Bona fide liability test governs deduction of incentive bonus provision in commercial profits under section 23A.

A provision for incentive bonus was not deductible in computing commercial profits for section 23A purposes where the liability was found not to be bona fide. The assessee had accumulated large bonus provisions over successive years, but the amounts remained unpaid and were later used for income-tax payment. On those facts, the Tribunal's finding that the claimed liability was not genuine was not shown to be perverse, so the provision could not reduce commercial profits. The answer to the reference was therefore against the assessee.

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Issues: Whether the provision made for incentive bonus during the relevant accounting year was a bona fide liability deductible in computing commercial profits for the purpose of applying section 23A of the Indian Income-tax Act, 1922.

Analysis: The assessee had credited large amounts towards incentive bonus over successive years, but the balance was found to have remained unpaid and was later utilised by the assessee for payment of income-tax. The Tribunal had found on the facts that the liability shown for incentive bonus was not bona fide, and that finding was not challenged as perverse. On those facts, the provision could not be treated as an allowable deduction while determining commercial profits for section 23A purposes.

Conclusion: The provision for incentive bonus was not deductible in computing commercial profits for section 23A, and the answer to the referred question was in the affirmative and against the assessee.

Ratio Decidendi: A provision cannot be deducted in computing commercial profits for section 23A if, on the facts found, it is not a bona fide liability.

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