ATLAS DOCUMENTARY FACILITATORS CO. P. LTD, MUMBAI V. JCIT (OSD) RG 8(1),

ITA 3776/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4505 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-01-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 29-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SOMNATH S UKKALI
• Keywords: Business expenditure
• Section: 43B; 37(1); 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN , AM AND AMARJIT SINGH , JM ./ I.T.A.NO . 3776 / MUM/ 20 12 ( / ASSESSMENT YEA R : 2009 - 10 ) M/S ATLAS DOCU MENTARY FACILITATORS CO P LTD., TITANIC BUILDING, 3 RD FLOOR, 26A, NARAYAN PROPERTIES, CHANDIVALI FARM , OFF SAKI VIHAR ROAD, ANDHERI ( E ), MUMBAI - 400072 / VS. JT.COMMISSIONER OF INCOME TAX (OSD) - RG 8 (1), MUMBAI. ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN. : AA A CA5299E / APPELLANT BY SHRI SATISH MODY / RESPONDENT BY SHRI SOMNATH S UKKALI / DATE OF HEARING : 11.1.20 16 / DATE OF PRONOUNCEMENT: 11 .1.2016 / O R D E R P ER B R BASKARAN,AM: THE APPEAL FILED BY THE IS DIRECTED AGAINST THE ORDER DATED 1.3.2012 PASSED BY LD CIT (A) - 16, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2009 - 10. 2. THE SOLITARY ISSUE URGED IN THIS APPEAL IS WHETHER THE ANNUAL PERFORMANCE INCENTIVES GIVEN BY THE ASSESSEE TO ITS EMPLOYEES WOULD PARTAKE THE CHARACTER OF BONUS FALLING UNDER SECTION 36(1)(II) AND THEREBY ATTRACTING THE PROVISIONS OF SECTION 43B OF TH E ACT. ITA NO. 3776/MUM/2012 2 3. WE HEARD THE PARTIES AND PERUSED THE RECORD. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS CLAIMED A SUM OF RS.4.85 CRORES AS ANNUAL PERFORMANCE AWARD BY CREATING THE PROVISIONS AT THE YEAR END. THE AO TOOK THE VIEW THAT THE ANNUAL PERFO RMANCE AWARDS IS IN SUBSTANCE BONUS ONLY. SINCE THE ASSESSEE HAS NOT PAID THE SAME BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME, THE AO DISALLOWED THE SAME U/S 43B OF THE ACT. IN THE ALTERNATIVE, THE AO EXPRESSED THE VIEW THAT THE ASSESSEE HAS MADE THE PROVISION ON THE BASIS OF HEAD COUNT OF THE EMPLOYEES AND HENCE THE PROVISION IS CONTINGENT IN NATURE AND THEREFORE NOT ALLOWABLE AS DEDUCTION. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) UPHELD THE VIEW TAKEN BY THE AO BY HOLDING THAT THE ANNUAL PERFORMANCE AWARD IS IN SUBSTANCE BONUS ONLY, HENCE, THE PROVISIONS OF SECTION 43 B SHALL BE APPLICABLE. THE LD. CIT(A) DID NOT DECIDE THE ISSUE RELATING TO THE CONTINGENT LIABILITY. AGGRIEVED BY THE DECISION OF LD. CIT(A), THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 5. THE LD. AR APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE IMPUGNED ISSUE IS NOW SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF DELHI HIGH COURT IN THE CASE OF SHRIRAM PISTONS AND RINGS LTD V/S CIT (307 I TR 363 ) (DEL) , WHEREIN THE PERFORMANCE AWARD OR GOOD WORK AWARD GIVEN BY THE ASSESSEE TO ITS EMPLOYEES DOES NOT CONSTITUTE BONUS WITHIN THE MEANING OF SECTION 36(1)(II) OF THE ACT, BUT IT IS A BUSINESS EXPENDITURE ALLOWABLE U/S 37 OF THE ACT. THE LD. AR SUBMITTED THAT THE DECISION RENDERED BY THE HONBLE DELHI HIGH COURT HAS BEEN FOLLOWED BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF SHEFFIELD AND VERMARK CONSULTANTS PVT LTD V/S ITO IN ITA NO.9/DEL/2013 (AY - 2008 - 09) DATED 31.10.2014 . ITA NO. 3776/MUM/2012 3 6. ON THE C ONTRARY, THE LD. DR PLACED RELIANCE ON THE ORDER PASSED BY T HE LD. CIT(A). 