The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) ruled that any sum filed to the employee as a bonus or commission for the services furnished required to be permitted as a deduction.
The bench of Saktikit Dey sees that the reasonableness of the payment or the sufficiency of services provided by the employee would not be the related factor in selecting the permission for the deduction.
The disabling provision of section 36(1)(ii) furnished that “if the sum so paid is in lieu of profit or dividend,” the same would be applicable to the employees who are partners or shareholders.
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A taxpayer is a resident person. For the assessment year beneath the conflict, the taxpayer has furnished the income return showing an income of Rs 13,50,327. For assessment proceedings, the assessing officer validating the income return and the financial statements revealed that the taxpayer would be involved in the business of furnishing the placement along with the contract labour services and providing manpower solutions according to the need.
Complying with the audit report he revealed that the taxpayer has availed the deduction of Rs 27,26,550 as a bonus furnished to the employees. As per the view, the same payment would revoke the provision that comprises under section 36(1)(ii) of the Income Tax Act, and he disallowed the amount. The disallowance incurred was maintained by the Commissioner (Appeals).
The taxpayer, the department mistakenly concluded that the deduction claimed does revoke section 36(1)(ii). In the audit report, the auditor in Column 16(1) mistakenly specified the amount was subject to get paid to the employees as profits and dividends. The disallowance shall incur on the mistakes that have been done unintended. The bonus payment to the employees shall not be equal to the profits or dividends subjected to be paid.
ITAT ruled that there was no finding that the employees were either taxpayers’ partners or shareholders. The taxpayer’s claim was permitted by the tribunal.
| Case Title | Sh. Karam Singh Malik Vs ITO |
| Citation | ITA No.4614/Del/2019 |
| Date | 25.10.2022 |
| Counsel For Appellant | CA Suresh Anand |
| Counsel For Respondent | Sr. DR Om Parkash |
| Delhi ITAT | Read Order |
