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TMI Blog1980 (6) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... onus set-on reserve account as per Bonus Act. The perusal of this in greater depth shows that the bonus which is only payable can be charged to the account of the assessee. the bonus which is not payable cannot be charged and claimed as expenses in the relevant assessment year. This amount which was also charged to the profit and loss account has been allowed as claimed by the assessee during the course of assessment. The perusal of the IT Act in greater depth shows that the deduction under the Act is to be allowed only to the extent of bonus payable under Bonus Act. Therefore, the amount payable or paid during the year as bonus to the employees can be allowed to the extent to which the same is paid or payable but not the provision or the set-on amount. Therefore, it is quite clear that the amount which has been transferred to the bonus set-on account for the year amounting to.... which is only a reserve, cannot be charged to the profit and loss account of the company and as such not an allowable expenditure. This matter has come to my notice from an investigation of the various materials on record and after research into the facts and various provisions of the law. The above being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the assessment years under appeal by way of written submissions made of 6th March, 1978. In the said written submissions the assessee, inter alia, contended that, "any reason which led you to believe that our income chargeable to tax for the above assessment year has escaped assessment within the meaning of s. 147 of the IT Act, 1961, was, however, neither disclosed in your above notice nor during discussions in the matter." It was also contended before the ITO at the re-assessment stage that, (i) the notice issued under s. 148 was bad in law, since there was no income which has escaped assessment: (ii) proceedings initiated under s. 147(b) are not based on any information which came into possession of the Department subsequent to the making of the original assessment, since all the material facts and informations required for the assessment were there on the record at the time of passing original assessment order; (iii) that the income which is said to have escaped assessment and for which re-assessment proceedings have been started has already been considered in subsequent assessment year; (iv) that the liability which has been provided has arisen out of Bonus Act and it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d has since been accepted by the Department after having been given due thought and consideration. 8. The re-assessments in the case of the assessee were finalised vide orders of assessments made for all the assessment years under appeal on 20th July, 1978 and the ITO revised the originally assessed income of the assessee company for all the three assessment years. An amount of Rs. 2,26,059 for the asst. yr. 1972-73, Rs. 3,92,355 for the asst. yr. 1973-74 and Rs. 6,97,002 for the asst. yr. 1975-76 were added in the originally assessed income, in lieu of, "amount credited to 'bonus set-on' reserve account". The ITO in framing the reassessment reasoned that, the assessee company is in the habit of creating a reserve, namely, 'bonus set-on reserve' charging the profit and loss account, over and above the bonus payable for the previous year. The 'bonus set-on reserve' is created according to the provisions of s. 15 of the Payment of Bonus Act, 1965. The permissible reserve is created for the purpose of falling upon the same if necessary, when there is small profit or no profit to pay bonus to the employees under the Bonus Act. If the reserve is not utilised within the period as spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the above provisions of law were totally different, hence the facts of the case and the ratio of the decision of the Andhra Pradesh High Court has had no bearing on the facts of the assessee's case. He further observed that in the case of Kalyanji Mavji Co., the Supreme Court have observed that the word information as found out in s. 34(1)(b) of 1922 Act, was of the widest amplitude and comprehends a variety of factors, nevertheless, the power under s. 34(1)(b) of the 1922 Act, however wide it may be, is not plenary because discretion of the ITO is controlled by the words "reason to believe". Where, however, the ITO gets no subsequent information, but merely proceeds to re-open the original assessment without any fresh fact or material or without any enquiry into the materials which form part of the original assessment, s. 34(1)(b) would have no application. As regards the decision of the Calcutta High Court, the CIT (A) observed, that Their Lordships have observed that, "in a case where the ITO on his own initiative and on materials which were before him at the time of the original assessment changed his opinion and came to a different conclusion, he would not be acting on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond appeals before us, as such we are seized of the matter. 