Method of accounting: proviso cannot override a regularly employed method; genuine salaries deductible except specific disallowed allowances.

The proviso to section 13 cannot be invoked to replace an assessee's regularly employed accounting method where a regular method exists and material (opening stock, purchases, sales and inventory) permits proper income computation; authorities must record considered findings supported by material before rejecting the method, and on the facts the proviso was not attracted. Salary claims are deductible as expenditure wholly and exclusively for business if payments are genuine; the bonus/commission reasonableness test does not apply to salaries absent material of non business motive, so the contested salary disallowances fail except that a specific allowance of Rs. 5,000 was rightly disallowed under the reasonableness standard.

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Issues: (i) Whether the proviso to section 13 could be applied to reject the assessee's method of accounting and compute income on other basis; (ii) Whether the disallowance of parts of the salaries paid to the general manager and the manager (cashier) can be justified on the ground of reasonableness under clause (x) of section 10(2).

Issue (i): Whether the proviso to section 13 was attracted so as to permit assessment on a basis other than the assessee's regularly employed method of accounting.

Analysis: The proviso permits departure from the assessee's regularly employed method only if no method has been regularly employed or the method is such that income cannot properly be deduced therefrom, and such a conclusion must be supported by material. Mere low profits or absence of a particular form of stock register are not, without more, sufficient material. Where opening stock, purchases and sales are accepted and there is an inventory enabling computation of closing stock, the proviso is not attracted. The authorities must record a considered finding with supporting material before rejecting the accounting method.

Conclusion: Answered in favour of the assessee. The proviso to section 13 was not attracted on the facts and the Tribunal was not justified in holding otherwise.

Issue (ii): Whether the partial disallowances of Rs. 18,000 (out of Rs. 36,000) in respect of the general manager's salary and Rs. 3,000 (out of Rs. 12,000) in respect of the manager's salary can be sustained under the reasonableness standard of section 10(2)(x).

Analysis: Deductions for salaries fall under clause (xv) (expenditure wholly and exclusively for business) and not under clause (x) (bonus or commission with a reasonableness test tied to pay, profits and trade practice). The permissible inquiry by tax authorities is whether payments were genuinely made and whether any part was not wholly and exclusively for business; they may examine relationship to the assessee only if there is material indicating non-business motives. Absent a finding that payments were not genuine or that parts were paid for non-business motives, the reasonableness standard of clause (x) is inapplicable to salaries and cannot justify reductions merely because the year showed a loss or because the authorities consider the pay high by their subjective standard.

Conclusion: Answered in favour of the assessee as to the salaries: the disallowances of Rs. 18,000 (general manager) and Rs. 3,000 (manager) cannot be justified under section 10(2)(x). The disallowance of Rs. 5,000 as allowances to the general manager is justified under section 10(2)(x) and stands.

Final Conclusion: The reference is answered by holding that the proviso to section 13 was not attracted and that the partial disallowances of salary claimed by the assessee are not sustainable under the reasonableness standard of section 10(2)(x), except that the claim of allowances of Rs. 5,000 to the general manager is properly disallowed under section 10(2)(x).

Ratio Decidendi: Where an assessee has been regularly employing a method of accounting and material exists to deduce true income from those accounts, tax authorities may not reject that method under a proviso without recording a judicial finding supported by material; salary payments are deductible if genuinely paid and laid out wholly and exclusively for business, and the reasonableness test applicable to bonus or commission is not the proper standard for salaried remuneration.

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