SHREE PRITHVI IRON MILLS PVT. LTD.,JAIPUR vs. ACIT, CIRCLE 3, JAIPUR

ITA 1874/JPR/2025Status: DisposedITAT Jaipur08 October 2026AY 2021-228 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the bonus of Rs 2,07,438 paid to employees is allowable as a deduction and is not hit by section 36(1)(ii) of the Act. The reasoning was that section 36(1)(ii) denies deduction only if the sum would have been payable as profits or dividend had it not been paid as bonus or commission. This restriction targets the distribution of profits to shareholders in the guise of remuneration. The Tribunal found that the payees were workers who had rendered services, and the bonus was paid at the statutory rate of 8.33% of wages, corresponding to the minimum bonus under the Payment of Bonus Act, 1965. The Tribunal noted that the lower authorities' conclusion that the payment's nature remained unexplained was based on an incorrect premise, as evidence like employee-wise bonus payment sheets and books of account were filed. Crucially, neither the CPC nor the JCIT(A) provided material to show that any payee was a shareholder or director, or would have been entitled to the amount as profits or dividend. The cited precedents relied upon by the JCIT(A) (Dalal Broacha and SRC Aviation) concerned payments to shareholder directors, distinguishable from the present case where payees are non-shareholder employees. The Tribunal directed the deletion of the disallowance. The issue of whether the adjustment could be made under section 143(1)(a)(iv) was left undecided as the appeal was decided on merits.

What were the facts?

The assessee, Shree Prithvi Iron Mills Pvt. Ltd., filed its return of income for AY 2021-22 on 01.02.2022, declaring a total income of Rs 1,70,57,350. The CPC processed the return under section 143(1) and disallowed Rs 2,07,438 claimed as bonus paid to employees, citing an inconsistency with the tax audit report regarding section 36(1)(ii). The total income was revised to Rs 1,72,64,790, and a demand of Rs 82,550 was raised. The assessee appealed to the JCIT(A), arguing the bonus was a statutory obligation under the Payment of Bonus Act, 1965, paid to workers before the return filing due date. The JCIT(A) confirmed the disallowance, holding the payment's nature was unexplained and potentially a dividend, relying on specific case law. The assessee then filed an appeal before the ITAT.

What were the issues?

1. Whether the disallowance of Rs 2,07,438, claimed as bonus paid to employees, is sustainable under section 36(1)(ii) of the Income Tax Act, 1961, when the assessee contends it was a statutory payment to workers for services rendered and not in lieu of dividend. (Question of law and fact) Assessee's contentions: The bonus was paid to workers and employees as a statutory obligation under the Payment of Bonus Act, 1965, forming part of their salary, and was paid before the due date of filing the return. Evidence such as employee-wise bonus payment sheets, cash book, and bank book was filed. Reliance was placed on DCIT v. Mount Kellett Capital Management India (P.) Ltd. and AMD Metplast (P.) Ltd. v. DCIT. Revenue's contentions: The revenue relied on the orders of the lower authorities and supported the disallowance. The JCIT(A) had noted that the tax auditor reported the bonus under clause 20(a) of Form 3CD, raising a presumption that the payment was to persons who could otherwise have received it as profit or dividend. Reliance was placed on Dalal Broacha Stock Broking (P.) Ltd. v. Addl. CIT and SRC Aviation (P.) Ltd. v. ACIT.

Which sections of the Income-tax Act were involved?

Section 36(1)(ii),Section 139(1),Section 143(1),Section 143(1)(a)(iv)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH, JAIPUR

Before: Shri Kuldip Singh & Shri Prakash

PER : PRAKASH, ACCOUNTANT MEMBER:-

1.

This appeal by the Assessee is directed against the order of the learned Additional/Joint Commissioner of Income Tax (Appeals), Raipur [hereinafter referred to as “the learned JCIT(A)”] dated 29.10.2025 arising out of the intimation dated 24.08.2022 issued by the Centralized Processing Centre, Bengaluru (hereinafter referred to as “the CPC”) under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2021-22. Shree Prithvi Iron Mills Pvt. Ltd.

2.

The grounds of appeal raised by the Assessee before us in the memorandum of appeal in Form No. 36 read as

The order continues below.

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