TaxTMI 
TaxTMI 
2025 (3) TMI 1369
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.... provide confirmations called for from M/s Jagannath Agro to confirm authenticity of transactions. 3. Further, Ld.CIT(A) ignored the statement on oath given by Shri Shhailabh Khandelwal wherein he admitted that M/s Jagannath Agro provided accommodation entries on commission by bogus sales which includes receiving payments through banking channels and giving back cash to parties. He also stated that M/s Jagannath Agro does not have any real business. 4. Any other grounds that may arise during the hearing will be submitted before Hon'ble ITAT with kind permission. 3. The brief facts of the case are that the assessee, M/s Rohini Minerals Private Limited is engaged in the business of production and sale of poultry feeds. The assessee has filed its return of income for the A.Y.2014-15 on 30.09.2014, declaring total income of Rs. 9,08,72,987/-. The assessment has been subsequently, reopened u/s 147 of the Income Tax Act, 1961 ("the Act") for the reasons recorded, as per which, the information available with the department reveals that during the F.Y.2013-14, relevant to A.Y.2014-15, the assessee had made purchases to the tune of Rs. 2,20,81,719/- from M/s Jagannath A....
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....nsport bills for transportation charges paid against purchases and also copies of bank statements to prove the payment made through proper banking channel. The assessee further submitted that merely on the basis of third party statement, no addition can be made, unless the statement of third party is provided to the assessee and also an opportunity of cross examination with the person who gave adverse statement against the assessee. The Ld.CIT(A) after considering the relevant submissions of the assessee and also taking note of various evidences filed by the assessee, including relevant purchase bills and lorry receipts, observed that although the AO doubted the genuineness of purchases from M/s Jagannath Agro Ltd., in light of statement of Shri Shailabh Khandelwal, but the fact remains that the assessee has filed relevant evidences to prove the purchases are genuine, which are supported by necessary evidences. Further, the assessee had also proved that it has reported total turnover of Rs. 622 crores as against this, its total purchases was at Rs. 536,78,09,897/-. The AO has doubted the purchases to the tune of Rs. 2.36 crores that too on the basis of statement of third party, but....
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....Courts/Income- tax Tribunals of the Country, including the jurisdictional tribunal of Hyderabad, have delivered its judgments estimating income from Nil to 10-15% of the amount of such bogus purchases/unproved purchases depending upon the peculiar facts and circumstances of each case. The income embedded in bogus purchase/unproved purchase has been estimated by the judicial authorities as a percentage of such purchases. However, in case the Assessing Officer has not made any independent inquiry and has made the addition on the basis of third party report, total addition has been deleted by the judicial authorities. 6.6. Reference is placed upon the judgment of Hon'ble Bombay High Court in the case of Principal Commissioner of Income-tax vs. Vaman International (P.) Ltd. [2020] 422 ITR 0520 (Bom) wherein, on similar facts, the AO solely relying on the statement of a third party made addition on account of bogus purchases without any inquiry made by him to bring on record any evidence to prove his allegation of bogus purchase, Hon'ble High Court deleted the entire addition made by the Assessing Officer. 6.6.1. Hon'ble Bombay High Court in the above case held tha....
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....without further scrutiny. 6.8. Hon'ble Bombay High Court in the case of Commissioner of Income-tax vs. Nikunj Eximp Enterprises (P.) Ltd. [2013] 35 taxmann.com 384/216 Taxman 471 (Mag.)/[2015] 372 ITR 0619 (Bom) deleted the addition made by the Assessing Officer for bogus purchase. The assessee had filed letter of confirmation of seven suppliers, copies of bank statement reflecting the entries of payment through account payee cheques to suppliers, copies of invoices for purchase and detail of stock inventory. The sales in the above case were not doubted since these had been made to a government department namely Advance Research and Development Laboratory. 6.8.1. Hon'ble court also held that merely because the suppliers had not appeared before the Assessing Officer or CIT (Appeals), it could not be concluded that the purchases were not made and the addition made was deleted. 6.9. Hon'ble Bombay High Court in the case of Principal Commissioner of Income-tax v. Nitin Ramdeoji Lohia - [2022] 145 taxmann.com 546 has held that the AO had not finished the investigation in the case and had not looked into the affidavits and confirmation letters submitted by ....
