Good Work Reward to employee held not constituting bonus u/s 36(1)(ii) and allowable u/s 37

Good Work Reward to employee held not constituting bonus u/s 36(1)(ii) and allowable as normal business expenditure u/s 37 of the Act.

ABCAUS Case Law Citation:
ABCAUS 3078 (2019) (07) ITAT

Important Case Laws Cited/relied upon by the parties:
Shriram Pistons & Rings Ltd. Vs. Commissioner of Income Tax, (2008) 307 ITR 363 (Delhi).

The instant appeal was filed by assessee against order of CIT(A) in confirming the disallowance of good work reward treating them bonus within meaning of section 36(1)(ii) of the Act.

The assessee company had paid management incentive bonus called “good work reward” on the basis of performance of the eligible senior level employees of the assessee under Management Incentive Bonus Plan (MIBP).

The Assessing Officer (AO) had invoked the provisions of Section 43B r.w.s.36(1)(ii) of the Income Tax Act, 1961 (“the Act”) and concluded that the said amount was bonus in the hands of the said employees of the assessee and hence, disallowed accordingly.

The CIT(A) also deleted the disallowance.

Before the Tribunal, the assessee claimed that this payment was not covered under the payment of Bonus Act, 1965 but is based on the performance measured on the key parameters assigned to employees to achieve certain goals.

The assessee produced Management Incentive Policy Documents which mentioned that the objective of the MIBP was to reward the employees for achieving key result areas of the company. There was a separate provision for bonus as well. The MIBP was only to reward the employees for achieving better result for the company.

The Tribunal observed that in the statement showing Management Incentive Policy documents, there was separate column for bonus and separate column for MIBP. The objective for giving MIBP to employees was in a way to acknowledge the efforts made by the employees in achieving higher goals for the company. This was absolutely separate from the bonus given to employees.

The Tribunal observed that the Revenue had strictly gone into interpreting the nomenclature of the terms of “good work reward” and had held that the decision relied upon by the assessee was distinguishable in facts with regard to the case of the assessee where it was a question of giving incentive bonus.

The Tribunal opined that this finding of the Revenue Authorities was incorrect since the facts on records clearly demonstrated that the issue of bonus as well as issue of MIBP were in altogether different terms and conditions.

The Tribunal opined that the judgment of the High Court relied upon by the assessee had referred to the “Good Work Reward” and it had been clearly held that it does not constitute bonus within meaning of section 36(1)(ii) of the Act and was allowable as normal business expenditure u/s. 37 of the Act.

Accordingly, the Tribunal set aside the order of the CIT(Appeals) on this issue and held that the MIBP paid to the employees were not bonus in the hands of the employees and the said amount was allowable for deduction u/s.37(1) of the Act.

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• Object of assessment proceedings is not to find empirically correct solution on every fact issue – HC
• Penalty u/s 270A deleted as assessee filed revised computation during scrutiny
• Penalty u/s 271B for unfilled column 40 in Tax Audit Report Form 3CD deleted by ITAT
• Merely ex-parte rectifying computation without amending assessment order not make it nullity- ITAT
• Once assessee discharges primary onus, it shifts to AO to bring evidence to contrary – ITAT

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