TBWA ANTHEM PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

In the course of the assessment proceedings, AO noted that assessee has shown bonus payable amounting to Rs. 10,12,264/- and has only added back amount of Rs. 4,21,608/- in the computation of income. In response to the show cause notice, assessee informed that the amount which has been added back and disallowed is 8.33% bonus which was as per the Bonus Act 1965 and balance is ex gratia to each staff. AO held that the balance sum of Rs. 5,90,656/- is disallowable u/s 43B. On the same disallowance, AO has levied the penalty of Rs. 2,00,763/- on the ground that assessee has claimed incorrect expenses. Ld. CIT (A) too has confirmed the said penalty on the ground that such an ex gratia payment cannot be allowed u/s 37(1), because it has to be reckoned as a payment u/s 43B(c) which covers the payment of any sum referred to in section 36(1(ii).

None appeared on behalf of the assessee despite service of notice; therefore, we are disposing of the appeal on the basis of merits and after hearing the arguments placed by the Ld. DR.

After considering the submissions made by the Ld. DR as well as the finding given in the impugned order, we find that on merits the disallowance has been made simply on the ground that the amount of payment of bonus which is exceeding the limit of 8.33% as per the Bonus Act has been treated as ex gratia by the assessee which has been claimed u/s 37(1). AO has invoked the provision of section of 43B(c) holding that such a difference of Rs. 5,90,656/- falls within the ambit of scope of 43B r.w.s. 36(1)(ii). However it has not been pointed out by him that such an ex-gratia payment, whether falls within the provision of Bonus Act or not; or whether such a payment made to its labourers and staff was not during the course of carrying on the business or for commercial expediency. Section 43B creates an artificial or deemed disallowance if not paid within the prescribed date. If an expenditure has incurred during the course of business which otherwise is revenue expenditure, then it cannot be held such a claim of expenditure is bogus or non-genuine. Here the payment has been treated as ex-gratia by the assessee which otherwise is allowable but AO has treated it as part of bonus and brought within the scope of section 43B denied simply because the AO has tried to bring such payment within the scope of section 43B, this action of the AO does not lead to an inference that either the assessee has furnished inaccurate particulars of income or has made any false claim. Even if such ex-gratia payment is in excess of the limit prescribed under the payment under Bonus Act or u/s 36(1)(ii), but same being in the nature of business expenditure cannot be held that claim of such expenditure warrants any levy of penalty u/s 271(1)(c). In fact the decisions cited by the Ld. CIT(A) in his impugned orders are all in favour of the assessee which is evident from the following judicial decisions as quoted in para 5:-

Once in aforesaid judgments ex-gratia payment over and above the sum as contemplated u/s 36(1)(ii) has been held to be deductible, then we do not find reason as to why penalty should be levied on such.

In the result the appeal of the assessee is allowed.