1981 (9) TMI 188 - AT - Income Tax

Tribunal allows appeal on bonus payments but upholds disallowance of unexplained cash credits.

The Tribunal allowed the appeal concerning the disallowance of excess bonus paid to staff, determining that the bonus payments were in accordance with ... Bonus Issues:1. Disallowance of excess bonus paid to staff.2. Treatment of unexplained cash credits.3. Disallowance of advance received from a creditor.Analysis:Issue 1: Disallowance of excess bonus paid to staffThe assessee-firm was involved in manufacturing and selling cashew kernel, declaring a net income for the assessment year 1977-78. The Income Tax Officer (ITO) scrutinized the bonus payments made by the firm, noting discrepancies in the bonuses paid to staff at different branches. The ITO found the bonus paid to staff at the Vetapalem head office to be unreasonably high compared to their salaries. The ITO allowed a bonus at 8.33% of the salaries paid to workers as per the Bonus Act, disallowing the excess amount paid to staff. The Commissioner (Appeals) directed the ITO to investigate the bonus payments further and restrict the allowance to the amount specified by the Payment of Bonus Act, 1965. The appellant argued that the bonus was paid as per agreements with staff and should be allowed under commercial expediency. The Tribunal held that the bonus paid was in accordance with agreements and commercial practices, allowing it as a deduction.Issue 2: Treatment of unexplained cash creditsThe ITO found cash credits in the names of various persons in the firm's account books, including a credit of Rs. 10,500 in the name of a specific individual. Despite investigations and statements obtained, the ITO deemed the credit as unexplained income of the assessee and assessed it under 'Income from other sources.' The Commissioner (Appeals) upheld this decision, stating that the sources of the credit were not satisfactorily explained. The appellant contended that the creditor had provided a sworn statement confirming the advance. However, the Tribunal affirmed the decision of the ITO and the Commissioner (Appeals) regarding the treatment of unexplained cash credits.Issue 3: Disallowance of advance received from a creditorThe appellant challenged the disallowance of an advance received from a specific creditor, arguing that the creditor had provided a sworn statement confirming the advance. The Tribunal noted the appellant's contentions but upheld the decision of the Commissioner (Appeals) and the ITO, stating that the sources of the credit were not adequately explained. The Tribunal supported the view that the advance represented undisclosed income of the assessee and was correctly assessed under 'Income from other sources.'In conclusion, the Tribunal allowed the appeal regarding the disallowance of excess bonus paid to staff, while upholding the treatment of unexplained cash credits and the disallowance of the advance received from a creditor.