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TMI Blog2024 (4) TMI 931X X X X Extracts X X X X X X X X Extracts X X X X ..... to settled law b. The said addition is against the decide cases of jurisdictional ITAT and others c. Without issuing a show cause notice of proposed disallowance u/s 36[1][ii] 2. In the facts and circumstances of the case and in law, the Assessing Officer erred in not following the instructions No.20/2015 dated 29.12.2015 issued by the Central Board of Direct Taxes in connection with scope of scrutiny assessment by a. Wrongly converting the limited scrutiny into a full scrutiny without appropriate approval. b. Wrongly making disallowance u/s 36[1][ii] even though Limited scrutiny was pertaining to payments u/s 40A[2][b] c. Wrongly exceeding scope of Limited Scrutiny 3. In the facts and circumstances of the case and in law, the Assessing Officer erred in initiating penalty u/s 271(1)(c) and also charging interest under section 234A, 234B, 234C and 234D. 4. In the facts of the case and in Law, the learned CIT(A) erred in confirming the disallowance of bonus of Rs. 1,92,00,000/-/- by rejecting the above said submissions without granting a physical hearing through Video Conferencing." 3. The issue arising in ground no.1 pertains to the disallowance of bonus paid to di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, and expertise. Hence, all out efforts are anyway expected from them to achieve higher growth for the company and even if no bonus is paid, they cannot be absolved of their responsibility of being the directors of the assessee company, for which they are duly compensated by way of remuneration, which during the year has increased to Rs. 60 lakh each, as against Rs. 54 lakh each during the preceding year. The AO further held that the assessee was having profits to the tune of Rs. 12,30,21,565/- including the bonus paid to the directors of Rs. 1.92 crore, which could have been distributed among the shareholders in the form of dividends. Thus, the AO held that the bonus paid to the directors of Rs. 1.92 crore, if had not been paid as a bonus, was clearly payable as a dividend to the shareholder directors. The AO further held that if the entire amount of Rs. 1.92 crore had been distributed as a dividend, then the assessee's income could have gone up by this amount and hence the assessee would have paid tax on this amount at 30%. Further, if the amount of Rs. 1.92 crore would have been paid as a dividend to the shareholders, the assessee would be also liable to pay dividend distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t under which the claim of the assessee has been denied in the present case. Section 36(1)(ii) of the Act reads as under: - "(ii) any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission;" 9. Therefore, for the allowability of deduction claimed u/s 36(1)(ii) of the Act, it is necessary that the sum is paid to an employee as a bonus or commission for services rendered. However, section 36(1)(ii) of the Act also carves out an exception to the allowability of the amount paid as bonus or commission and further provides that if such sum has not been paid as bonus or commission then, in that case, such sums would not have been payable to the employee as profits or dividend. Therefore, as per section 36(1)(ii) of the Act, payment of bonus or commission to an employee is allowable subject to the condition that the payment is not made in lieu dividend. Upon reading the provisions of section 36(1)(ii) of the Act in its entirety, it cannot be disputed that the shareholder-employee is also covered within its ambit. Ostensibly, in the present case, a sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sum of Rs. 1.92 crore paid as bonus to the directors is not payable to them as profit or dividend in the facts of the present case if it had not been paid to them as bonus or commission. 12. Further, from the perusal of the decision of the Special Bench of the Tribunal in Dalal Broacha Stock Broking (P.) Ltd. v. Addl. CIT, [2011] 11 taxmann.com 426 (Mumbai) (SB), relied upon by the AO, we find that in the facts of that case, it was noted that there is no evidence that the directors had rendered any extra services for payment of huge commission in addition to services rendered as an employee for which salary was paid. Further, the Special Bench noted that the commission was paid only in the years of exceptional profit and there was no continuous payment of commission every year to the directors. Accordingly, in the facts of the case, the Special Bench concluded that the dividend was payable and the same has been paid in the garb of commission, which is not allowable u/s 36(1)(ii) of the Act. However, in the present case, as per the assessee it had paid a bonus of Rs. 35 lakh each to the aforesaid directors in the preceding year, which was increased to Rs. 96 lakh in the year u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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