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1980 (6) TMI 66
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....et-on for the year amounting to... is only provisions for bonus transferred to the bonus set-on reserve account as per Bonus Act. The perusal of this in greater depth shows that the bonus which is only payable can be charged to the account of the assessee. the bonus which is not payable cannot be charged and claimed as expenses in the relevant assessment year. This amount which was also charged to the profit and loss account has been allowed as claimed by the assessee during the course of assessment. The perusal of the IT Act in greater depth shows that the deduction under the Act is to be allowed only to the extent of bonus payable under Bonus Act. Therefore, the amount payable or paid during the year as bonus to the employees can be allowed to the extent to which the same is paid or payable but not the provision or the set-on amount. Therefore, it is quite clear that the amount which has been transferred to the bonus set-on account for the year amounting to.... which is only a reserve, cannot be charged to the profit and loss account of the company and as such not an allowable expenditure. This matter has come to my notice from an investigation of the various materials on record ....
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.... and for which proceedings under s. 147(b) were taken. 7. The assessee re-joined the issue with the ITO for all the assessment years under appeal by way of written submissions made of 6th March, 1978. In the said written submissions the assessee, inter alia, contended that, "any reason which led you to believe that our income chargeable to tax for the above assessment year has escaped assessment within the meaning of s. 147 of the IT Act, 1961, was, however, neither disclosed in your above notice nor during discussions in the matter." It was also contended before the ITO at the re-assessment stage that, (i) the notice issued under s. 148 was bad in law, since there was no income which has escaped assessment: (ii) proceedings initiated under s. 147(b) are not based on any information which came into possession of the Department subsequent to the making of the original assessment, since all the material facts and informations required for the assessment were there on the record at the time of passing original assessment order; (iii) that the income which is said to have escaped assessment and for which re-assessment proceedings have been started has already been considered in subs....
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..... yr. 1970-71 and also in all subsequent years and all these facts appeared and emerged from record and the method has since been accepted by the Department after having been given due thought and consideration. 8. The re-assessments in the case of the assessee were finalised vide orders of assessments made for all the assessment years under appeal on 20th July, 1978 and the ITO revised the originally assessed income of the assessee company for all the three assessment years. An amount of Rs. 2,26,059 for the asst. yr. 1972-73, Rs. 3,92,355 for the asst. yr. 1973-74 and Rs. 6,97,002 for the asst. yr. 1975-76 were added in the originally assessed income, in lieu of, "amount credited to 'bonus set-on' reserve account". The ITO in framing the reassessment reasoned that, the assessee company is in the habit of creating a reserve, namely, 'bonus set-on reserve' charging the profit and loss account, over and above the bonus payable for the previous year. The 'bonus set-on reserve' is created according to the provisions of s. 15 of the Payment of Bonus Act, 1965. The permissible reserve is created for the purpose of falling upon the same if necessary, when there is small profit or n....
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.... and not under s. 147(b) of the Act, and accordingly, he opined that conditions governing the jurisdiction of the ITO under the above provisions of law were totally different, hence the facts of the case and the ratio of the decision of the Andhra Pradesh High Court has had no bearing on the facts of the assessee's case. He further observed that in the case of Kalyanji Mavji & Co., the Supreme Court have observed that the word information as found out in s. 34(1)(b) of 1922 Act, was of the widest amplitude and comprehends a variety of factors, nevertheless, the power under s. 34(1)(b) of the 1922 Act, however wide it may be, is not plenary because discretion of the ITO is controlled by the words "reason to believe". Where, however, the ITO gets no subsequent information, but merely proceeds to re-open the original assessment without any fresh fact or material or without any enquiry into the materials which form part of the original assessment, s. 34(1)(b) would have no application. As regards the decision of the Calcutta High Court, the CIT (A) observed, that Their Lordships have observed that, "in a case where the ITO on his own initiative and on materials which were before ....
