2003 (4) TMI 65 - HC - Income Tax

Assessee is a Development Officer in the Life Insurance Corporation of India. He received incentive bonus from his employer and on the said sum he claimed 40 per cent. deduction in his return filed for the assessment year 1994-95. The Assessing Officer disallowed the deduction of the amount on the incentive bonus received by the assessee as it formed a part of salary and hence no such deduction was allowable - It is manifest that when a deduction is claimed and it is some what controversial it cannot be treated to be prima facie disallowable. If the claim is made by the assessee is treated not to be free from debate and argument it is bound to be regarded as a debatable issue.

Summary

Issues:
Challenge to order disallowing deduction on incentive bonus received by the assessee.
Interpretation of section 143(1)(a) of the Income-tax Act, 1961.
Debatable nature of the issue regarding deduction on incentive bonus.

Analysis:
The High Court of Madhya Pradesh addressed the challenge to the order disallowing a deduction on the incentive bonus received by the assessee. The assessee, a Development Officer in the Life Insurance Corporation of India, claimed a 40% deduction on the incentive bonus in the return filed for the assessment year 1994-95. The Assessing Officer disallowed the deduction considering the incentive bonus as part of the salary, making a prima facie adjustment under section 143(1)(a) of the Act. The Commissioner of Income-tax (Appeals) allowed the appeal, stating that the adjustment made was debatable, leading to the Revenue's appeal before the Tribunal, which upheld the decision of the first appellate authority.

The main issue revolved around the debatable nature of the deduction on the incentive bonus. The High Court considered the interpretation of section 143(1)(a) of the Act, which allows for adjustments in the income declared in the return, including the allowance or disallowance of deductions. Referring to the case law, the Court highlighted that if a deduction claimed by the assessee is controversial or subject to debate, it cannot be prima facie disallowable. The existence of divergent views among High Courts on the allowance of the deduction on incentive bonus further supported the contention that the issue was debatable.

The Court noted that while some High Courts allowed the deduction on incentive bonus, others took a different stance. Given the conflicting opinions and the history of allowing the deduction in earlier years, the Court concluded that the issue was indeed debatable. Therefore, it was held that the Assessing Officer was justified in making the adjustment under section 143(1)(a) and that the Tribunal's decision did not require any interference. Consequently, the appeal was dismissed as meritless, with no order as to costs.