ITAT Allows Section 43B Deduction for Employee Bonus Despite Form 3CD Reporting Error

The Income Tax Appellate Tribunal (ITAT), Bengaluru Bench, has allowed Unimech Aerospace and Manufacturing Limited to claim tax deduction of Rs 15,15,770 towards payment of a bonus to its employees.

The dispute is with regard to Assessment Year 2023-24, where the company filed its return of income declaring an income of Rs. 3,53,26,790. The Central Processing Centre (CPC), Bengaluru, disallowed Rs. 15,15,767 claimed as deduction under Section 43B of the Income Tax Act while processing the return under Section 143(1) and increased the taxable income accordingly.

The company said it had created a bonus provision of Rs. 17,91,225 for employees in FY 2021-22 (AY 2022-23). As the bonus was not paid in that year, it was voluntarily disallowed under section 43B while filing return for the earlier year. Later, in October 2022, the company paid Rs. 15,15,767 of this bonus to 41 employees and claimed a deduction in AY 2023-24 accordingly.

However, the claim was disallowed by the CPC on the ground that the details of the payment were not correctly reflected in Clause 26 of the Tax Audit Report (Form 3CD) resulting into mismatch between the tax audit report and the income tax return. The first appellate authority, the CIT(A) also confirmed the disallowance on the same ground.

Before the ITAT, the company produced detailed evidence, including bonus payment records, bank statements, books of account, and financial statements showing that the bonus had actually been paid during the year.

Considering all the facts of the case, the Tribunal found that the bonus liability was disallowed in the earlier year and the employees were paid between 3 October 2022 and 12 October 2022. The Tribunal observed that the only question was a mistake in the reporting in Form 3CD wherein, the auditor did not report the payment of the outstanding bonus of the earlier year.

The ITAT held that the company was entitled to the deduction in the year of payment as the conditions of Section 43B were satisfied.

Accordingly, the Tribunal directed the AO to delete the disallowance of Rs.15,15,767 and partly allowed the appeal of the company on this issue.