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Income Tax Appellate Tribunal, “A” BENCH KOLKATA
Before: Shri Sanjay Garg & Dr. Manish Borad
order : November 16, 2023 आदेश / ORDER संजय गग�, �या�यक सद�य �वारा / 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’).
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. Assessment year: 2014-15 Coal India Ltd
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.”
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.
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 Assessment year: 2014-15 Coal India Ltd (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 Assessment year: 2014-15 Coal India Ltd 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 Assessment year: 2014-15 Coal India Ltd