Any sum paid to an employee as a bonus or commission to be allowed as a deduction: ITAT Delhi

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that any sum paid to an employee as a bonus or commission for services rendered has to be allowed as a deduction.The bench of Saktijit Dey has observed that the reasonableness of the payment or the adequacy of services rendered by the employee is not relevant factors in deciding the allowability of a deduction.The disabling provision of section 36(1)(ii) provides that "if the sum so paid is in lieu of profit or dividend," it applies only to employees who are partners or shareholders.The appellant/assessee is a resident individual. For the assessment year under dispute, the assessee filed his return of income, declaring an income of Rs.13,50,327. In the course of assessment proceedings, the Assessing Officer, while verifying the return of income and financial statement, found that the assessee is engaged in the business of providing placement and contract labour services and providing manpower solutions as per requirement.On perusing the audit report, he found that the assessee had claimed a deduction of Rs. 27,26,550 as a bonus paid to employees. Being of the view that such a payment is in violation of the provision contained under section 36(1)(ii) of the Income Tax Act, he disallowed the amount. The disallowance made was sustained by the Commissioner (Appeals).The assessee submitted that the department had erroneously concluded that the deduction claimed was in violation of section 36(1)(ii). In the Audit Report, the Auditor in Column 16(1) has erroneously mentioned that the amount was otherwise payable to the employees as profits and dividends. Latching on to the inadvertent mistake, the disallowance has been made. The payment of bonuses to employees cannot be equated with profits or dividends payable.The ITAT held that there was no finding that the employees were either partners or shareholders of the assessee.The tribunal allowed the claim of the assessee.Case Title: Sh. Karam Singh Malik Versus ITOCitation: ITA No.4614/Del/2019Date: 25.10.2022Counsel For Appellant: CA Suresh AnandCounsel For Respondent: Sr. DR Om ParkashClick Here To Read Order

Any sum paid to an employee as a bonus or commission to be allowed as a deduction: ITAT Delhi

Mariya Paliwala

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