7. HAVING HEARD THE RIVAL CONTENTIONS, WE ARE OF THE VIEW THAT THE IMPUGNED ISSUE IS NOW SQUARELY COVERED BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF SHRIRAM PISTO NS AND RINGS LTD (SUPRA) . A S SUBMITTED BY THE LD.AR , THE DECISION RENDERED BY THE HONBLE DELHI HIGH COURT HAS BEEN FOLLOWED BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF SHEFFIELD AND VERMARK CONSULTANTS PVT LTD (SUPRA). FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE OBSERVATIONS MADE BY THE HONBLE DELHI HIGH COURT : '35. THE THIRD QUESTION THAT HAS BEEN REFERRED FOR OUR CONSIDERATION RELATES TO 'GOOD WORK REWARD' AND WHETHER IT CONSTITUTES BONUS WITHIN THE MEANING OF THE SECTION 36(1)(II) OF THE ACT. 36. THE TRIBUNAL HAS NOTED THAT THE WORD 'BONUS' HAS NOT BEEN DEFINED ANYWHERE INCLUDING IN THE P AYMENT OF BONUS ACT , 1965. HOWEVER, FOR THE PURPOSE OF INDUSTRIAL LAW, FOUR TYPES OF BONUS HAVE BEEN RECOGNIZED AND THEY ARE AS FOLLOWS : (A) PRODUCTION BONUS. (B) CONTRACTUAL BONUS. (C) CUSTOMARY BONUS USUALLY ASSOCIATED WITH FESTIVALS. (D) PROFIT - SHARING BONUS. THE 'GOOD WORK REWARD' THAT IS GIV EN BY THE ASSESSEE TO SOME EMPLOYEES ON THE RECOMMENDATION OF SENIOR OFFICERS OF THE ASSESSEE DOES NOT FALL IN ANY ONE OF THESE ABOVE CATEGORIES. 37. FOR THE PURPOSE OF SECTION 36(1)(II) OF THE ACT, IT H AS BEEN HELD BY THIS COURT IN CIT V. KELVINATOR INDIA LTD. [IT CASE NO . 266 OF 1983, DECIDED ON JULY 23, 1987] THAT BONUS IS RELATED ONLY TO THE PROFIT THAT A COMPANY MAKES AND IS NOT RELATABLE TO PRODUCT ION INCENTIVE. ITA NO. 3776/MUM/2012 4 38. THE REVENUE HAD CHALLENGED THE DECISION OF THIS COURT BY FILING A SPECIAL LEAVE PETITION IN THE SUPREME COURT IN [1988] 171 ITR (ST.) 256. THE SPECIAL LEAVE PETITION WAS DISMISSED BY THE SUPREME COURT ON MAY 11, 1988, THEREBY, IN A SENS E AFFIRMING THE VIEW TAKEN BY THIS COURT THAT PRODUCTION INCENTIVE PAID TO AN EMPLOYEE WAS NOT BONUS AND THEREFORE, IS NOT COVERED UNDER THE PROVISIONS OF SECTION 36(1)(II) OF THE ACT. 39. IN SO FAR AS T HE PRESENT CASE IS CONCERNED, THERE IS NOTHING TO SUGGEST THAT THE GOOD WORK REWARD GIVEN BY THE ASSESSEE TO ITS EMPLOYEES HAS ANY RELATION TO THE PROFITS THAT THE ASSESSEE MAY OR MAY NOT MAKE. IT APPEARS FROM THE ORDER OF THE TRIBUNAL THAT IT HAS RELATION TO THE GOOD WORK THAT IS DONE BY THE EMPLOYEE DURING THE COURSE OF HIS EMPLOYMENT AND THAT AT THE END OF THE FINANCIAL YEAR ON THE RECOMMENDATION OF A SENIOR OFFICER OF THE ASSESSEE, THE REWARD IS GIVEN TO THE EMPLOYEE. CONSEQUENTLY, THE 'GOOD WORK REWARD ' CANNOT FALL WITHIN THE AMBIT OF SECTION 36(1)(II) OF THE ACT AS CONTENDED BY THE REVENUE. 40. IN CIT VS. AUTOPINS (INDIA ) [1991] 192 ITR 161, A DIVIS ION BENCH OF THIS COURT HAD OCCASION TO CONSIDER PAYMENT OF VARIOUS KINDS OF BONUS SUCH AS PRODUCTION BONUS, ATTENDANCE BONUS AND INCENTIVE BONUS AND WHETHER THEY WERE WITHIN THE CONTEMPLATION OF THE PAYME NT OF BONUS ACT , 1965. IT WAS HELD THAT SUCH TYPES OF BONUS AS WELL AS EX GRATIA PAYMENT WOULD NOT FALL WITHIN THE PROVISIONS OF SECTION 36(1)(II) OF THE ACT AND THAT THEY WERE PAYMENTS ALLOWABLE AS REVE NUE EXPENDITURE HAVING BEEN INCURRED FOR THE PURPOSE OF BUSINESS EXPEDIENCY. THESE PAYMENTS WERE NOT OF THE TYPE CONTEMPLATED BY THE PAYMENT OF BONUS ACT . IT WAS HELD THAT IT WAS AN EX GRATIA PAYMENT OR S OME SORT OF REWARD GIVEN TO AN EMPLOYEE FOR THE GOOD WORK DONE BY HIM AND WOULD THEREFORE, FALL WITHIN THE CATEGORY OF EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS EXPEDIENCY AND FOR IMPROVING THE WORKING OF THE ASSESSEE. THEREFORE, IT WOULD NOT FALL W ITHIN THE MEANING OF SECTION 36(1)(II) OF THE ACT BUT WOULD FALL WITHIN THE AMBIT OF SECTION 37 OF THE ACT. ACCORDINGLY, THE THIRD QUESTION IS ANSWERED IN THE AFFIRMATIVE, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND IT IS HELD THAT THE 'GOOD WORK REWARD' IS ALLOWABLE AS BUSINESS EXPENDITURE UNDER SECTION 37(1) OF THE ACT.' RESPECTFULLY FOLLOWI NG, THE DECISION OF THE HONBLE DELHI HIGH COURT, WE SET ASIDE THE ORDER OF LD.CIT(A) AND HOLD THAT THE ANNUAL PERFORMANCE AWARD ITA NO. 3776/MUM/2012 5 CANNOT BE CONSIDERED TO BE BONUS U/S 36(1)(II) BUT ALLOWABLE U/S 37(1) OF THE ACT. 8. IN THE RESULT, THE APPEAL OF THE ASSE SSEE IS TREATED AS ALLOWED. PRONOUNCED ACCORDINGLY ON 11TH JAN UARY , 2016 . 11TH JANUA RY, 2016 S D SD ( AMARJIT SINGH ) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT M EMBER MUMBAI: 11TH JANUARY, 201 6 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, T RUE COP Y (ASSTT. REGISTRAR) , /ITAT, MUMBAI