Coal India Limited, Kolkata V. DCIT, Cir-5(1), Kolkata

ITA 413/KOL/2023

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 5280 (ITAT-KOLKATA)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 20-09-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 26-04-2023
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Revision of order; Question of law
• Section: 148; 263; 28; 139; 143(3); 37(1); 250

Judgement Text

आयकर अपीलȣय अͬधकरण, कोलकाता पीठ ‘ए’, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH KOLKATA Įी संजय गग[, ÛयाǓयक सदèय एवं Įी मनीष बोरड, लेखा सदèय के सम¢ Before Shri Sanjay Garg, Judicial Member and Dr. Manish Borad, Accountant Member I.T.A No.413/Kol/2023 Assessment year: 2014-15 Coal India Ltd................................................................................Appellant Coal Bhawan, Premise No.4, Mar, Plot AF-III, New Town, Rajarhat, Kolkata-700156. [PAN: AABCC3929J] vs. DCIT, Circle-5(1), Kolkata...............................................................Respondent Appearances by: None appeared on behalf of the appellant. Shri S. Datta, CIT- DR, appeared on behalf of the Respondent. Date of concluding the hearing : September 21, 2023 Date of pronouncing the order : November 16, 2023 आदेश / ORDER संजय गग[, ÛयाǓयक सदèय ɮवारा / Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 07.03.2023 of the National Faceless Appeal Centre (hereinafter referred to as the ‘CIT(A)’) passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’). 2. No one has come present on behalf of the assessee. Even on earlier dates, despite several notices, no one has put in appearance on behalf of the assessee, therefore, we proceed to decide the appeal after hearing the ld. DR. I.T.A No.413/Kol/2023 Assessment year: 2014-15 Coal India Ltd 2 3. The assessee in this appeal has taken the following grounds of appeal: “1(a) That on the facts and in the circumstances of the case, the learned CIT(Appeals) erred in upholding the action of the Assessing Officer in adding a sum of Rs. 15.22 crores relating to Performance Related Pay treating the same as contingent provision; 1(b) That without prejudice to the ground taken above, the learned CIT(Appeals) erred in applying the provisions of section 36(1)(ii) read with section 43B(c) treating performance related pay as bonus payment; 2(a) Revised assessment order or reassessment order u/s 143(3) passed by assessing officer without issue of notice u/s 148 is bad in eye of law, So, Assessment order passed by assessing officer dated 29/09g/2021 should be quashed. 2(b) Assessment order on impugned issue was pending before the commissioner (Appeals) or Income tax tribunal and therefore the order u/s 143 (3) could not be revised u/s 263 of the Act. So, revised order passed by assessing officer bad in eye of law, so, should be quashed. 3. That the appellant craves leave to add to and/or alter, amend, modify or rescind the grounds hereinabove before or at the hearing of this appeal.” 4. The sole issue involved in this appeal is that as to whether the ‘performance related pay’ as the nomenclature given by the assessee, which was in the shape of certain additional benefits with regard to their annual performance and which was not actually paid to the assessee, were liable to be disallowed u/s 36(1)(ii) and section 43B(c) of the Act. 5. The ld. CIT(A) in this respect while confirming the disallowance has made the following observations: 5.6 I have carefully gone through the assessment order, ground of appeal, statement of facts, written submission filed and judicial decision relied upon by the appellant. During the year under consideration, the appellant had debited an amount of Rs.15,22,00,000/- in the Profit & Loss Account under the sub-head of Performance Related Pay (PRP). The said provision was created based on the recommendation of the 2nd Pay Revision Committee, the Government of India vide Notification No.2 I.T.A No.413/Kol/2023 Assessment year: 2014-15 Coal India Ltd 3 (70)/08-DPE (WC) dated 26.11.2008. The appellant had debited the said amount following the mercantile system of accounting based on scientific calculation. The Ld A.0. had disallowed the said deduction on the ground that it was a provisional contingent liability. 5.7 The Performance Related Pay (PRP) is nothing but an incentive to reward the employees who have performed well for the company with an aim to capture their loyalty, long term service and to encourage them to work hard so that it ultimately benefits the company. As per the recommendation of the 2nd Pay Revision Committee, the employees are ranked based on their performance and they are paid incentive at certain percentage of their salary which is nothing but a performance bonus. The provisions governing the payment and allowability of deduction of bonus to employees are provided under Section 36(1)(i) and Section 43B(c) of the Income Tax Act, 1961. The provisions of the said sections are reproduced below: Section 36(1)(ii): Other deductions. 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (ii) any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission; Section 43B(c): Certain deductions to be only on actual payment. 