14. The assessee has taken the following five substantive grounds which are common to all the assessment years. "1. That the order was bad in law in as much as the reopening proceedings under s. 147(b) were misconceived, irregular and invalid. 2. That the ld. officer erred in facts and in law in issuing a notice under s. 148 and reopening the assessment merely on the basis of fresh application of his mind to an old and regularly discussed issue and the order under s. 143(3)/147 read with s. 144B was illegal and without jurisdiction. 3. That the reasons for reopening were not valid and the records of different assessment years would show positive evidence and materials that the question was gone into before original assessments and the reopening did not satisfy the requirements of law. 4. That the ld. officer erred in facts and in law in disregarding the regular method of accounting regularly employed by the appellant company and the ld. officer could not overrule the mandatory provisions of s. 145(1) and could not reject the method on the basis of an unreasonable interpretation. 5. That the bonus set-on reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H' Ward, and Others, 1978 CTR (Cal) 210 : (1979) 119 ITR 629, apart from relying upon the ratio of the decision of the Supreme Court in the case of Kalyanji Mavji Co. vs. CIT, West Bengal II (1976) 102 ITR 287 (SC). Shri Chattopadhyay further contended that the decision of the Gauhati Bench since relied upon by the learned CIT (A) while deciding the cases of the assessee on merits, was made while relying upon the order dated 11th May., 1978 made by the Tribunal 'B' Bench, Calcutta, in the case of Express Cables Ltd., whereby reference application under s. 256(1) of the Act was rejected by the Tribunal, but subsequently Their Lordships of the Calcutta High Court on an application made by the assessee Express Cables Ltd. under s. 256(2) of the Act have required the ITAT to state the case and to refer it to the Hon'ble Calcutta High Court for its opinion, and, accordingly, the reference application made by the assessee was allowed to the extent as above. Shri Chattopadhyay in the light of this fact has tried to make out a case that under s. 256(2) of the Act, the High Court requires the Tribunal to state that a case and refer it in the High Court only when the High Court is not sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee be accepted on the preliminary objection as to the applicability of the provisions of law under s. 147(b) of the Act, as also on merits since regular method of accounting within the meaning of s. 145 of the Act could not be disturbed by the ITO as there was no basis that the real commercial profits for the accounting period relevant to the assessment years under appeal could not have been computed from the method regularly employed by the assessee 16. On his part, Shri B.N. Sarma Barthakur, the ld. Departmental Representative placed strong reliance on the observations and findings of the lower authorities and contended that real enquiries having not made at the time of the original assessments, the facts of the cases in appeal before us warrant application of s. 147(b) of the Act, and for the purpose he relied upon the ratio of the decision in the case of Kalyanji Mavji Co. vs. CIT, West Bengal-II 1976 CTR (SC) 85 : 102 ITR 287 (SC), in the case of Indian and Eastern Newspaper Society 119 ITR short note 21 (SC) and in the case of Indian and Eastern Newspaper Society vs. CIT (1979) 12 CTR (SC) 190. 17. We have given our due and thoughtful consideration to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1,85,200.00 . . 6,32,371 Add: For the year . 3,92,355 . . 10,24,726 1972-73 (1974-75) . Less: Set-on of 1968-69 utilised for payment of Bonus . 2,06,032 . . 8,18,694 Add: For the year. . Nil . . 8,18,694 1973-74 (1975-76) . Less: Written back of 1969-70 to P L a/c . 2,00,280 . . 6,18,414 Add: Set-on for the year . 6,97,002 . . 13,15,416 1974-75 (1976-77) . Less: Written back of 1970-71 to P L a/c . 2,26,059 . . 10,89,357 Add: For the year . 7,36,915 . . 18,26,272 1975-76 (1977-78) . Less: Written back of 1971-72 to P L a/c . 3,92,355 . . 14,33,917 Add: For the year . 62,479 . . 14,96,346 1976-77 (1978-79) . Less: From set-on of 1973-74 Rs. 5,88,346 has been utilised f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . . 1,25,000 (4) . . . . 60,000 (6) 7. 1,00,000 2,50,000* (inclusive of 1,25,000 from year 4 and 25,000 from year-6) Nil Set on 35,000 (6) 8. Nil 50,000 ** (inclusive of 35,000 from year-6) Set off 15,000 Set off 15,000 (8) 9. 10,000 50,000** Set off 40,000 15,000 (8) . . . . 40,000 (9) 10. 2,15,000 1,60,000 (after setting of 15,000 from year 8 and 40,000 from year-9) Nil Nil . Notes : *Maximum. + The balance of Rs. 1,10,000 set on from year-2 lapses. **Minimum". 