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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI RAM LAL NEGI, JM &
O R D E R Per Shamim Yahya, A. M.:
This appeal by the Revenue and cross objection by the assessee arise out of the order of the learned Commissioner of Income Tax (Appeals)-9, Mumbai (‘ld.CIT(A) for short) dated 05.08.2016 and pertains to the assessment year (A.Y.) 2008-09.
The ground of appeal raised by the Revenue read as under:
1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the disallowance amounting to Rs.16,52,15,683/- u/s. 43B of the IT Act being unpaid bonus. The ld. CIT failed to appreciate that the unpaid performance bonus to employees and directors of the company is neither statutory nor paid on accrual basis.
3. The ground raised by the assessee in the cross objection read as under:
1. On the facts and in the circumstances of the case and in law, the learned Deputy Commissioner of Income-tax 4(1)(1) (herein after referred to as 'DCII') has erred in re- opening the assessment proceedings u/s. 147 of the Income-tax Act, 1961 (herein after referred to as 'the Act') and the Hon'ble CIT (Appeals) has erred in upholding the said re- assessment proceedings. The Appellant Company prays that the re-assessment proceedings u/s. 147 of the Act are invalid and the order u/s. 143(3) r.w.s. 147 dated November 03, 2015 be quashed accordingly.
2. Without prejudice to Ground 1 above, assuming without accepting that the claim customary bonus of Rs.16,52,15,683 is disallowed by invoking the provisions of Section 43B, on the facts and in the circumstances of the case and in law, the appellant submits that the learned DCII be directed to allow the sum of Rs.16,52,15,683 on payment basis in the year of payment and reduce the total income accordingly.
4. Brief state facts of the case are that the reassessment notice was issued to tax unpaid bonus u/s. 43B and the addition to that effect was done in reassessment. The assessee challenged both the validity of reopening as well as merit of addition.
The reason for reopening is as under:
“On verification of the record, it was noticed that tax auditor has reported vide clause 21B in 3CD report that, the bonus amounting to Rs.56,28,38,981/- was paid before the due date for furnishing of the return u/s. 139(1) out of Rs.72,80,54,664/- which was shown as payable as on 31st March, 2008 and the balance amount of Rs.16,52,15,683/- was remained to be paid before the filing of the return. Further, the tax auditor has mentioned that the nature of customary bonus not covered under section 43B(C) and in support of that quoted Allahabad and Calcutta High Court judgment. However, it was noticed that the quoted judgment pertains to section 36(1)(ii) and another is related to the sum payable by the employer in lieu of leave amount respectively. There for the facts of the quoted judgment were not similar with this case. Since the bonus amount remained unpaid till the date of filing return. In view of provisions cited above, this expenditure/provisions is liable to be disallowed. However, no disallowance has been made in assessment order. Due to that income was under assessed by Rs.16,52,15,683/- resulted in short levy of tax of Rs.7,46,88,558/- (30%+10%+3%) including interest of Rs.1,85,31,747/- u/s. 234B. Therefore, keeping in mind the above, I am satisfied that the income chargeable to tax has escaped assessment for A.Y. 2008-09.”
The A.O.’s adjudication is as under:
During the course of scrutiny proceedings, it is observed from clause 21(B) of 3CD report bonus amounting to Rs.56,28,38,981/- was paid before the due date for furnishing of the return u/s 139(1) out of Rs.72,80,54,664/- shown payable as on 31.03.2008 and the balance amount of Rs.16,52,15,683/- was remained to be paid before the filing of the return.
Section 43B(C) of the IT Act, 1961 provides that any sum referred to in clause (ii) of sub section (1) of section 36 shall be allowed only in computing the income referred to in section 28 of the previous year in which sum is actually paid. Further section 36(u) clarifies that any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profit or dividend if it had not been paid as bonus or commission."
Since section 36(u) specifically mentions that it includes any bonus paid to an employee by the employer, there for the bonus paid by the assessee covered under the said section and the said outstanding/payable bonus is covered u/s 43B of the IT Act, 1961. In view of the above, the balance amount of Rs,16,52,15,683/- is hereby disallowed and added back to the total income of the assessee. [Disallowance: Rs.16,52,15,683/-]
The ld. CIT(A) dismissed the challenge to validity of reopening by laconically holding that the assessee was not opposed to reopening of the case in initial stage and opposed merely because certain additional/disallowance has been done by the A.O. In this regard, we note the submission of the ld. Counsel of the assessee that the ld. CIT(A) has not at all adjudicated the issue raised. We note that the ld. CIT(A) has reproduced the objection to reopening by the assessee but has dismissed the same by holding as under:
5.3. I have considered the stand of the AO, submission of appellant and the facts and circumstances of the case. I have also considered the judicial pronouncements referred and relied upon by the appellant. It is seen that the AO re-opened the file by issuing notice u/ s.148 dated 30.03.2015 and the appellant in response vide letter dated 21.04.2015 submitted that the return of income filed by the assessee on 05.11.2009 may be treated as return of income filed in response to notice u/s.148 of the I T Act, 1961. Thus, it is a case where the appellant was not opposed to the re-opening of the case at the initial stage and has opposed merely because certain addition/ disallowance were made in the reassessment proceedings. It is altogether a different matter whether the disallowance/ addition made by the AO will be sustainable in the eyes of Law or not on merit but this itself cannot become a ground to deny jurisdiction of the AO on re-opening. In fact, the AO supplied the reasons for re-opening to the AO and the objections of the appellant were removed vide AOs order dated 21.02.2015. Thereafter, the appellant company has complied before the AO and the re-assessment was completed. In view of this the objection of the appellant at appellate stage cannot be sustained. Accordingly, the objections raised by the appellant on this issue are liable to be rejected. 8. From the above, we agree that the ld. CIT(A) has not adjudicated this issue on a mistaken finding that the assessee has not initially challenged the reopening. The fact of the case indicates that the assessee has challenged the reopening duly from the inception itself. Hence, it was incumbent upon the ld. CIT(A) to decide the issue of validity of reopening duly raised before him. In our considered opinion, the ld. CIT(A) has erred in not deciding the issue.