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.... directed to delete the addition of Rs. 2,36,00,792/- made on this account. Accordingly, Grounds on this issue succeed." 6. Aggrieved by the order of the Ld.CIT(A), the Revenue is now in appeal before the Tribunal. 7. The Ld.Sr.AR, Shri Srinath Sadanala submitted that the Ld.CIT(A) erred in holding that the purchases made from M/s Jagannath Agro to the tune of Rs. 2,36,00,792/- is genuine, without appreciating the fact that Shri Shailabh Khandelwal in his statement recorded u/s 131 of the Act has admitted that the above company provide accommodation entries on commission basis. Although the AO has brought out above facts in the assessment order, in light of information available with the department, coupled with the statement recorded from Shri Shailabh Khandelwal, but the Ld.CIT(A) allowed relief to the assessee, only on the ground that no contrary evidence has been brought on record to disbelieve the evidences filed by the assessee. Therefore, he submitted that the order of the Ld.CIT(A) should be set aside and the addition made by the AO should be sustained. 8. Shri S.K.Gupta, learned Counsel for the assessee, on the other hand, referring to statement recorded from Shri....
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....the basis of third party statement, no additions can be made, more so, in the case, where the said statement was not confronted to the assessee company for its comments and cross examination. In the present case, the AO made additions towards purchases, merely, on the basis of statement of third party i.e. Shri Shailabh Khandelwal, without providing his statement to the assessee for its rebuttal and also cross examination contrary to the settled principle of law. Therefore, in our considered view, unless the statement is given to the assessee, no additions can be made on the basis of third party statement. 10. Coming back to the purchases made by the assessee from M/s Jagannatha Agro Ltd. Admittedly, the assessee had made purchases of Rs. 2,36,00,792/- from M/s Jagannath Agro Ltd. and to justify the purchases from the above company, furnished all evidences including purchase bills and supporting transportation bills. The AO, in principle, accepted that the assessee has submitted bills and transport bills, but rejected the argument of the assessee, only on the ground that in few transport bills name of the consigner and consignee is missing. In our considered view, based on few i....
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....dences to prove the genuineness of the purchases, in our considered view, the AO is erred in making addition only on the basis of statement of third party. The Ld.CIT(A) has rightly deleted the additions made by the AO. Thus we are inclined to uphold the order of the Ld.CIT(A) and delete the additions made by the AO. 12. In the result, appeal filed by the Revenue for the A.Y.2014- 15 is dismissed. ITA No.1080/Hyd/2024, A.Y.2015-16 13. The facts and issues involved in this appeal are identical to the facts and issues, but for the figures, which we had considered in ITA No.1079/Hyd/2024 for the A.Y.2014-15. The reasons given by us in preceding Para Nos.7 to 9 shall mutatis mutandis apply to this appeal as well. Therefore, for similar reasons, we are inclined to uphold the findings of the Ld.CIT(A) and dismiss the appeal filed by the Revenue. ITA No.980/Hyd/2024, A.Y.2018-19 14. The Revenue has raised the following grounds of appeal : 1. The Ld.CIT(A), NFAC erred in law and facts by holding payment of Rs. 25,00,00,000/- as bonus ignoring Sec.36(1)(ii) of the Income Tax Act. 2. The Ld.CIT(A), NFAC wrongly accepted the claim of assessee company regarding....
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....ieu of dividend. Bonus payment was a device for tax evasion. The directors had distributed dividend in the form of bonus and therefore, payment was covered by the exceptions provided in section 36(1)(ii) of the Act. The assessee has not made any bonus payment in the earlier years and also not explained, why suddenly huge bonus payment has been made to the Directors for the year under consideration. Therefore, observed that although the assessee contends that payment of bonus to the Directors is for the services rendered, but the fact remains that the payment is distribution of dividend, which falls under the provisions of 36(1)(ii) of the Act. Therefore, disallowed the bonus payment of Rs. 25 crores to two directors u/s 36(1)(ii) of the Act. 16. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has filed detailed written submissions on the issue, which has been reproduced at para 7 on pages 5 to 10 of the order of the Ld.CIT(A). The sum and substance of the argument of the assessee before the Ld.CIT(A) are that the payment of bonus to two directors is in terms of contractual agreement for services r....
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....mpany on the profit, if at all bonus payment was not paid and the tax paid by the Directors in their individual hands, it is tax neutral exercise, because, in both, the profit or income is at maximum marginal rate. Therefore, held that the AO erred in disallowing bonus of Rs. 25 crores u/s 36(1)(ii) of the Act and thus, directed the AO to delete the additions towards payment of bonus to Directors. Relevant findings of the Ld.CIT(A) are as under : "8. The instant appeal is against the order under section 143(3) r.w.s.143(3A) and 143(3B) of the I.T.Act, 1961 dated 17.03.2021 and the grounds of appeal are against the addition of Rs. 25,00,00,000/- on account of performance bonus paid to the directors of the appellant company. Since the grounds are inter-linked, the same are adjudicated together. 8.1 As per the Assessment Order, the brief facts of the case are that the appellant company is engaged in the business of Production and Sale of Poultry feed and filed return of income declaring total income of Rs. 18,72,95,310/-. The case of the appellant company was picked up in scrutiny, in course of which the AO examined the issue of payment of Rs. 25,00,00,000/- as perfo....