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- (c) any sum referred to in clause (i) of sub-section (1) of section 36, shall be allowed (irrespective of the previous year in which the liability to 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 I.T.A No.413/Kol/2023 Assessment year: 2014-15 Coal India Ltd 4 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 evidence of such payment is furnished by the assessee along with such return. 5.8 On conjoint reading of Section 36(1)(iü) and Section 43B(c) of the Act it is evident that any bonus or commission paid to employees, other than the bonus paid in lieu of profits or dividends, are allowed as deduction in the year in which such bonus payment is actually made irrespective of the year in which the liability of such payment arises. In the present case, the appellant has debited Rs. 15.22 Crores in its P&L Account under the head Performance Related Pay (PRP) which is essentially an incentive or more accurately a bonus payment to the employees for their performance during the year. Therefore, in my opinion, the provisions of section 36(1)(ii) read with section 43B(c) are squarely applicable to the case at hand since the payment of the PRP has not been made during the year and only a provision is created in the books of accounts by the appellant. 5.9 With respect to the case laws of Hon’ble Supreme Court i.e. Bharat Earth Movers vs. CIT (2000) 245 ITR 428 (SC) and case of Rotorks Control India (P.) Ltd. vs CIT [314 ITR 62] relied upon by the appellant to substantiate that the PRP is not a contingent liability but an ascertained liability, it is observed that those cases are not applicable to the case at hand since those are factually distinguishable which is explained as follows: A. In the case of Bharat Earth Movers vs. CIT reported at 245 ITR 428 (SC) (i) In this case, the substantial question of law before the Hon'ble Apex Court was whether ‘the provision for meeting the liability for encashment of earned leave by the employee is an admissible deduction?’. (ii) The Hon'ble Supreme Court held that if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date, What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not possible. If these requirements are satisfied, the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does no make any difference if the future date on which the liability shall have to be discharged is not certain." (iii) From the above decision it is evident that the Hon'ble Supreme Court's observation was in relation to admissibility of deduction on account of I.T.A No.413/Kol/2023 Assessment year: 2014-15 Coal India Ltd 5 leave encashment expenditure and not on account of bonus payments i.e. PRP as in the present case. (iv) Moreover, the said decision was rendered with reference to A.Y. 1978- 79, during which time the provisions of Section 43B(c) were not yet enacted. The said provision mandating the allowance of deduction only on actual payment came w.e.f. A.Y. 1989-90 and thus the Hon'ble Court never had the occasion to render decision on this aspect. Accordingly, the said decision is not applicable in the present case. B. In the case of Rotorks Control India (P.) Ltd vs. CIT reported at [314 ITR 62]: (i) In this case, the Hon'ble Court had the occasion to decide whether provision for warranty claims is allowable as deduction under the provisions of Section 37(1). The Hon'ble Court held that warranty claims were deductible u/s 37(1) since there was a present obligation arising from past events and the settlement of which will result in outflow of resources. (ii) Again, it is observed that the decision was not rendered on any bonus payments for which a specific provision is enacted under the Act i.e. Section 36(1)(ii) and Section 43B(c). The facts of that case did not have any relevance whatsoever with the specific provisions which are applicable to bonus payments. Rather, the admissibility was to be adjudicated u/s 37(1) under which General deductions can be claimed by an assessee which does not include bonus payments. Also, the said decision was given by the Hon'ble Court following its own decision in case of Bharat Earth Movers (supra) which has already been distinguished. Thus, for the aforementioned reasons the decision of Hon'ble Supreme Court is not applicable in the present case. 5.10 Therefore, based on all the facts and legal provisions as discussed above, I find no reason to interfere in the findings of A.O and disallowance of Rs.15.22 crores on account Performance Related Pay (PRP) treating it as provisional contingent debited by the appellant in the profit and loss a/c is to be upheld. Thus, Ground No.2 of the appeal raised is dismissed.” 6. We find that the ld. CIT(A) has thoroughly discussed the issue and held that the said performance related benefits were nothing but the bonus or commission payable by the assessee and the same were allowable only on actual payment as per the relevant provisions as I.T.A No.413/Kol/2023 Assessment year: 2014-15 Coal India Ltd 6 referred to above. We, therefore, do not find any infirmity in the order of the CIT(A) and the same is upheld. 7. In the result, the appeal of the assessee stands dismissed. Kolkata, the 16 th November, 2023. Sd/- Sd/- [डॉÈटर मनीष बोरड /Dr. Manish Borad] [संजय गग[ /Sanjay Garg] लेखा सदèय /Accountant Member ÛयाǓयक सदèय /Judicial Member Dated: 16.11.2023. RS Copy of the order forwarded to: 1 Coal India Ltd 2. DCIT, Circle-5(1), Kolkata 3. CIT(A)- 4. CIT- , 5. CIT(DR), //True copy// By order Assistant Registrar, Kolkata Benches