2022 (11) TMI 1032 - AT - Income Tax

Deduction u/s 36(1)(ii) - deduction being bonus paid to employees - non-furnishing of fresh certificate from the Auditor - whether payment of bonus to employees cannot be equated with profits or dividend payable? - HELD THAT - On a perusal of the impugned order of learned Commissioner (Appeals), it is observed, though, the assessee contended that it is a mistake committed by the Auditor in mentioning the deduction claimed at column no. 16(a) of the Audit Report instead of clause 21(b). However, learned Commissioner (Appeals) declined to accept such claim of the assessee on the reasoning that the assessee failed to obtain a certificate from the Auditor acknowledging the mistake. However, before us the assessee has furnished certificate dated 15th February, 2019 issued by the same Auditor acknowledging the mistake in reporting the bonus paid to the employee. Of course, the assessee has filed the aforesaid document as additional evidence. As in case of M/s. Dalal Broacha Stock Broking Pvt. Ltd. 2011 (6) TMI 251 - ITAT, MUMBAI after analyzing the provisions of section 36(1)(ii) has held that any sum paid to an employee as bonus or commission for services rendered has to be allowed as deduction as the reasonableness of the payment or adequacy of services rendered by the employee are not relevant factors in deciding the allowability of deduction. The Bench has held that disabling provision of section 36(1)(ii), which provides that if the sum so paid is in lieu of profit or dividend applies only to employees who are partners or shareholders. In the facts of the present appeal, there is no finding that the employees are either partners or shareholders of the assessee. That being the case, assessee s claim has to be allowed. This ground is allowed. Addition u/s 68 - unsecured loan transactions - Admission of additional evidence denied by Commissioner (Appeals) - HELD THAT - In case, the assessee for some reasons was unable to furnish the evidences to prove the loan transaction before the Assessing Officer and produced the requisite documents by way of additional evidence before Commissioner (Appeals), they should not have been rejected, merely because, AO in the remand report observed that such evidences should not be admitted. There can be various factors which could have prevented the assessee from furnishing the requisite documents before the AO. However, if the assessee files such documents before Commissioner (Appeals), they should not be rejected on technicalities, considering the fact that such evidences may have a crucial bearing in deciding the issue - We are inclined to restore this issue to the file of the AO for fresh adjudication,considering the evidences filed by the assessee.

Summary

Issues:
1. Challenge to disallowance of deduction claimed under section 36(1)(ii) for bonus paid to employees.
2. Addition under section 68 for unsecured loan.

Analysis:

Issue 1: Disallowance of Deduction under section 36(1)(ii) for Bonus Paid to Employees
The assessee challenged the disallowance of Rs.27,26,550 claimed as a deduction under section 36(1)(ii) of the Income-tax Act, 1961 for bonus paid to employees. The Assessing Officer disallowed the amount, which was upheld by the Commissioner (Appeals). The counsel for the assessee argued that the deduction claimed was erroneously disallowed based on an inadvertent mistake in the Audit Report. The Auditor incorrectly mentioned the bonus as profits or dividends payable, leading to the disallowance. The assessee submitted a certificate from the Auditor acknowledging the mistake. The Tribunal noted that the Special Bench decision in M/s. Dalal Broacha Stock Broking Pvt. Ltd. case held that bonus or commission paid to employees should be allowed as a deduction under section 36(1)(ii) irrespective of the reasonableness of payment or services rendered. As the employees were not partners or shareholders, the disallowance was unwarranted. The Tribunal directed the Assessing Officer to verify the certificate and allow the deduction, ruling in favor of the assessee.

Issue 2: Addition under Section 68 for Unsecured Loan
The Assessing Officer added Rs.4,56,000 under section 68 of the Act as unexplained cash credit due to the assessee's failure to prove the genuineness of the loan transaction. Despite the assessee providing additional evidence such as bank statements and income tax returns before the Commissioner (Appeals), the evidence was not admitted. The Tribunal held that if the assessee could not furnish the necessary documents before the Assessing Officer but submitted them later, the evidence should not be rejected solely based on the remand report's observation. The Tribunal emphasized that technicalities should not hinder the admission of crucial evidence that could impact the decision. Consequently, the issue was remanded back to the Assessing Officer for fresh adjudication, with instructions to provide a fair hearing to the assessee.

In conclusion, the appeal was partly allowed, with both issues analyzed in favor of the assessee. The Tribunal's detailed analysis and application of legal principles ensured a fair adjudication of the disputed matters.