Method of accounting controls deduction timing, and a claim linked to a different year may be disallowed.

Where a deduction claim is inseparably linked to the assessee's method of accounting, the appellate authority may examine that accounting treatment while deciding the appeal. The Calcutta High Court held that the Tribunal was justified in disallowing the claimed deduction relating to the earlier accounting year, because the assessee had shifted from cash to mercantile treatment for bonus and the claim properly belonged to a different year. At the same time, the consequential provision made in the relevant year was allowed. The disallowance was therefore upheld against the assessee and in favour of the Revenue.

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Issues: Whether, on the facts and in the circumstances of the case, the Tribunal was justified in disallowing Rs. 1,00,004 as a permissible deduction in the assessment year 1971-72.

Analysis: The assessee had followed the cash system only for bonus payments up to the earlier assessment year and then changed to the mercantile system for that item. The Tribunal treated the claim for the earlier year's bonus and the provision for the year under consideration as interlinked with the method of accounting. The scope of appellate jurisdiction was confined to the subject-matter of the appeal, but the question of allowability of the deduction necessarily involved the accounting method adopted by the assessee. On that basis, the Tribunal was justified in declining the claim for Rs. 1,00,004, which related to the earlier year, while allowing the consequential deduction for the provision made in the relevant year.

Conclusion: The Tribunal was right in law in not allowing Rs. 1,00,004 as a permissible deduction in the assessment year 1971-72, and the answer is against the assessee and in favour of the Revenue.

Ratio Decidendi: Where the allowability of a deduction is inseparably connected with the assessee's method of accounting, the appellate authority may determine the claim within the subject-matter of the appeal and decline a deduction that properly relates to a different accounting year.

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