2011 (12) TMI 667 - AT - Income Tax

ITAT remands appeal for reassessment of bonus provision, assessee must prove liability

The ITAT allowed the appeal for statistical purposes, remanding the matter back to the Assessing Officer for the assessment year 2007-08. The assessee was ... Provision for bonus - ascertained liability - computation of book profit under section 115JB - allocable surplus under the Payment of Bonus Act, 1965 - burden of proof on the assessee - remand for fresh considerationProvision for bonus - ascertained liability - allocable surplus under the Payment of Bonus Act, 1965 - computation of book profit under section 115JB - burden of proof on the assessee - Addition of provision for bonus of Rs. 12,18,627/- to book profits under section 115JB remanded for fresh adjudication by the Assessing Officer - HELD THAT: - The Assessing Officer treated the provision for bonus debited to the profit and loss account as an unexplained liability and added it while computing book profit under section 115JB. The assessee asserted the provision represented a liability under the Payment of Bonus Act, computed at 20% of eligible salary, and produced subsequent-year tax-audit evidence showing the amount was paid. No contemporaneous working showing allocable surplus under the Payment of Bonus Act was placed before the authorities to demonstrate that the liability was ascertained as on 31-03-2007. The Tribunal held that to establish the provision as an ascertained liability the assessee must show the amount of allocable surplus for the year to justify the 20% provision; mere payment in the subsequent year is insufficient to prove the liability was certain on the balance-sheet date. However, in view of the absence of proper representation before earlier authorities, the Tribunal found a bona fide case and directed that the matter be restored to the file of the Assessing Officer for fresh decision. The Tribunal placed the onus on the assessee to bring forward evidence (including allocable surplus calculations under the Payment of Bonus Act or other relevant material) and directed the AO to decide the claim afresh after providing the assessee a reasonable opportunity of being heard. [Paras 5]Order of the Commissioner (Appeals) set aside on this issue and matter remitted to the Assessing Officer for fresh adjudication, with the burden on the assessee to produce evidence establishing the provision as an ascertained liability.Final Conclusion: Appeal allowed for statistical purposes; the addition of the provision for bonus to book profits under section 115JB is remitted to the Assessing Officer for fresh decision after the assessee furnishes evidence to establish an ascertained liability and after affording a reasonable hearing. Issues involved: Appeal against addition of provision for bonus to book profits u/s 115JB for assessment year 2007-08.Summary:The appeal was directed against the order of the Ld. Commissioner of Income-tax (Appeals)-VI, Baroda for the assessment year 2007-08. The assessee contested the addition of Rs. 1,218,627 as provision for bonus to the book profits u/s 115JB. The Assessing Officer deemed this amount as an unexplained liability and made the addition while computing the book profit. The assessee argued that the provision was made in accordance with the Payment of Bonus Act and applicable accounting standards, with no uncertainty. The matter was brought before the ITAT for further appeal.The ITAT noted that the assessee failed to provide evidence to establish the provision for bonus as a certain liability. The assessee was required to demonstrate the allocable surplus as per the Payment of Bonus Act to prove that the provision was for an ascertained liability. Despite the equal amount being paid in the subsequent year, it was deemed insufficient to establish certainty at the time of making the provision. However, considering the lack of proper representation before the authorities below and the absence of relevant queries from the Assessing Officer, the ITAT granted the assessee another opportunity to substantiate the provision as a certain liability. The burden was placed on the assessee to provide necessary evidence, and the matter was remanded back to the Assessing Officer for a fresh decision.In conclusion, the appeal of the assessee was allowed for statistical purposes, and the order was pronounced in Open Court on 09/12/2011.