The Chennai bench of the Income Tax Appellate Tribunal (ITAT) held that an addition cannot be made towards disallowance of bonus as payment made for bonus doesn’t fall under Section 40A(3) of the Income Tax Act, 1961.
The assessee is engaged in the business of Textiles and readymade garments in the name and style of M/s. Veera’s Creations. The assessee has filed its return of income admitting a total income of Rs. 1,97,95,800/-.
The assessment has been completed under Section 143(3) of the Income Tax Act and determined the total income of Rs. 2,73,15,680/- by making additions towards adhoc disallowance of bonus paid to staff and disallowance of expenditure incurred in cash in excess of the prescribed limit under Section 40A(3) of the Income Tax Act.
The Commissioner of Income Tax (Appeal) [CIT(A)] deleted additions made by the Assessing Officer towards the disallowance of bonus paid in cash under Section 40A(3) of the Income Tax Act, on the ground that the Assessing Officer has disallowed expenses on vague ground without ascertaining as to how payments made for bonus comes under the provisions of Section 40A(3) of the Income Tax Act.
The revenue has challenged the findings of the CIT(A) on adhoc disallowance of expenses, but could not adduce any evidence to counter the findings or facts recorded by the CIT(A).
The Two-member bench comprising of Mahavir Singh (Vice-President) and Manjunatha G (Accountant member) held that there was no error in the reasons given by the CIT(A) to restrict the disallowance of bonus to the extent of 20% on actual expenditure disallowed by the Assessing Officer and thus, the order of the CIT(A) was upheld and the appeal of the revenue was dismissed.
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