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Issues:
Assessment of bonus payment exceeding provision made in the earlier year under the mercantile system of accounting. Analysis: The case involved a limited company following the mercantile system of accounting that acquired another company's Indian undertaking. The assessee made a provision for bonus in one year but the actual payment exceeded the provision in the subsequent year. The Income-tax Officer disallowed the excess payment, stating it related to the earlier year. The Commissioner of Income-tax (Appeals) deleted the addition, and the Tribunal upheld the decision. The main question was whether the excess payment of bonus should be allowed as a deduction in the assessment year 1979-80. The Tribunal justified the allowance of the excess payment as a business expense. The High Court analyzed the situation, referring to a Supreme Court case where a similar deduction was allowed for a sales tax liability. The Court found that the assessee's failure to make a suitable provision for bonus did not disentitle them from claiming a deduction for the discharged liability. The Court emphasized that the liability for bonus was statutory, and the assessee's explanation for the discrepancy was accepted by the authorities. The Court concluded that the assessee was entitled to the deduction for the bonus payment, which was statutorily payable for the employees taken over from the acquired company. Conclusion: The High Court, comprising Judges Shyamal Kumar Sen and Ajit Kumar Sengupta, ruled in favor of the assessee, allowing the deduction for the excess bonus payment. The Court found that the assessee's explanation for the discrepancy in the provision for bonus was acceptable, and the liability for bonus was statutory. The decision aligned with previous legal precedents, including a Supreme Court case, supporting the allowance of deductions for statutory liabilities. Consequently, the Court answered the question in the reference in the affirmative, in favor of the assessee, with no order as to costs.
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