1995 (1) TMI 106 - AT - Income Tax

Summary

Issues:
1. Validity of the order passed by the CIT under section 263 of the IT Act, 1961.
2. Allowance of additional bonus paid to employees by the assessee.
3. Interpretation of the Payment of Bonus Act, 1965 and subsequent amendments.

Detailed Analysis:

1. The appeal was filed by the assessee against the order of the Commissioner of Income Tax (CIT) passed under section 263 of the IT Act, 1961 for the assessment year 1985-86. The CIT set aside the assessment on two grounds: examining the claim of additional bonus paid to employees and extra shift allowance on a diesel generator. The assessee contested the CIT's decision regarding the additional bonus but did not dispute the part related to the extra shift allowance.

2. The controversy arose from the assessment completed by the Assessing Officer (AO) on March 30, 1988, where an additional amount of Rs. 2,28,696 was allowed as bonus payable to employees under the Payment of Bonus Act. The Payment of Bonus Act was subsequently amended through an ordinance, increasing the bonus calculation for employees earning over Rs. 1,600 per month. The assessee claimed this additional amount during the assessment, which the AO allowed. However, the CIT, after reviewing the assessment records, found this allowance to be erroneous and set aside the assessment.

3. The Tribunal analyzed the provisions of the Payment of Bonus Act, both before and after the amendment, to determine the validity of the additional bonus claim. The Tribunal concluded that the CIT should not have interfered with the original assessment as the assessee's liability for the additional bonus arose due to the retrospective effect of the amendment. The Tribunal cited the Supreme Court's ruling in Kedarnath Jute Mfg. Co. Ltd. vs. CIT, emphasizing that the assessee is entitled to deductions based on accrued liabilities as per the law, regardless of the entries in the account books. Therefore, the Tribunal held that the AO did not commit any error in allowing the additional bonus claim, and the CIT's decision to set aside the assessment was unwarranted.

4. In light of the above analysis, the Tribunal partially allowed the appeal, quashing the CIT's decision to set aside the assessment regarding the additional bonus liability. The direction related to the extra shift allowance was confirmed.