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....he assessee got no relief and on those scores also the assessee failed. 13. Still aggrieved, the assessee has come up in second appeals before us, as such we are seized of the matter. 14. The assessee has taken the following five substantive grounds which are common to all the assessment years. "1. That the order was bad in law in as much as the reopening proceedings under s. 147(b) were misconceived, irregular and invalid. 2. That the ld. officer erred in facts and in law in issuing a notice under s. 148 and reopening the assessment merely on the basis of fresh application of his mind to an old and regularly discussed issue and the order under s. 143(3)/147 read with s. 144B was illegal and without jurisdiction. 3. That the reasons for reopening were not valid and the records of different assessment years would show positive evidence and materials that the question was gone into before original assessments and the reopening did not satisfy the requirements of law. 4. That the ld. officer erred in facts and in law in disregarding the regular method of accounting regularly employed by the appellant company and the ld. officer could not overrule the mandatory provis....
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....38 : (1978) 115 ITR 465, CIT, West Bengal vs. Jiyajeerao Cotton Mills Ltd. (1978) 118 ITR 72 (Cal) and Smt. Rajeswari Birla vs. WTO, 'H' Ward, and Others, 1978 CTR (Cal) 210 : (1979) 119 ITR 629, apart from relying upon the ratio of the decision of the Supreme Court in the case of Kalyanji Mavji & Co. vs. CIT, West Bengal II (1976) 102 ITR 287 (SC). Shri Chattopadhyay further contended that the decision of the Gauhati Bench since relied upon by the learned CIT (A) while deciding the cases of the assessee on merits, was made while relying upon the order dated 11th May., 1978 made by the Tribunal 'B' Bench, Calcutta, in the case of Express Cables Ltd., whereby reference application under s. 256(1) of the Act was rejected by the Tribunal, but subsequently Their Lordships of the Calcutta High Court on an application made by the assessee Express Cables Ltd. under s. 256(2) of the Act have required the ITAT to state the case and to refer it to the Hon'ble Calcutta High Court for its opinion, and, accordingly, the reference application made by the assessee was allowed to the extent as above. Shri Chattopadhyay in the light of this fact has tried to make out a case that under s. 256(2) of ....
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....ng to Shri Chattopadhyay these notices were mechanical and were not conforming to the requirements of law. He prayed that the appeals of the assessee be accepted on the preliminary objection as to the applicability of the provisions of law under s. 147(b) of the Act, as also on merits since regular method of accounting within the meaning of s. 145 of the Act could not be disturbed by the ITO as there was no basis that the real commercial profits for the accounting period relevant to the assessment years under appeal could not have been computed from the method regularly employed by the assessee 16. On his part, Shri B.N. Sarma Barthakur, the ld. Departmental Representative placed strong reliance on the observations and findings of the lower authorities and contended that real enquiries having not made at the time of the original assessments, the facts of the cases in appeal before us warrant application of s. 147(b) of the Act, and for the purpose he relied upon the ratio of the decision in the case of Kalyanji Mavji & Co. vs. CIT, West Bengal-II 1976 CTR (SC) 85 : 102 ITR 287 (SC), in the case of Indian and Eastern Newspaper Society 119 ITR short note 21 (SC) and in the case of....
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.... of Bonus . 2,06,032 . . 8,18,694 Add: For the year. . Nil . . 8,18,694 1973-74 (1975-76) . Less: Written back of 1969-70 to P&L a/c . 2,00,280 . . 6,18,414 Add: Set-on for the year . 6,97,002 . . 13,15,416 1974-75 (1976-77) . Less: Written back of 1970-71 to P&L a/c . 2,26,059 . . 10,89,357 Add: For the year . 7,36,915 . . 18,26,272 1975-76 (1977-78) . Less: Written back of 1971-72 to P &L a/c . 3,92,355 . . 14,33,917 Add: For the year . 62,479 . . 14,96,346 1976-77 (1978-79) . Less: From set-on of 1973-74 Rs. 5,88,346 has been utilised for payment of Bonus due to insufficient allocable surplus . . .. . 5,88,346 . . 9,08,050 1977-78 (1979-80) Less: Balance set-on of 1973-74 Rs. 1,08,656 and part of 1974-75 has been utilised for Payment of Bonus due to insufficient allocable surplus . 7,33,872 . . 1,74,178 1978-79 (1980-81) . Less: Balance set-on of 1974-75 Rs. 1,11,699 and full set-on of 1975-76, Rs. 62,479 has been utilised for paymen....
