1983 (10) TMI 93 - AT - Income Tax

Summary

Issues:
- Disallowance of bonus paid by the assessee
- Interpretation of provisions of the Bonus Act, 1975
- Customary bonus payment by the assessee
- Commercial expediency in bonus payment

Analysis:
The appeal was filed by the assessee against the deletion of the disallowance of bonus paid by the CIT (A). The assessee claimed a deduction for bonus paid amounting to Rs. 3,48,337, but the ITO restricted the allowance to 4 percent as per the Bonus Act, resulting in a disallowance of Rs. 1,99,781. The assessee contended that the Bonus Act does not specify a maximum limit for bonus payment above 4 percent, citing the protection of worker interests and a ceiling of 20 percent for maximum bonus. The assessee argued that the payment of bonus at 8.33 percent was customary and necessary for maintaining good employee relations. The CIT (A) agreed with the assessee, stating that there is no provision limiting bonus to 4 percent, and upheld the deletion of the disallowance.

The Revenue appealed the CIT (A) order, arguing that the Bonus Act clearly limits bonus payment to 4 percent. The Departmental representative contended that the CIT (A) erred in deleting the disallowance based on the Bonus Act and the Supreme Court decision in a specific case. The assessee's counsel reiterated previous arguments and relied on relevant case law to support their position. After hearing both parties, the ITAT upheld the CIT (A) order, emphasizing that the Bonus Act mandates a minimum bonus of 4 percent without specifying a maximum limit. The ITAT agreed with the assessee's claim of customary bonus payment at 8.33 percent and upheld the deletion of the disallowance based on the principle established by the Supreme Court.

In conclusion, the ITAT dismissed the Departmental appeal, affirming the CIT (A) decision to delete the disallowance of bonus paid by the assessee. The ITAT held that the bonus payment at 8.33 percent was in line with customary practices and not restricted by the Bonus Act, thereby justifying the deletion of the disallowance.