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....oyee shareholder and such payment of bonus was in lieu of dividend and the claim of deduction will not be allowable under section 36(1)(ii)". But, the AO failed to appreciate that the payment of performance bonus to the two directors of the appellant company was in no way a sharing of profits of the company but on account of acknowledgement of the services rendered to the company for which the performance bonus was paid apart from the salary paid to them and it was not in-lieu of dividend as no such payment was made to the other shareholders. I also find that in the assessment order the AO has not brought out as to how the above amount was paid as bonus in lieu of dividend but for merely stating the same. On the other hand, the appellant has furnished copy of Board Resolution of the Board meeting dated 20.06.2018, which clearly supports the decision of payment of performance bonus in addition to the existing remuneration for the stated reasons. The Board Resolution clearly states that "in view of increased growth both in turnover and profits of the company due to the efforts of the directors for many years and also increased responsibilities of the directors, the chairman proposed ....
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....has been paid on the above amount in the hands of the directors and therefore, there is no tax evasion on account of the above payment of performance bonus to the employee directors. 8.5. It is also noted that the appellant has relied upon various judicial pronouncements to support its above claim and the gist of the decisions brought out in the written submissions has been extracted in the preceding para. I also find that the Honorable Delhi High Court in the case of Carrier Launcher India Ltd., vide order dated 19.04.2012 while granting relief to the assessee has observed "held that it was not disputed regarding bonus (a) that the payment was supported by board resolutions and (b) that none of the directors would have received the lesser amount of dividend than the bonus paid to them, having regard to the shareholdings. Further, the directors are full time employees of the company receiving salary. Taking all these facts into consideration, it would appear that the bonus was a reward for their work, in addition to the salary paid to them and was in no way related to their shareholding. It was deductible u/s.36(1)(ii)". 8.6. In the case of AMD Metplast Pvt. Ltd. ....
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....o delete the above disallowed. Accordingly, the grounds are Allowed." 18. Aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before the Tribunal. 19. Shri B.Bala Krishna, Ld.CIT-DR submitted that the Ld.CIT(A) erred in holding that the payment of performance bonus does not fall under the provisions of 36(1)(ii) of the Act, ignoring the provisions, which clearly stated that any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profit or dividend, then the same falls under the provisions of section 36(1)(ii) of the Act. The Ld.CIT-DR further submitted that although the assessee files relevant evidences and proves payment of performance bonus for services rendered to the company, but the AO has brought out clear facts and analysis that the performance of the company, when compared to earlier years has come down, which is evident from drastic decrease in turnover. Therefore, the argument of the assessee that the bonus is paid on performance of the Directions is devoid of merit. The Ld.CIT-DR further referring to section 11 of the Payment of Bonus Act, 1965 ("the Bonus Act") submitted that the ....
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....income including bonus payment by the assessee company at maximum marginal rate. These are undisputed facts. Therefore, issue of disallowance of performance bonus to Directors under the provisions of section 36(1)(ii) needs to be examined, whether, this bonus payment is part of salary for rendering service to the company or any sum paid to an employee as bonus or commission for services rendered where, such sum would not have been payable to him as profit or dividend, if it had not been paid as bonus or commission. 22. The provisions of section 36(1)(ii) of the Act, deals with deduction provided for while computing profits or gains from business or profession and as per the said provision, any sum paid as bonus or commission for services rendered, where, such sum would not have been payable to him as profit or dividend is not allowable as deduction. A plain reading of the provisions makes it very clear that, bonus will not be allowed, only if such sum paid to an employee as bonus or commission for services rendered where, such sum would not have been payable to him as profit or dividend. In the present case, the assessee has made out a case that performance bonus paid to its Dir....
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....dered by two of its Directors has resulted in substantial growth and profitability of the company. Therefore, in our considered view, once the bonus payment is part of remuneration payable to an employee or director as per contractual understanding between the company and the employee and the said bonus is part of their remuneration, in our considered view, the AO cannot press into service, the provisions of section 36(1)(ii) of the Act, merely for the reason that the said payment is huge and the assessee has not made out a case for payment of such huge amount to any employee. Further, the assessee has also filed relevant evidences and proved that the company has deducted TDS on payment of bonus to Directors as part of remuneration as per applicable TDS provisions of the Act and also the Directors have filed their returns of income and paid taxes at maximum marginal rate on their total income, which includes performance bonus received and on going through the income tax returns filed by both the directors, we find that both of them have paid taxes on MMR on total amount of performance bonus received from the appellant company. Therefore, in our considered view, if we go by the rate....