Discrepancy in bonus figures under s.36(1)(ii) remanded; tax, if any, to avoid s.115BBE after fresh verification of Form 3CD

ITAT Kolkata set aside the addition made under s.36(1)(ii) on account of discrepancy in bonus/commission figures between the ITR and Form 3CD. The assessee contended that the difference arose from wrongful reporting in the tax audit report and produced a paper book to support this claim. ITAT held that the issue required fresh examination and remitted the matter to the AO to verify whether the reporting in Form 3CD was erroneous. If found incorrect, the AO must delete the addition and not subject the amount to tax under s.115BBE, applying normal rates instead. The appeal was allowed for statistical purposes.

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1. ISSUES PRESENTED AND CONSIDERED

(1) Whether the disallowance of bonus payment under section 36(1)(ii) of the Act, based on discrepancies between the return of income, profit and loss account and tax audit report (Form 3CA/3CD), was justified.

(2) Whether, in the facts of the case, the amount added on account of such discrepancy could be subjected to tax under section 115BBE or should be assessed at normal rates.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Disallowance of bonus under section 36(1)(ii) on the basis of discrepancy between ITR, P&L account and Form 3CA/3CD

Interpretation and reasoning

The case was selected for limited scrutiny to verify bonus/commission payments to employees. The Assessing Officer noted that Schedule OI of the return of income showed NIL bonus, the profit and loss account reflected bonus of Rs. 4,54,966/-, and the tax audit report (Form 3CA) mentioned bonus of Rs. 3,08,839/-. Relying on this discrepancy and absence of explanation during assessment, the Assessing Officer added Rs. 4,54,966/- to income. The appellate authority confirmed the addition on the basis of an auditor's certificate stating that the bonus figure in the audit report was wrongly mentioned and that the corrected figure, in line with the ITR, was NIL, thereby treating the bonus claim as ineligible.

Before the Tribunal, the assessee contended that during the relevant previous year it had in fact paid bonus of Rs. 3,08,839/- to employees and charged Rs. 4,54,966/- to the profit and loss account, and that at Sl. No. 20(a) of Form 3CD the figure of Rs. 4,54,966/- was erroneously shown instead of NIL for disallowance purposes, which led to the addition. The assessee produced a paper book to substantiate that the reporting in Form 3CD was a mistake and that the bonus was genuinely paid to employees and not in lieu of dividend or profits.

The Tribunal observed that the central controversy turned on whether there was wrongful reporting in Form 3CD which had directly resulted in the impugned addition. In view of the assessee's explanation and supporting material, the Tribunal considered that this aspect required a fresh factual examination by the Assessing Officer rather than being concluded purely on the earlier, possibly erroneous, figures.

Conclusions

The Tribunal held that the matter requires reconsideration. The issue was remitted to the Assessing Officer to examine afresh whether the bonus figure was wrongly mentioned in Form 3CD, and if so, to delete the addition of Rs. 4,54,966/-. The grounds relating to the disallowance under section 36(1)(ii) were allowed for statistical purposes.

Issue (2): Applicability of section 115BBE to the addition arising from the bonus discrepancy

Interpretation and reasoning

The assessee additionally submitted that the Assessing Officer should not treat the impugned sum for computation of income under section 115BBE and that, if at all taxable, it should be taxed at the normal rate. The Tribunal noted this contention in the context of the primary dispute regarding the correctness of the bonus figure reported in Form 3CD and the consequent addition.

Since the fundamental factual question as to whether the addition itself was warranted was being remitted for fresh examination, the Tribunal considered that the tax rate issue under section 115BBE should also be revisited by the Assessing Officer depending on the outcome of such factual verification.

Conclusions

The Tribunal directed that upon fresh examination of the bonus claim and the correctness of Form 3CD reporting, the Assessing Officer shall also reconsider whether section 115BBE is at all attracted, and, if not, apply the normal rate of tax as applicable. This aspect too was restored to the Assessing Officer and the relevant ground was allowed for statistical purposes.

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