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Bonus or commission paid to employees for services rendered is a deductible expense ordinarily. However in case of such payments to an employee who is a shareholder too there could be a conflict. Clause ( ii) of section 36(1) provide an embargo in a situation where the amount of such nature if not paid would have added to profits available for distribution as dividends to such employee. 

Such a situation did arise in the case reported at (2022) 445ITR40. In this case the assessee company had two employee directors who equally held 50% shares and further received bonus in equal numbers during the previous year. 

The Delhi High Court declined to give any relief in this fact situation where the authorities below have taken the view that the assessee has paid the bonus in lieu of dividend given the one to one correlation between the bonus earned and profit/dividend appropriation. 

In this case the assessee placed more emphasis on preceding year assessments where similar sums stood allowed rather than explaining the special nature of services rendered by the two directors. Thus there is added exposure of assessment reopening for earlier years too in this case. 

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