Commissioner of Income Tax vs P.M. Diesel P. Ltd.

D.A. Mehta, J.—The Income Tax Appellate Tribunal, Ahmedabad Bench "A" has referred the following two questions u/s 256(1) of the Income Tax Act, 1961 (the Act), at the instance of the Commissioner of Income Tax, Rajkot,

(1) Whether the Appellate Tribunal is right in law and on facts in allowing the claims of the assessee in respect of production bonus amounting to Rs. 7,32,449 apart from the staff bonus which was allowed ?

(2) Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to allow the discount on sales amounting to Rs. 2,02,754 holding the same not to be caught by the mischief of Section 37(3A) ?

The assessment year is 1985-86 and the relevant accounting period is the year ended on June 30, 1984. The assessee, a private limited company, made payment of Rs. 7,32,449 as production bonus to its workers and claimed the same to be deductible expenditure. The assessee-company had also made a claim amounting to Rs. 2,02,754 being the discount on sales. The Assessing Officer disallowed the claim for production bonus holding that the same was not in the nature of normal bonus covered by the Payment of Bonus Act. Similarly the claim of the assessee regarding discount paid was also disallowed by invoking the provisions of Section 37(3A) of the Act. The Commissioner (Appeals) confirmed both the disallowances. However, the assessee succeeded before the Tribunal.

In relation to the payment of production bonus, in the impugned order dated October 27, 1993, the Tribunal has recorded that (i) the payment was in pursuance of the agreement with the employees, (ii) the payment was for achieving production over and above the normally expected production, (iii) the production bonus had been quantified with reference to the extra production achieved, (iv) the production bonus was treated as part and parcel of regular wages for the purpose of employees State insurance corporation and provident fund contribution.

Mr. M.R. Bhatt, learned standing counsel appearing on behalf of the applicant-Revenue, has not been able to point out any facts or evidence to dislodge the aforesaid findings of facts. It is apparent that the Tribunal has recorded findings of facts which remain undisturbed. Once the payment has been treated as part and parcel of the wages, which are undisputedly allowed as deduction by the Revenue, the same treatment is required to be given to the payment in question, viz., production bonus of Rs. 7,32,449.

Therefore, in the absence of any infirmity in the impugned order of the Tribunal question No. 1 is required to be answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

In relation to the second question it was fairly accepted by Mr. Bhatt that the discount was in the nature of reduction in the sale price. It was also pointed out that the legal position as regards the nature of items mentioned in Section 37(3A) read with Section 37(3B)(i) of the Act has already been enunciated by this Court in the judgment rendered in the case of Commissioner of Income Tax Vs. Zippers India, I. T. R. No. 141 of 1994 decided on October 5, 2005.

Therefore, applying the ratio of the aforesaid decision in the case of Commissioner of Income Tax Vs. Zippers India, it cannot be stated that the discount allowed on sales of diesel engines worth Rs. 2,02,754 could be treated to be sales promotion within the meaning of Section 37(3A) read with Section 37(3B) of the Act. The Tribunal was therefore right in holding that the said payment of discount could not be termed to be expenditure for sales promotion. Question No. 2 is therefore answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

Reference stands disposed accordingly. There shall be no order as to costs.