Penalty not levaiable on Management Bonus not offered to tax as books of company not finalised

In this case the bonus was determined after finalisation of accounts in the month of September 2009. The same related to income for the period ended 31st March 2009. The company which is the employer of the assessee did not deduct TDS of the said income till filing of income tax return by the assessee.

In this factual scenario assessees belief that the management bonus did not accrue for the period ending 31st of March 2009 cannot be said to be lacking bonafide.  In such situation assessee cannot be held guilty of furnishing inaccurate particulars of income or concealment of income. Further more the conduct of the assessee cannot be held to be contumacious so as to warrant levy of penalty.

Brief facts of the case

The appellant, a resident individual, is a Director of M/s. Fairdeal Multimedia Pvt. Ltd. and M/s. Fairdeal Studios Pvt. Ltd. He furnished his return of income for A.Y.2009-10 on 26.02.2010 disclosing total income of Rs.5,65,43,162/-, as noted in the assessment order. The A.O. completed the assessment u/s.143(3) on 24.10.2011 assessing total income at Rs.5,84,80,710/-. In the said assessment order dated 24.10.2011, the A.O. has observed that the appellant had received the management bonus of Rs.19,37,552/- from M/s. Fairdeal Multimedia Pvt. Ltd. but had not offered the said management bonus for taxation. He confronted the appellant vide office order-sheet entry dated 11.10.2011 and obtained appellants reply. In his reply, the appellant has stated that ….”The audit of the Fairdeal Multimedia was completed in the September month and hence the amount was also determined only at the end of the September. Again as the TDS on the management bonus was not paid by the company there was a delay in receiving the TDS certificate by me and by that time my computation was finalized by my accountant and hence this particular of income escaped to be shown in the Taxation. However, the entire amount of TDS on this management bonus was deducted and paid by the company and as such there was no tax which has escaped to be paid in this transaction. Moreover the said item of income was appropriately disclosed in my balance sheet and I honestly declared the same to the assessing officer at time of the assessment.

The A.O. added the said management bouns of Rs.19,37,552/- received by the appellant from M.s/ Fairdeal Multimedia Pvt. Ltd. to the total income of the appellant for the reasons discussed in the relevant assessment order. He also initiated penalty proceedings u/s. 274(1)(c) of the Act. The A.O. levied a penalty of Rs. 6,58,573/- on income of Rs.19,37,552/.

Ld. CIT-A upheld the penalty, placing inter-alia reliance upon Hon’ble Apex Court decision in the case of Dharamendra Textile

Held by ITAT

We have heard both the counsel and perused the records. We find that in this case the bonus was determined after finalisation of accounts in the month of September 2009. The same related to income for the period ended 31st March 2009. The company which is the employer of the assessee did not deduct TDS of the said income till filing of income tax return by the assessee. In this factual scenario assessees belief that the management bonus did not accrue for the period ending 31st of March 2009 cannot be said to be lacking bonafide.

In such situation assessee cannot be held guilty of furnishing inaccurate particulars of income or concealment of income. Further more the conduct of the assessee cannot be held to be contumacious so as to warrant levy of penalty. This proposition is also supported by the decision rendered by the larger bench of Hon’ble Apex Court in the case of Hindustan steel Ltd vs state of Orissa 83 ITR 26. The decision of apex court in the case of Dharmendra Textile referred by Ld. CIT-A does not support the case of revenue at all.

In the background of aforesaid discussion and precedents we set aside the order of authorities below & delete the penalty.

Penalty on non-finalised Management Bonus not offered to tax