Cash Payment of Bonus to Employees: ITAT deletes Income Tax Penalty [Read Order]

The Chandigarh Bench of the Income Tax Appellate Tribunal ( ITAT ) comprising Judicial Member Diva Singh held in favour of the assessee and set aside the order quashing the penalty imposed.

According to the facts submitted, there were two types of payments made by the assessee for which the present action has been invoked. Referring to the same, it was submitted, that it would show that most of these payments have been made for repair and maintenance of the machinery on account of break-downs etc. and the remaining payments have been made as bonus payments to the employees.

The assessee, Lakhwinder Singh Panag, engaged in the business of sand mining and running crushers etc. contended that the payments were made on holidays, saturdays or sundays.

The assessee also submitted that he is not a habitual offender. The payments made, it was submitted, were genuine payments for business and now the assessee has made arrangements to ensure that the payments made for breakdown etc. of machinery are also accepted through banks.

The department representative, on the contrary, relied on the impugned order and submitted that the penalty may be confirmed.

Observing that, “the explanation offered cannot be outrightly discarded in the penalty proceedings, the urgent need to clear payments by an assessee functioning outside residential/commercial areas in the peculiar facts by itself, no doubt, may not have been a valid explanation as far as the quantum proceedings are concerned,” however, requirements of the penalty provisions under Section 271(1)(c) of the Income Tax Act, 1961 was considered and it was found by the single  bench that the explanation deserves to be allowed and held that the explanation was satisfactory on this set of facts.

It was also made clear that the argument by the assessee that payments are genuinely for the purpose of Section 40(A)(3) of the Income Tax Act has no relevance.

Setting aside the order of the Commissioner of Income Tax (Appeals) (CIT(A)), the penalty proceedings were quashed by the ITAT considering the set of facts in the present matter of cash payments of bonus made to employees.

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