2016 (12) TMI 233 - AT - Income Tax

Disallowance u/s 43B on account of bonus - Held that - The amount of incentive is being paid to the extent of salary. In such circumstances, where the said payment has been made in majority as equivalent to the salary due, cannot be termed as bonus. This is an incentive which has been paid by the assessee out of his business consideration and would not partake the nature of bonus, merely because the nomenclature applied by the assessee is bonus. The second aspect is that the said amount allegedly claimed as bonus has been credited to the accounts of employees and nothing is shown as payable in the books of account by the assessee. In the entirety of the above said facts and circumstances, there is no merit in applying the provisions of section 43B of the Act which are strictly applicable to the payment of bonus. The nature of payment made by the assessee to the employees is not bonus and is not covered under the Bonus Act and hence, no merit in disallowance of expenditure claimed by the assessee. Accordingly, the Assessing Officer is directed to allow the claim of assessee in entirety. - Decided in favour of assessee

Summary

Issues:
Disallowance of bonus under section 43B of the Income-tax Act, 1961.

Analysis:
The appellant contested the disallowance of bonus amounting to ?9,40,000 under section 43B of the Act. The appellant argued that the bonus was credited to employees' accounts through journal entries, indicating payment. The appellant highlighted that the bonus was not listed as a liability in the balance sheet, implying it was paid. Moreover, employees confirmed receiving the bonus. However, the Assessing Officer disallowed the amount, stating it was not actually paid. The CIT(A) referred to section 43B and emphasized the requirement of actual payment by the due date. Since the appellant failed to provide proof of payment with the return of income, the CIT(A) upheld the disallowance.

The appellant further contended that the bonus was debited to the Profit & Loss Account and credited to employees' accounts, making it beyond their control once credited. The appellant argued that the Bonus Act did not apply due to employing less than 20 individuals, treating the payment as an incentive. The appellant highlighted employees' tax disclosures and TDS deductions as proof of payment. The appellant also argued that section 36(1)(ii) did not specify cash or cheque payments for bonus deductions. The Tribunal noted that the payment, labeled as bonus, was more akin to an incentive, not covered by the Bonus Act. Since the amount was credited to employees' accounts without showing as payable, the Tribunal found no merit in applying section 43B, directing the Assessing Officer to allow the claim fully. Consequently, the appellant's grounds of appeal were accepted, and the appeal was allowed.

In conclusion, the Tribunal ruled in favor of the appellant, allowing the appeal against the disallowance of the bonus amount under section 43B of the Income-tax Act, 1961.