Estimated income permits deduction of statutory bonus paid to employees when supported by past results and commercial comparables.

Where an assessee maintained no books of account and income was estimated from past results and comparable business cases, a separate deduction for statutory bonus paid to employees was permissible. The Tribunal treated the bonus as part of the factual computation of net profit, noting that earlier years and comparable handling contractor cases had reduced receipts by bonus and that the liability had been actually incurred and paid under bonus legislation. The High Court sustained that approach, holding that estimated income and related allowances based on commercial circumstances and past history will not be disturbed unless the estimate is arbitrary or capricious.

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Issues: Whether, in estimating the income of an assessee who kept no books of account, a separate deduction for bonus paid to employees could be allowed from the estimated net profit.

Analysis: The income had been estimated on the basis of past results and comparable cases in the same line of business. The Tribunal found that in earlier years the profit had been worked out at a percentage of receipts after reducing bonus, and that the same method was adopted in comparable handling contractor cases. In such a situation, the quantum of income to be assessed and the expenditure to be allowed are matters of estimation based on surrounding commercial circumstances and past history. The liability for bonus was also recognised as a statutory liability under the bonus legislation, and the payment had in fact been made.

Conclusion: The separate deduction for bonus was permissible, and the question was rightly answered in favour of the assessee.

Final Conclusion: The Tribunal's view on estimation of income and allowance of bonus was sustained as a factual determination not giving rise to an error of law.

Ratio Decidendi: Where taxable income is determined by estimation, the allowance of statutory bonus paid to employees may be treated as part of the factual computation of net profit, and such estimation will not be interfered with unless it is arbitrary or capricious.

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