9. As regards the merits of the case, we note that the ld. CIT(A) has noted the submission of the assessee and observed as under:
According to AO because the bonus amount of Rs. 56,28,38,981/- was paid before the due date for furnishing of return u/s.139(1) out of Rs.72,80,54,664/-, which was shown as payable as on 31.03.2008 and because the balance amount of Rs.16,52,15,683/- remained to be paid before the filing of the return, the amount of Rs.16,52,15,683/- needed to be disa1lowed.Thus, the only objection of the AO is that the remaining amount of Rs.16,52,15,683/- cannot be allowed on accrual basis. During the proceedings before AO, the appellant had submitted certain judicial pronouncements namely, from Allahabad High court [CIT Vs. Raza Textiles Ltd (2005) 148 Taxmann 305/281 ITR 229 Allahabad]&Kolkatta High court [Exide Industries Ltd vs. Union of India (2007) 292 ITR 470 Calcutta], as reflected in internal page 44 of appellant's paper book marked as Annexure N attached to the Audited Accounts relevant for para 21(B)of 3CD report, to support that such payment of bonus to the employees are customary bonus and are not hit by section 43B. In so far as assessment order is concerned, the AO has not discussed the legal submission of the appellant at all. Further in AO's letter dated 21.08.2015 the AO has merely stated that the quoted judgements pertains to 36(1)(ii) and another is related to the sum payable by the employer in lieu of leave amount respectively and therefore, the case law did not apply in favour of the appellant.
10. Thereafter, he has produced the case law and finally concluded as under:
6.3.4 In view of the above facts as well as judicial pronouncements, it will be difficult to sustain the disallowance made by the A.O. Accordingly, the A.O. is directed to delete the disallowance of Rs.16,52,15,638/-.
Against the above order, the Revenue is in appeal before us and the assessee has filed the cross objection.
We have heard both the counsel and perused the records. As regards the challenge to reopening, we note that earlier the assessment order was passed u/s. 143(3) of the Act.
With regard to the issue of nature of outstanding payment due for bonus, there was a note in the tax audit report to the effect that the said amount was customary bonus not covered u/s. 43B(C) and in support of the Act, the case laws were submitted.
On these facts, where no disallowance was made in the assessment conducted u/s. 143(3) of the act, it cannot be said that there was either absence of any information or that the view adopted by the A.O. pursuant to those submissions was not possible one. In these circumstances, the reopening is not sustainable on both the planks, as to absence of fresh material and that this is clear case of change of opinion.
The material upon which the assessment is reopened is not fresh material but the accounts of the assessee and the noting of the auditor as mentioned above. By no stretch of imagination, it can be said to be a fresh material having live link to the formation of the A.O.’s belief that there was any escapement of income. Furthermore, the very fact that it has been duly made clear that the outstanding bogus was in the nature of customary bonus not covered u/s. 43B(C), there was no question of the same being subject to section 36(1)(ii) de hors any contrary finding by the A.O. It is settled law that the reopening on the basis of the change of opinion is not permissible under the Act. For this proposition, we placed reliance upon the Hon’ble Apex Court decision in the case of CIT vs. Foramer France (2003) 264 ITR 566 (SC).
Accordingly, the reopening of this case is held to be invalid and the assessment framed there-under is thus quashed.
As regards the merits of the case, it is duly noted that the assessee has submitted that the outstanding bonus was customary bonus and not filing u/s. 36(1)(ii) to come under the ambit of disallowance u/s. 43B(C). The assessee has quoted several case laws for the proposition that the customary bonus do not attract the rigors of provision of section 36(1)(ii) which are applicable to bonus payable under payment of Bonus Act.
Accordingly, we find that without giving a finding to the contrary in this regard, the A.O. has referred that the case laws quoted by the assessee were with regard to section 36(1)(ii) and, hence, not applicable. This is clearly a lack of application of mind by the A.O. The said case laws duly provide that the customary bonus do not attract the provision of section 36(1)(ii) and, hence, as a consequence they did not attract the disallowance u/s. 43B(C).
What the Revenue has submitted in the grounds of appeal is misconceived and not at all arising out of the order of the authorities below. The sole issue made out by the A.O. was that amount was to be disallowed u/s. 43B(C). There was no issue that the same has not accrued. By raising ground that the amount payable was not statutory, the Revenue is arguing against itself. When the amount payable is not statutory, it will not come under the ambit of Rule 36(1)(ii). Hence, there willl not be any question of disallowance u/s. 43B(C) then.
Hence, in the background of the aforesaid discussion and precedent, we also do not find any infirmity in the order of the ld. CIT(A) in which he has deleted the disallowance on merits.
In the result, this appeal filed by the Revenue is dismissed and the assessee’s cross objection stands allowed.
Order pronounced in the open court on 04.02.2019