TMI Blog1992 (1) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee's counsel signed in the grounds of appeal. Accordingly they are dismissed. 5. Ground No. 7 relating to the addition of Rs. 30,346 being the amount of gratuity premium was also not pressed at the time of hearing. To that effect the assessee's counsel signed in the grounds of appeal. Accordingly this ground is rejected. 6. Ground Nos. 4 to 6 are to effect that the CIT(A) is not correct in disallowing a sum of Rs. 4,33,481 being the damages paid to the Provident Fund and Employees State Insurance authorities. In the assessment order passed under s. 143(3) the Assessing Officer had disallowed the said amount by observing as under: "Damages for belated payment of PF and ESI: The expenses claimed by the assessee included a sum of Rs. 4,33,581 being damages paid for delayed payment of P.F. and E.S.I. contributions, the same cannot be allowed, as the expenditure incurred is not for the purpose of business. Hence the amount is added Rs. 4,33,481". 7. Before the CIT(A) the assessee s counsel contended that due to the financial problems the assessee could not remit the contributions to the Provident Fund and the Employee s State Insurance in time. It was submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . yr. 1983-84, which is being argued before the Tribunal simultaneously. The notice of demand for Rs. 71,497 is not bearing any date. The notices of demand dt. 4th Feb., 1981 levying damages under s. 85B of the ESI Act of Rs. 92,025, Rs. 65,518 and Rs. 10,005 fall within the accounting year relevant to the asst. yr. 1982-83. As per the judgment of the Tribunal in the case of ITO vs. Havers Industries Ltd. (1991) 36 ITD 611 (Bom) 40 per cent of damages amount may be allowed as deduction. 9. The Departmental Representative contended that there was no basis for treating 60 per cent of the damages as penalty and for treating 40 per cent as compensation for the delayed payments. 10. We have considered the matter. Under s. 85B of the ESI Act, 1948 the Corporation is authorised to recover from the employer damages not exceeding the amount of any contribution payable under the said Act. Similar provision is there in s. 14B of the Employees Provident Fund Act, 1952. According to it where an employer makes default in making payment of any contribution to the Fund the Government was authorised to recover from the employer damages not exceeding 25 per cent of the amount of arrears. The Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 12. We have considered the matter. Since the practice in the assessee s case was to claim and allow bonus in the year of payment, the ITO was justified in disallowing the sum of Rs. 2,22,193 only being a provision made in the accounting year ended 30th June, 1981 relevant to the asst. yr. 1982-83. Accordingly we hold that the AO is justified in disallowing the said sum or Rs. 2,22,193 in the asst. yr. 1982-83. Of course its allowability in the asst. yr. 1983-84 will be considered by us separately. 13. ITA No. 127/Coch/1987; Asst. yr. 1982-83 (Department s appeal) : The only ground in the Revenue s appeal is that the CIT(A) erred in holding that the excess payment of bonus of Rs. 83,443 actually paid is in accordance with the settlement under the Industrial Disputes Act and, therefore, is allowable as a revenue expenditure under s. 37 of the IT Act, 1961. In the assessment assessee claimed Rs. 1,71,468 (for the year 1979-80) as bonus actually paid in the relevant accounting year. The AO noticed that the practice all along in the assessee s case was to claim and allow the bonus in the year of payment. Accordingly he considered the assessee s claim for the amount paid of Rs. 1,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettlement. The Supreme Court in the case of Shahzada Nand Sons vs. CIT 1977 CTR (SC) 246 : (1977) 108 ITR 358 (SC) held that the reasonableness of the commission under s. 36(1)(ii) has to be tested by commercial expediency. The Supreme Court observed that the reasonableness of the payment has to be judged not on any subjective standard of the assessing authority but from the point of view of commercial expediency. The Calcutta High Court in the case of CIT vs. Shaw Wallace Co. Ltd. (1991) 100 CTR (Cal) 188 : (1991) 190 ITR 455 (Cal) held that ex gratia payment in addition to bonus in the terms of an agreement is allowable as a business deduction under the second proviso to s. 36(1)(ii). In that case in addition to the bonus of 8.33 per cent payable under the Payment of Bonus Act, 1965 ex gratia payment was made at 8.17 per cent under the terms of a settlement. In the present case also the total bonus was paid at 16-2/3 per cent only. The AO has already allowed 8-1/3 per cent under the Payment of Bonus Act. The excess is only 8-1/3 per cent. This cannot be considered as unreasonable, as it was paid out of commercial expediency by the assessee. In the circumstances following the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said memorandum of settlement and hence a direction may be given by the Tribunal to the AO to allow the said sum in the asst. yr. 1984-85 on payment basis. He also filed a copy of the assessment order dt. 6th March, 1987, for the asst. yr. 1984-85 in the assessee s own case, which shows that the ITO has not allowed any amount as deduction towards the bonus and ex gratia paid in the year ended 30th June, 1983. He also filed additional grounds of appeal and urged that the amount of Rs. 1,94,435 being damages levied by order dt. 8th Sept., 1981 under s. 14B of the EPF Act should be allowed in the asst. yr. 1983-84. He also urged that the amount of Rs. 2,22,193 being the bonus for 1980-81 paid in the accounting year relevant to the asst. yr. 1983-84 should be allowed in the asst. yr. 1983-84. The Departmental Representative relied on the orders of the lower authorities. 20. We have considered the matter. We have heard the appeals of the assessee for the asst. yrs. 1982-83 and 1983-84 together. Since the additional grounds are interconnected with the appeals for both these years, we admitted them. 21. According to the finding of the AO in the assessment order for the asst. yr. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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