2005-VIL-374-GUJ-DT

Equivalent Citation: [2006] 286 ITR 207, 201 CTR 517, 152 TAXMANN 210

GUJARAT HIGH COURT

Date: 01.12.2005

COMMISSIONER OF INCOME-TAX

Vs

STANDARD RADIATORS P. LIMITED.

BENCH

Judge(s)  : D. A. MEHTA., MS. H. N. DEVANI.

JUDGMENT

The judgment of the court was delivered by

D.A. Mehta J. - The Income-tax Appellate Tribunal, Ahmedabad Bench "C" has referred the following question under section 256(1) of the Income-tax Act, 1961 ("the Act") at the instance of the Commissioner of Income-tax:

"Whether, on the facts and circumstances of the case, the Tribunal was right in law in reversing the order of the Assessing Officer confirming the disallowance of Rs. 66,577 being payment of bonus of earlier years?"

In the light of the facts available on record, it has become necessary to reframe the question and the reframed question is:

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that a sum of Rs. 66,577 being the payment of bonus was an allowable deduction?"

The assessment year is 1981-82 and the relevant accounting period is the calendar year December 31,1980. For understanding the controversy, it is necessary to take note of the facts as recorded in the assessment order, because in the impugned order dated September 27,1993, the Tribunal has failed to record complete and correct facts. Had the Tribunal done so, there would have been no necessity of making a reference.

The assessee, a limited company paid bonus amounting to Rs. 66,577 and claimed the same as deductible expenditure. The Assessing Officer, on scrutiny of accounts, came to the conclusion that the bonus was relatable to the calendar year 1979. He also found that the assessee had changed the method of accounting from cash to mercantile effective from the year under consideration, and hence, had made a claim of a sum of Rs. 71,700 being the provision for bonus payable for calendar year 1980. The Assessing Officer, at the stage of draft assessment, disallowed the amount of Rs. 71,700, namely, the provision made while allowing the deduction of Rs. 66,577 actually paid during the accounting period. The Inspecting Assistant Commissioner, while issuing directions under section 144B of the Act, directed the Assessing Officer to allow the provision of Rs. 71,700 and disallow Rs. 66,577, which was the amount actually paid, as according to the Inspecting Assistant Commissioner, the same being relatable to the calendar year 1979, could not be permitted to be deducted as the system of accounting was mercantile. The Assessing Officer, thus, while framing the assessment order, disallowed the sum of Rs. 66,577 actually paid as bonus during the year while granting deduction of the sum of Rs. 71,700 being the provision.

The assessee carried the matter in appeal, but did not succeed before the Commissioner (Appeals). In the second appeal before the Tribunal, the issue was decided in favour of the assessee by the Tribunal by relying upon a decision of the Bombay High Court in the case of CIT v. West Coast Paper Mills Ltd. [1992] 193 ITR 349 While doing so, the Tribunal distinguished the decision of the Calcutta High Court in the case of Seth Chemical Works v. CIT [1983] 140 ITR 507.

At the time of hearing, Mr. M.R. Bhatt, learned senior standing counsel relied upon the aforesaid decision of the Calcutta High Court, to contend that the bonus which was relatable to earlier year was wrongly allowed as a deduction. For this purpose, he also relied on the frame of the question referred to this court, to submit that there was no dispute that the bonus was relatable to earlier years. As against that, the learned advocate for the respondent has relied upon the impugned order of the Tribunal, to submit that there was no warrant for any interference, in the absence of any error committed by the Tribunal.

As the facts narrated in the assessment order reveal, the assessee company had been following the mercantile system of accounting from the accounting year 1963 up to 1974, and had been claiming deduction of bonus on the basis of the provision made. That for the accounting periods 1975 and 1976, no bonus had been paid by the assessee-company. For the accounting year 1977, the bonus was paid in the calendar year 1978 by switching over to the cash system of accounting. Thereafter, the assessee-company had been claiming payment made on cash basis, namely, the bonus relatable to the immediately preceding accounting period was consistently being paid in the immediately next accounting period, i.e., after the end of the accounting year.

During the year under consideration, because the assessee switched over from cash system of accounting to mercantile system of accounting, it appeared that the assessee had claimed double deduction : one on the basis of cash payment, and another on the basis of mercantile system of accounting, namely, the provision made. However, apart from the fact that this might be a necessary concomitant in the year of change of system of accounting, what is more material is that the assessee had been consistently paying bonus on cash basis in the past after the end of the accounting period and the same modality was adopted in the year under consideration. Therefore, to state that this was payment relatable to earlier years is not absolutely correct.

In these circumstances, it is not necessary to enter into a discussion as to the legal niceties, there being no dispute that the payment of bonus is otherwise an allowable deduction, the only dispute raised by the Revenue being the year of allowability. In the light of the facts which have come on record, the Tribunal was justified in holding that the amount of Rs. 66,577 being bonus actually paid during the accounting year was an allowable deduction. The question is accordingly answered in the affirmative, i.e,. in favour of the assessee and against the Revenue.

The reference stands disposed of accordingly. There shall be no order as to costs.

 

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