND IT IS ONLY A PART OF SALARY, THEN PROVISIONS OF SECTION 43B OF THE ACT C ANNOT BE APPLIED. IN SUCH CASE, WHAT WE HAVE TO SEE IS WHETHER THE AS SESSEE IS LIABLE TO PAY DURING THE YEAR UNDER CONSIDERATION. WE HAV E CAREFULLY GONE THROUGH THE COPY OF TERMS OF APPOINTMENT WHICH IS A VAILABLE AT PAGE 3 OF THE PAPER-BOOK AND ALSO JUDGMENT OF MADRAS HIG H COURT IN SRI SHANMUGAVEL MILLS LTD. (SUPRA). WE HAVE ALSO CAREF ULLY GONE THROUGH THE PROVISIONS OF SECTION 43B OF THE ACT. FROM THE TERMS OF APPOINTMENT, IT IS OBVIOUS THAT THE EMPLOYEES IN AD DITION TO SALARY IS ELIGIBLE FOR INCENTIVE BONUS. WHEN THE ASSESSEE PA ID THE INCENTIVE BONUS, THIS TRIBUNAL IS OF THE CONSIDERED OPINION T HAT IT DEPENDS UPON THE PERFORMANCE OF THE EMPLOYEES ON COMMERCIAL EXPEDIENCY. THEREFORE, IT IS NOT THE CASE OF THE PAYMENT OF STA TUTORY BONUS UNDER THE PAYMENT OF BONUS ACT. HENCE, THE PROVISIONS OF SECTION 43B OF THE ACT IS NOT APPLICABLE AT ALL. 5. IT IS NOT IN DISPUTE THAT AS PER THE TERMS OF AP POINTMENT, THE ASSESSEE IS LIABLE TO PAY ANNUAL PERFORMANCE INCENT IVE BONUS. THE BONUS IS FIXED IN THE TERMS OF APPOINTMENT. THEREF ORE, IT MAY NOT BE CORRECT TO SAY THAT THE BONUS IS NOT CRYSTALISED. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT INCENTIVE IS CRYSTALISE D AND THE 5 I.T.A. NO.2114/CHNY/17 ASSESSEE IS LIABLE TO PAY ON THE LAST DAY OF FINANC IAL YEAR WHEN THE LIABILITY OCCURRED DURING THE YEAR UNDER CONSIDERAT ION. THEREFORE, THE LIABILITY TO THE ASSESSEE TO PAY THE INCENTIVE BONUS IS AN ELIGIBLE DEDUCTION THOUGH IT IS A PROVISION. ON MERCANTILE SYSTEM OF ACCOUNTING, LIABILITY TO PAY THE MONEY AS PER THE T ERMS OF APPOINTMENT HAS TO BE ALLOWED WHILE COMPUTING THE T AXABLE INCOME. IN VIEW OF THE ABOVE, WE ARE UNABLE TO UPHOLD THE O RDERS OF BOTH THE AUTHORITIES BELOW. ACCORDINGLY, ORDERS OF BOTH THE AUTHORITIES BELOW ARE SET ASIDE AND THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER IS DELETED. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 30 TH APRIL, 2019 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESA N) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 30 TH APRIL, 2019. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-6, CHENNAI 4. PRINCIPAL CIT-2, CHENNAI 5. 7: -2 /DR 6. ;( < /GF.