Ponnusamy Raja Vs ITO (ITAT Chennai)
In the case of Ponnusamy Raja vs. Income Tax Officer (ITO), the Chennai bench of the Income Tax Appellate Tribunal (ITAT) addressed the disallowance of a ₹2.26 lakh bonus by the Assessing Officer (AO). The AO had treated this amount as a dividend, not a business expense, based on an error in the assessee’s audit report under Section 44AB of the Income Tax Act, 1961.
The issue arose because the tax audit report, specifically in Form 3CD, Column 20(a), had incorrectly stated that the bonus was a payment “otherwise payable as profit or dividend.” As a result, the AO disallowed the deduction, a decision that was later upheld by the Commissioner of Income Tax (Appeals), or CIT(A). During the original assessment, the taxpayer, Ponnusamy Raja, had claimed that the entry was a mistake due to “oversight” and that the bonus was genuinely paid to employees. However, the taxpayer was unable to provide a new certificate from the chartered accountant (CA) to correct the error at that time.
Before the ITAT, the taxpayer’s legal counsel presented a new certificate from the CA. This document clarified that the initial audit report contained a mistake and that the ₹2.26 lakh was indeed a bonus paid to employees, not a dividend or profit distribution. The ITAT noted that the AO’s disallowance was solely based on the audit report’s error and the absence of a corrective document during the assessment.
