2021 (12) TMI 868 - AT - Income Tax

Addition made towards Bonus Payable, Salaries and Cash credits in capital account - HELD THAT - As submitted that the bonus was paid during the months of April May, 2013 i.e. on 30/04/2013, 10/05/2013 30/05/2013. The assessee had furnished Annexure 1, in which the details of employees, amounts paid signature without the date of payment. The reason has taken by the CIT(A) for confirming the addition that date of payments were not mentioned, is not sufficient to dismiss the ground. He ought to have made an enquiry with the employees who have got the payment of bonus whether the have received the payment of bonus, of so, on what dates. CIT(A) failed to do so. As per the details submitted before us on 23/11/2021 the bonus has been paid on 30/04/2013, 15/05/2013 and 30/05/2013, which is much before the filing of return of income u/s 139(1). Therefore, we set aside the order of the CIT(A) and direct the AO to allow the assessee s claim of bonus. Disallowance of expenditure on sales - AO disallowed 10% of the salary expenditure on the ground that the appellant did not provide identification documents of few employees as requested by him - HELD THAT - Assessee failed to provide the complete identification documents of the employees and has submitted on 23/11/2021 only for 24 employees. Therefore, to meet the ends of justice, we restrict the disallowance to 8% of the salary expenditure of ₹ 1,16,16,589/- as against 10% disallowed by the revenue authorities. Accordingly, ground No. 4 is partly allowed. Unexplained investment - CIT(A) confirmed the addition observing that in the course of appellate proceedings - HELD THAT - Considering the facts noted by the lower authorities that the amounts were not entered in the cash book, we uphold the findings of the lower authorities with regard to the addition to capital account of the assessee. Thus, we uphold the order of CIT(A) and dismiss the ground No. 5 of the assessee

Summary

Issues:
1. Addition of bonus payable, salaries, and cash credits in capital account.
2. Disallowance of bonus and salaries.
3. Unexplained investment in capital account.

Analysis:

Issue 1: Addition of Bonus Payable, Salaries, and Cash Credits in Capital Account
- The appeal was against the CIT(A)'s order confirming the addition of ?28,01,659 made towards Bonus Payable, Salaries, and Cash credits in the capital account for AY 2013-14 under section 143(3) of the Income Tax Act, 1961.
- The appellant argued that the bonus outstanding amounting to ?15,75,000 was paid before the due date of filing the return of income, making it allowable under section 36(1)(ii) of the Act. The appellant contended that the addition towards Bonus payable was incorrect as the bonus was paid within the allowed time.
- The Tribunal found that the bonus was indeed paid before the due date for filing the return of income, and hence, directed the AO to allow the claim of bonus amounting to ?15,75,000. Ground No. 3 was allowed.

Issue 2: Disallowance of Bonus and Salaries
- The AO disallowed ?11,61,659 as an ad hoc disallowance of 10% of salaries without proper material or evidence on record.
- The CIT(A) upheld the disallowance stating that the appellant did not provide identification documents of employees to prove the genuineness of the payments.
- The Tribunal noted that the appellant failed to provide complete identification documents of employees. To ensure justice, the disallowance was reduced to 8% of the salary expenditure, amounting to ?1,16,16,589. Ground No. 4 was partly allowed.

Issue 3: Unexplained Investment in Capital Account
- An amount of ?65,000 was treated as unexplained investment as it was not supported by documentary evidence and added to the returned income.
- The CIT(A) confirmed the addition as the capital addition was not backed by any documentary evidence.
- The Tribunal upheld the lower authorities' findings as the amounts were not recorded in the cash book, dismissing the appellant's argument that the credits may relate to cash withdrawals for business purposes. Ground No. 5 was dismissed.

Conclusion:
- The appeal was partly allowed with regards to the bonus and salaries disallowance, while the addition of unexplained investment in the capital account was upheld. The Tribunal's decision was pronounced on 26th November 2021.