Case Law Details
JCIT Vs S.V. Balasubramani HUF (ITAT Chennai)
Introduction: This article discusses an income tax appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-18, Chennai, dated 08.02.2023, related to the assessment year 2013-14. The appeal revolves around the disallowance of bonus payments and the disallowance of cash expenditure under section 40A(3) of the Income-tax Act, 1961.
Grounds of Appeal: The assessee raised several grounds of appeal, challenging the Commissioner of Income Tax (Appeals)’s order. The primary issues include the Commissioner’s decision to restrict the unproved bonus payments claim, the deletion of disallowance made under section 40A(3) for bonus payments, and the overall assessment of the bonus paid to employees.
Background: The assessee, engaged in the business of textiles and ready-made garments, filed its return of income for the assessment year 2013-14. The assessment was completed under section 143(3) of the Income-tax Act in 2021, with additions made for adhoc disallowance of bonus paid to staff and disallowance of cash expenditure exceeding prescribed limits under section 40A(3).
Assessment of Bonus Payments: The Assessing Officer disallowed a portion of the bonus paid to staff, asserting that the assessee failed to produce supporting evidence for a sum of Rs. 30,67,785 out of the total bonus paid. The Commissioner of Income Tax (Appeals) partially allowed the appeal, restricting the disallowance to 20% of the unproved amount. The article notes that the Revenue challenged this decision but failed to provide evidence countering the Commissioner’s findings. Consequently, the Tribunal upheld the Commissioner’s decision on this issue.
Disallowance under Section 40A(3): The Assessing Officer disallowed a sum of Rs. 42,52,095 under section 40A(3) for cash payments exceeding the prescribed limit for bonus payments. The assessee contended that although the bonus register indicated cash payments exceeding Rs. 20,000 on a single day, these payments were made on different dates. The Commissioner of Income Tax (Appeals) deleted the disallowance, citing the lack of proper verification by the Assessing Officer and the absence of comments from the tax auditor on the cash payments. The Tribunal agreed with the Commissioner’s findings, emphasizing the Assessing Officer’s failure to establish a case for disallowance.
Conclusion: In conclusion, the Tribunal dismissed the appeal filed by the Revenue, upholding the decisions made by the Commissioner of Income Tax (Appeals) regarding the adhoc disallowance of bonus payments and the deletion of disallowance under section 40A(3). The article provides insights into the grounds of appeal, the background of the case, and the Tribunal’s rationale for its decision.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-18, Chennai, dated 08.02.2023 and pertains to assessment year 2013-14.
2. The assessee has raised the following grounds of appeal:
“1. The order of the Id. Commissioner of I.T. (Appeals) is erroneous on facts of the case and in law.
2. The CIT(A) erred in restricting the unproved bonus payments claim disallowed amounting to Rs. 30,67,765/- to 20% of the disallowance on estimation basis, when the assessee could not furnish any details either before the AO or the CIT(A) establishing the said bonus payments in its entirety.
2.1 The Ld. CIT(A) erred in deleting addition made towards unproved bonus payment claims on the finding that due to lapse of time the records could not be produced by the assessee is misplaced since the assessee had not established the bonus payments even during the assessment proceeding before the Assessing Officer and the onus is on the assessee to prove all the expenses claims with supporting documents.
2.2 The Ld. CIT(A) erred in deleting addition made towards unproved bonus payment claims on the finding that the Assessing Officer had not disputed the bonus payment claims as high and exorbitant in the assessment order, without appreciating the findings of the Assessing Officer in para 3.3 of the assessment order, wherein it was clearly stated that the bonus claims amounts to 40% of the salary claims, which is abnormally high and exorbitant.
3. The Ld. CIT(A) erred in deleting the disallowance made u/s. 40A(3) of the IT Act, on the bonus payments amounting to Rs. 42,52,095/-, on the finding that the bonus payments were effected in piecemeal and in the audit report , there was no mention of any cash payments in violation of section 40A(3) of the IT Act, whereas the 40A(3) disallowance was quantified by the Assessing Officer based on the assessee’s own bonus payment register, and further the disallowance was made out of “Diwali Bonus” only.
3.1 The CIT(A) erred in deleting the disallowance made u/s. 40A(3) of the IT Act, on the bonus payments on the finding that the bonus payments incurred in cash in violation of section 40A(3) of the IT Act were not quantified in the Audit report, without appreciating the fact that, non quantification of the Cash payments in violation of the provisions of section 40A(3) of the IT Act, in the Audit report shall not vitiate the disallowance computed by the Assessing Officer, based on the entries in the assessee’s own books.
4. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of Id. CIT(A) may be set aside and that of the Assessing Officer be ”
3. The brief facts of the case are that, the assessee is engaged in the business of Textiles and readymade garments in the name and style of M/s. Veera’s Creations. The assessee has filed its return of income for the assessment year 2013-14 on 30.09.2013, admitting total income of Rs. 1,97,95,800/-. The assessment has been completed u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) on 09.2021 and determined total income of Rs. 2,73,15,680/- by inter alia, making additions towards adhoc disallowance of bonus paid to staff and disallowance of expenditure incurred in cash in excess of prescribed limit u/s. 40A(3) of the Act. The assessee carried the matter in appeal before the first appellate authority and the ld. CIT(A), for the reasons stated in their appellant order dated 08.02.2023, partly allowed appeal filed by the assessee, where the ld. CIT(A) restricted disallowance of bonus paid to staff to 20% of expenditure, without any supporting evidence and sustained additions to the extent of Rs. 6,13,557/- and deleted balance addition of Rs.24,54,228/-. The ld. CIT(A), had also deleted additions made by the Assessing Officer towards disallowance of bonus paid in cash u/s. 40A(3) of the Act, on the ground that the Assessing Officer has disallowed expenses u/s. 40A(3) of the Act, on vague ground without ascertaining as to how payments made for bonus comes under the provisions of section 40A(3) of the Act. Aggrieved by the ld. CIT(A) order, the revenue is in appeal before us.
4. The first issue that came up for our consideration from grounds of appeal filed by revenue is disallowance of bonus paid to employees amounting to 30,67,785/-. The Assessing Officer had disallowed sum of Rs. 30,67,785/- towards bonus paid to staff on the ground that, although the assessee has paid bonus of Rs. 1,44,25,720/-, but was able to produce bonus register and evidence for a sum of Rs. 1,13,57,935/- only. The balance sum of Rs. 30,67,785/- is not supported with necessary evidences.
5. None appeared for the We have heard the ld. DR and perused material available on record and gone through orders of the authorities below. Admittedly, the assessee could not produce necessary supporting evidence for balance amount of bonus paid to staff amounting to Rs. 30,67,785/-. It was the explanation of the assessee before the Assessing Officer that, due to lapse of time he could not file necessary evidence to justify payment of bonus, but fact remains that he had paid bonus to staff on two occasions. The ld. CIT(A), after considering relevant facts has recorded categorical finding that, because of lapse of time for more than 8 years, the assessee could not able to gather necessary evidences. Therefore, taking into account totality of facts and circumstances of the case, and also to meet the ends of justice, restricted disallowance to the extent of 20% of amount disallowed by the Assessing Officer. Although, the revenue has challenged findings of the ld. CIT(A) on adhoc disallowance of expenses, but could not adduce any evidence to counter the findings or facts recorded by the ld. CIT(A). Therefore, we are of the considered view that, there is no error in the reasons given by the ld. CIT(A) to restrict disallowance of bonus to the extent of 20% on actual expenditure disallowed by the Assessing Officer and thus, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the revenue.
6. The next issue that came up for our consideration from grounds of appeal filed by the revenue is deletion of disallowance of expenditure u/s. 40A(3) of the Act for 42,52,095/-. The Assessing Officer has disallowed a sum of Rs. 42,52,095/-, towards payment of bonus on the ground that the appellant has paid bonus in cash exceeding Rs. 20,000/- to a person in a day, contrary to provisions of section 40A(3) of the Act and thus, disallowed a sum of Rs. 42,52,095/- u/s. 40A(3) of the Act. It was the explanation of the assessee before the Assessing Officer that, although as per bonus register amount indicated against each employee shows cash payment in excess of Rs. 20,000/- on a single day, but payment has been made on different dates, which is less than the prescribed limit u/s. 40A(3) of the Act. The ld. CIT(A), after considering relevant facts and also taking note of fact that, the tax auditor has not made any comments on cash payments in excess of prescribed limit contrary to section 40A(3) of the Act, observed that the Assessing Officer without verifying necessary cash book to ascertain the quantum of payments has simply made disallowance with a vague observation on the basis of bonus register, ignoring the arguments of the assessee that cash payment in a single day to any person does not exceeded the prescribed limit as per the provisions of section 40A(3) of the Act. The findings of the facts referred by the ld. CIT(A) are uncontroverted by the revenue, except stating that the ld. CIT(A) has given relief on the basis of presumption and unqualified report from the tax auditor. In our considered view, when the Assessing Officer has failed to make out a case of disallowance of expenditure u/s. 40A(3) of the Act with proper reasons, no fault can be attributed to the findings of the ld. CIT(A), which is based on evidences filed by the assessee. Therefore, we are of the considered view that there is no error in the reasons given by the ld. CIT(A) to delete additions made towards disallowance of expenditure incurred in cash u/s. 40A(3) of the Act. Thus, we are inclined to uphold the findings of the ld. CIT(A) and reject grounds taken by the revenue.
7. In the result, appeal filed by the revenue is dismissed.
Order pronounced in the court on 01st November, 2023 at Chennai.