21. The claim of the assessee as to this "bonus set-on reserve" has since been allowed by the ITO while computing the total income of the assessee right from the asst. yr. 1966-67 onward, of course, after discussion, since all the printed balance-sheets and profit and loss accounts since filed by the assessee at the assessment stage and before the lower authorities shown this head of 'bonus set-on reserve' as expenses and all the details as to these expenses-head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en debited to "Account Establishment" as because the allocable surplus is an incurred liability of the Company. This entire allocable surplus under the Bonus Act shall not be distributed to staff in one year but out of this incurred liability i.e., allocable surplus a maximum of 20 per cent of salary is permitted to distribute to employees in one year under s. 11 of the Bonus Act and the excess, if any, shall, subject to a limit of 20 per cent of Salary, be carried forward for being set-on in the succeeding accounting year and so on upto and inclusive of the Fourth accounting year for the purpose of payment of bonus. As stated above allocable surplus is a determined liability of the company and shall be paid either in the succeeding year or in any subsequent year/s in which there will be no allocable surplus or the allocable surplus falls short of the amount of minimum bonus payable to the employees." 23. The assessment was completed in the case of the assessee for the said asst. yr. 1970-71 and the claim of the assessee on the score of 'bonus set-on reserve' was allowed. 24. Again, the said subject-matter of 'bonus set-on reserve' has been a subject-matter of enquiries and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e" payable by an employer to his employees, and, as such, no part of the same is disallowable under the IT Act. (ii) The computation of allocable surplus as well as the set-on reserve, for facilitating payment of bonus in the 'Lean Years' is governed by the Payment of Bonus Act, 1965, read with the Third and Fourth Schedules to the said Act, and the IT Act plays no part in the same. The company is under a statutory obligation under s. 15 of the Payment of Bonus Act, 1965, to make necessary provisions for set-on out of allocable surplus payable to the extent required under the said Act. It is, therefore, a determined liability, under the law as it presently stands. which the company is bound to meet, and the contravention of any of the provisions of the Act, or any rule made thereunder, or any direction given, or requisitions made under the Act, is a punishable offence. (iii) The ITO has laid stress on the fact that the set-on reserve for the year is not an allowable deduction, the same not constituting to be a statutory liability for bonus payable during the year. The interpretation of the ITO, it has been contended, is not correct, as what has been laid down in the 1st proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paid by the statute", and it would be deemed to be part of the expenditure for that accounting year. The addition of Rs. 7,36,915 is, therefore, deleted from the appellant's total income." 25. The said order of the AAC having been appealed against, by the Revenue, this Bench of the ITAT at Gauhati reversed the finding of the AAC relying upon the ratio of the decision of the ITAT 'B' Bench Calcutta, in the case of Express Cables Ltd. The ITAT 'B' Bench Calcutta, refused the reference application of the assessee Express Cables Ltd. Made under s. 256(1) of the Act, but on a further application having been made with the High Court under s. 256(2) of the Act, the High Court has since directed the ITAT 'B' Bench, Calcutta, to draw up a statement of the case and Refer the questions to the High Court for its esteemed opinion. We on our part, have also allowed a reference application under s. 256 (1) of the Act, since moved by the assessee-company against our order made in the case of the assessee, where we have held the 'bonus-set on reserve' where not to be an allowable deduction relying on the ratio of the decision of the ITAT, 'B' Bench, Calcutta, in the case of Express Cables Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter has since been considered by the lower authorities and the assessee has been showing and declaring and claiming deduction on the score 'bonus set-on reserve' right from the accounting period 1964-65 relevant to the asst. yr. 1966-67 and has been declaring and showing it distinctly in its printed balance sheet and profit and loss accounts. 30. On the above stated facts, it cannot be said that the ITO has in consequence of information in his possession, reasons to believe, that the income chargeable to tax has been escaped assessment for any assessment year since the above stated facts do not warrant any such inference. 31. Since this is a finding of fact based on the above stated facts (which have neither been controverted by the assessee nor by the Revenue), we do not feel inclined to discuss the various case law on the point because the facts are pure and simple and the inference that can be drawn is irresistably factual. 32. "That as there was no evidence of any information subsequently coming into the possession of the ITO, s. 147(b) of the Act was not attracted. The fact that a subsequent ITO having jurisdiction over the file took a different and perhaps a more co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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