SHRI BHUVANESHWARI ENTERPRISES,BADRAVATHI vs. INCOME-TAX OFFICER, WARD - 1,, SHIMOGA

ITA No. 1002/Bang/2026, relating to the same assessment year, is filed against the confirmation of the penalty order by the learned CIT(A).

We first consider the facts of the quantum appeal in ITA No. 1007/Bang/2026. The assessee is a partnership firm engaged in the business of sale of liquor. It filed its return of income on 27 October 2018 declaring total income of ₹ 3,95,910. The case was selected for scrutiny andnotice under section 143(2) was issued on 28 September 2019.The Assessing Officer noted that the assessee had claimed expenditure towards salary, wages and bonuses, including bonus of ₹ 2,64,000. The assessee furnished the salary ledger showing salary payments of ₹ 13,20,000

Aggrieved, the assessee preferred an appeal before the learned CIT(A). During the appellate proceedings, the assessee submitted that the bonus of ₹ 2,64,000 was paid in accordance with the Payment of Bonus Act and was within the permissible limits. It was duly disclosed in the profit and loss account and audited financial statements. The assessee explained that the bonus payments were recorded in a separate ledger and not in the salary ledger, and that the failure to furnish the bonus ledger before the Assessing Officer was due to an oversight by the audit staff. The assessee produced the relevant ledger before the learned CIT(A) and submitted that the bonus payment was consistent with its regular accounting practice and comparable with earlier years.

The learned CIT(A) held that the assessee had failed to discharge its onus and that the Assessing Officer’s findings were specific and justified. He accordingly dismissed the appeal. Before us, the learned authorised representative, Sri Narendra Sharma, Advocate, supportedthe submissions made before the learned CIT(A) and stated that complete details relating to the bonus payment of ₹ 2,64,000 had been furnished. He explained why the Assessing Officer made the addition and contended that the learned CIT(A), despite the details being filed before him, failed to consider the assessee’s explanation and confirmed the disallowance.

The learnedDepartmental Representative, Sri Ganesh R. Ghale, Standing Counsel for the Department, supported the orders of the lower authorities and submitted that the assessee had failed to substantiate the bonus payment before the Assessing Officer; therefore, the disallowance was rightly made.

We have carefully considered the rival submissions and the reasons recorded for the disallowance. Although the assessee did not furnish the details of bonus payment before the Assessing Officer, those details were available before the learned CIT(A), as noted in paragraph 6 of the appellate order. The learned CIT(A) recorded that the bonus of ₹ 2,64,000 was shown in the profit and loss account and audit report, and that the entries were maintained in a separate bonus ledger rather than in the salary ledger. Once the complete details were available, and the bonus payment of ₹ 2,64,000 was consistent with the salary payment of ₹ 13,20,000 to 11 employees, we find no reason to uphold the orders of the lower authorities confirming the disallowance.

We also note that ground No. 2 states that the assessee filed an application for admission of additional evidence under Rule 46A, which was not considered by the learned CIT(A) before confirming the disallowance. Rule 46A empowers the learned CIT(A) to admit additional evidence in specified circumstances, subject to the prescribed procedure. In the present case, the learned CIT(A) did not properly exercise that power or follow the required procedure, including granting the Assessing Officer an opportunity to examine the additional evidence. Further, even on merits, the disallowance is not sustainable. Accordingly, we direct the Assessing Officer to delete the disallowance of ₹ 2,64,000 relating to bonus paid to employees.

In the result, the appeal of the assessee in ITA No. 1007/Bang/2026 is allowed.

ITA No. 1002/Bang/2026 is filed by the assessee against the penalty of ₹ 1,63,152 levied by the learned Assessing Officer at 200% of the tax payable on the alleged under-reported income arising from misreporting, consequent to the disallowance of ₹ 2,64,000 towards bonus. Since we have already deleted the disallowance of ₹ 2,64,000 in ITA No. 1007/Bang/2026, the assessee’s appeal against the penalty order is also allowed.

In the result, both appeals filed by the assessee are allowed.