SETH CHEMICAL WORKS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This reference is under Section 256(1) of the I.T. Act, 1961, at the instance of the assessee. The assessee had been paying the bonus under the Bonus Act to its employees on cash basis in the past. It maintained accounts on the mercantile system. But it was only in respect of bonus that it followed the cash system. In the year of assessment, being 1971-72, the assessee paid a bonus of Rs. 1,00,004 in cash to its employees. The cash payment of bonus was in respect of the liability for the assessment year 1970-71. The assessee made a provision for the payment of bonus in accordance with the provisions of the Bonus Act, 1965, for the assessment year 1971-72, and also claimed both the cash payment for the assessment year 1971-72 and the provision for the assessment year 1971-72 as a deduction. The ITO disallowed both the claims of the assessee.

(2.) In appeal, the AAC held that the assessee could not claim the deductions for the preceding year, and on mercantile system in the year under consideration. He was of the view that as in the past the assessee was entitled to the deduction of the bonus paid in cash for the preceding year, He, therefore, directed the ITO to allow the cash payment of bonus of Rs. 1,00,004 but sustained the disallowance of the provision for bonus of Rs. 1,19,944.

(3.) There was a further appeal to the Tribunal. It was submitted on behalf of the assessee that it had been paying bonus on cash system in the past and that in the year under consideration it changed the cash system into mercantile system, as it was considered advisable to follow the mercantile system also in respect of bonus. He, therefore, urged that the assessee was entitled to the deduction of the provision for bonus of the year under consideration and also for the payment of bonus in cash for the preceding year, as that amount had actually been paid, as an expenditure in the year under consideration. He further submitted that in the subsequent years the assessee consistently followed the method of mercantile system in respect of bonus. The departmental representative highlighted the reasons given by the revenue authorities in support of their orders.