Incentive bonus deduction requires more than genuineness: reasonableness and statutory bonus limits must also be satisfied.

Deduction of incentive bonus under section 36(1)(ii) depends on more than proof of actual payment: the Assessing Officer must also examine whether the statutory conditions on reasonableness and applicable bonus limits are satisfied. Where employees fall under the Payment of Bonus Act, the deduction is capped by that Act; otherwise, the payment must be reasonable by reference to pay, service conditions, business profits, and comparable practice. Genuineness of payment alone is not the sole test for allowance, so the Tribunal was wrong to confine the enquiry to that factor, and the issue was decided in favour of the Revenue.

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Issues: Whether, for deduction of incentive bonus under section 36(1)(ii) of the Income-tax Act, 1961, the Assessing Officer's enquiry is confined only to the genuineness of payment, or whether the statutory conditions as to reasonableness and the applicable bonus limits must also be satisfied.

Analysis: Section 36(1)(ii) allows deduction of bonus or commission paid for services rendered, but the first proviso limits bonus paid to employees in establishments governed by the Payment of Bonus Act, 1965 to the amount payable under that Act. The second proviso further requires that, where the payment is not covered by the first proviso, the bonus or commission must be reasonable with reference to the employee's pay and service conditions, the profits of the business or profession, and the general practice in similar businesses or professions. Accordingly, genuineness of payment by itself is not the sole test for allowance.

Conclusion: The Tribunal was not justified in restricting the enquiry to genuineness alone, and the question was answered in the negative, in favour of the Revenue and against the assessee.

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