2019 (2) TMI 894 - AT - Income Tax

Reopening of assessment - 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. - Disallowance u/s. 43B being unpaid bonus - whether the unpaid performance bonus to employees and directors of the company is neither statutory nor paid on accrual basis? - Held that - 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 CIT(A) to decide the issue of validity of reopening duly raised before him. In our considered opinion, the CIT(A) has erred in not deciding the issue. 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 (1) TMI 101 - SUPREME COURT . 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 will not be any question of disallowance u/s. 43B(C) then. - Decided against revenue.

Summary

Issues Involved:
1. Validity of reopening assessment proceedings under section 147 of the Income-tax Act, 1961.
2. Merits of disallowance of unpaid bonus under section 43B of the IT Act.

Validity of Reopening Assessment Proceedings:
The reassessment notice was issued to tax unpaid bonus under section 43B, challenging both the validity of reopening and the merit of the addition. The reason for reopening was based on the tax auditor's report indicating that a balance amount of bonus remained unpaid before the filing of the return, leading to under-assessment. The Assessing Officer (A.O.) disallowed the outstanding bonus amount under section 43B, resulting in additional tax liability. The Commissioner of Income Tax (Appeals) dismissed the challenge to the validity of reopening, stating that the objection raised by the appellant at the appellate stage cannot be sustained. However, the Appellate Tribunal disagreed, noting that the appellant had challenged the reopening from the beginning, and the Commissioner erred in not deciding the issue of validity.

Merits of Disallowance of Unpaid Bonus:
Regarding the merits of disallowance, the A.O. disallowed the outstanding bonus amount under section 43B, citing that it was not paid before the due date for filing the return. The appellant argued that the bonus was customary and not subject to disallowance under section 43B(C), supported by case laws. The A.O. did not discuss the legal submissions of the appellant and upheld the disallowance. However, the Appellate Tribunal found that the disallowance was not sustainable based on the facts and judicial pronouncements presented. The Tribunal directed the A.O. to delete the disallowance of the outstanding bonus amount.

In conclusion, the Appellate Tribunal dismissed the Revenue's appeal and allowed the assessee's cross objection, holding that the disallowance of the unpaid bonus under section 43B was not justified. The Tribunal found no infirmity in the Commissioner's decision to delete the disallowance on merits, ultimately ruling in favor of the assessee.