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....ce filed by the assessee at the assessment stage and before the lower authorities shown this head of 'bonus set-on reserve' as expenses and all the details as to these expenses-head is found out in these printed balance-sheets and profit and loss accounts. 22. During the assessment proceedings for the asst. yr.. 1970-71, vide letter No. I-2/A/70-71/17862, dt., 9th Dec., 1970, the ITO, A-Ward, Gauhati made specific enquiries as to the subject-matter 'bonus set-on reserve' in the following words: "A sum of Rs. 2,06,032.14 has been credited during the year. Please give the meaning of the bonus set-on reserve. Giving year-wise break-up, please show in which account the same had been debited from year to year and also the basis of creating such reserve. Presumably this reserve was kept for lean years and if so please state why the same should be allowed in computation of income for the year in which the reserve was credited." To the above query, the assessee has rejoined the issue with the ITO as to the subject-matter of 'bonus set-on reserve' vide assessee's letter dt. 11th Jan., 1971, in the following terms: "That the meaning of "set-on Reserve" is that where for any accou....
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....s allowed. 24. Again, the said subject-matter of 'bonus set-on reserve' has been a subject-matter of enquiries and the claim was negatived at the assessment stage, but at the first appellate stage, vide orders dt. 27th Dec., 1977 made in appeal No. 82-K & J/77-78, relating to the asst. yr. 1976-77, the AAC Shillong Range, Shillong, deleted the addition made on the above score and the claim of the assessee at Rs. 7,36,915 was allowed. The AAC held as under: "The next point of appeal is against the addition of a sum of Rs. 7,36,915 made by the ITO in respect of the 'Bonus set-on Reserve." It is seen from the accounts of the appellant company that the Bonus set-on Reserve is as below: Up to 1973-74 Rs. 13,15,416 Less: Set-on 1970-71 Rs. 2,26,059 . Rs. 10,89,357 Add: Set-on for the year Rs. 7,36,915 . Rs. 18,26,272 It is in respect of this set-on for the year under reference amounting to Rs. 7,36,915 that the ITO made this addition on the ground stated by him in the assessment order, as it has been held by him that the said amount of bonus does not constitute to be 'bonus payable in the year' within the meaning of s. 36(1)(ii) of the IT Act, 1961.....
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....een contended, is not correct, as what has been laid down in the 1st proviso to s. 36(1)(ii) is that the same should be "the deduction in respect of bonus paid to an employee employed in a factory or other establishment to which the provisions of the Payment of Bonus Act, 1965 (Act XXI of 1965) apply", which "shall not exceed the amount of bonus payable under the Act". The set-on reserve being a statutory liability under the Payment of Bonus Act, the same, therefore, constitutes to be "Bonus payable under that Act." (iv) The appellant follows mercantile system of accounting and, as such, has adopted the above principle of "Bonus payable," as per the provisions of the Bonus Act, which deductions claimed by the appellant in the profit and loss account have been allowed in the past assessments, and the ITO, in the instant assessment, has deviated from the principles followed in the earlier assessments. It has been contended that under the mercantile system, if a business liability has definitely arisen in the accounting year, a deduction should be allowed although the liability may pertain to earlier year, or may have to be discharged at a future date and the cost of discharging it....
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.... decision of the ITAT, 'B' Bench, Calcutta, in the case of Express Cables Ltd. 26. So far so good, the cases for the assessment years under appeal have been re-opened under s. 147(b) of the Act and the reasoning as stands reproduced above in para No. 3 speaks of, that the officer taking action under s. 147(b) has 'perused the subject-matter in greater depth', and accordingly 'the matter has come to his notice from an investigation of the various materials on record and after research into facts.' 27. The subject-matter, that is, 'bonus set-on reserve' is being maintained in the manner reproduced as above in the books of accounts of the assessee-company since the accounting year 1964-65 relevant to the asst. yr. 1966-67 and all along the assessee has been claiming this deduction under distinct and separate head, 'bonus set-on reserve' and this head has been shown in the printed books of balance-sheet and profit and loss account of the assessee regularly from year to year. The said subject-matter 'bonus set-on reserve' has since been a subject of detailed enquiries during the assessment proceedings for the asst. yr. 1970-71 and the claim was allowed at the assessment stage, ....