No Penalty for Bonus Deduction Claim Later Found Inadmissible | HC

Case Details: Carona Ltd. v. Deputy Commissioner of Income-tax - [2025] 176 taxmann.com 983

Judiciary and Counsel Details

• Alok Aradhe, CJ. & Sandeep V. Marne, J.
• Ms Aarti Sathe & Ms Aasavari Kadam for the Appellant.
• Ms Shilpa Goel for the Respondent.

Facts of the Case

The Assessee, a company, was engaged in the business of manufacturing and selling footwear. The employees’ union raised a demand for an increase in the bonus. In pursuance of the said demand, it was decided that till the finalisation of the quantum of bonus, the Assessee shall pay an additional 2% bonus to the employees before Diwali.

The final settlement with regard to the bonus was reached, and accordingly, an additional bonus was paid to the employees. The Assessee claimed deduction of the said additional bonus in the relevant year. However, the actual payment of such additional bonus was made in the subsequent year. While passing the assessment order under section 143(3), the Assessing Officer (AO) disallowed the claim of additional bonus and considered that the Assessee furnished inaccurate particulars of income.

Subsequently, AO initiated penalty proceedings under section 271(1)(c) and imposed a penalty of Rs. 12,82,700. The CIT(A) deleted the penalty. However, the Tribunal restored the order of AO, and the matter reached the Bombay High Court.

High Court Held

The High Court held that the case involved the raising of a bona fide claim by the Assessee. The Assessee only raised the claim that the crystallised liability towards additional bonus could be claimed as a deduction, which was later found to be inadmissible in law. Thus, the case did not involve making any false statement in the return, and therefore, the finding of the Tribunal that there is inaccurate furnishing of particulars cannot be sustained.

The Tribunal found the claim of the Assessee to be ‘baseless’. Mere raising of a claim which has no basis would not attract penalty provisions under Section 271(1)(c) of the Act. The Assessee cannot be penalised for having raised a plausible claim. The essential ingredients of Section 271(1)(c) of the Act were not met in the present case.

List of Cases Reviewed

• CIT, Ahmedabad v. Reliance Petroproducts (P.) Ltd. [2010] 189 Taxman 322/322 ITR 158 (SC) (para 19)
• Pr. CIT-I, Chandigarh v. Torque Pharmaceuticals (P.) Ltd. [2017] 81 taxmann.com 283/[2016] 389 ITR 46 (Punjab & Haryana) (para 22) Followed.
• CIT v. Zoom Communication (P.) Ltd. [2010] 191 Taxman 179/327 ITR 510 (Delhi) (para 21) Distinguished.

List of Cases Referred to

• Bharat Earth Movers v. CIT [2000] 112 Taxman 61/245 ITR 428 (SC) (para 8)
• CIT, Ahmedabad v. Reliance Petroproducts (P.) Ltd. [2010] 189 Taxman 322/322 ITR 158 (SC) (para 9)
• Pr. CIT-I, Chandigarh v. Torque Pharmaceuticals (P.) Ltd. [2017] 81 taxmann.com 283/[2016] 389 ITR 46 (Punjab & Haryana) (para 9)
• CIT v. Zoom Communication (P.) Ltd. [2010] 191 Taxman 179/327 ITR 510 (Delhi) (para 10).