Employee incentive, depreciation, and section 14A disallowance rules applied to business claims, with leave encashment still hit by statutory bar.

A performance-linked employee incentive was treated as an ascertained salary-related business liability where it was quantified employee-wise and accrued on services rendered; depreciation on OB vans was allowed because ownership and actual business use were shown despite only temporary registration. Advances written off to employees and consumption-based debtor discounts were accepted as business losses or commercial deductions. Interest paid to Prasar Bharti attracted TDS for years before the statutory exemption became operative, while application software expenditure was revenue in part, with one segment remanded for verification. Section 14A disallowance could not be enhanced under Rule 8D without recording dissatisfaction with the assessee's own working, but leave encashment remained disallowable under section 43B(f) unless actually paid.

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Issues: (i) Whether performance-based incentive payable to employees was an ascertained business liability deductible as additional salary and not bonus; (ii) whether depreciation was allowable on OB vans purchased and used during the year despite only temporary registration and pending permanent registration; (iii) whether advances written off to employees and consumption-based debtor discounts were allowable business losses or deductions; (iv) whether tax was deductible at source on interest paid to Prasar Bharti for years prior to the statutory exemption; (v) whether software expenditure was revenue or capital in nature; (vi) whether disallowance under section 14A could be made without recording dissatisfaction with the assessee's own disallowance; and (vii) whether leave encashment was disallowable under section 43B(f).

Issue (i): Whether performance-based incentive payable to employees was an ascertained business liability deductible as additional salary and not bonus.

Analysis: The incentive was linked to employee performance for the relevant year, quantified employee-wise, and followed a consistent year-to-year accounting practice. The liability was found to have accrued with the rendering of services and to represent variable salary payable for business purposes. It was not treated as a bonus for the purpose of the disallowance provisions invoked by the lower authorities.

Conclusion: The issue was decided in favour of the assessee; the disallowance of accrued incentive was deleted.

Issue (ii): Whether depreciation was allowable on OB vans purchased and used during the year despite only temporary registration and pending permanent registration.

Analysis: The vans were purchased, body-built, temporarily registered, received back from the body builder, and shown to have been used for shooting during the relevant year. The mere absence of permanent registration by the year-end did not establish non-use. The assessee satisfied both ownership and user conditions for depreciation.

Conclusion: The issue was decided in favour of the assessee; depreciation on the OB vans was allowed.

Issue (iii): Whether advances written off to employees and consumption-based debtor discounts were allowable business losses or deductions.

Analysis: The advances were given to employees for business expenditure and were written off when not recovered after the employees left. They were treated as business loss and not as bad debt. The consumption debtor adjustment was an incentive/discount scheme linked to airtime consumption in the ordinary course of the assessee's media business and was supported by the underlying commercial arrangements and accounting entries.

Conclusion: The issue was decided in favour of the assessee; the additions were deleted.

Issue (iv): Whether tax was deductible at source on interest paid to Prasar Bharti for years prior to the statutory exemption.

Analysis: The statutory exemption for Prasar Bharti's income was held to be operative only from assessment year 2013-14. For the earlier years under consideration, the payer was obliged to deduct tax at source on the interest payment. The disallowance under the TDS provisions was therefore sustained.

Conclusion: The issue was decided against the assessee; the disallowance was upheld.

Issue (v): Whether software expenditure was revenue or capital in nature.

Analysis: For some years, the assessee failed to place adequate invoices and particulars showing the exact nature of the software, and the matter could not be conclusively classified on the material then available. The Tribunal therefore remanded the issue for verification. In the year where sufficient material existed, application software upgrade expenditure was treated as revenue in nature and the disallowance was deleted.

Conclusion: The issue was partly decided in favour of the assessee and partly restored for fresh examination.

Issue (vi): Whether disallowance under section 14A could be made without recording dissatisfaction with the assessee's own disallowance.

Analysis: The assessee had made suo motu disallowance in the tax audit report. The Assessing Officer straightaway applied Rule 8D without recording objective dissatisfaction with the correctness of the assessee's working. The mandatory precondition for invoking Rule 8D was not met.

Conclusion: The issue was decided in favour of the assessee; the further disallowance was deleted.

Issue (vii): Whether leave encashment was disallowable under section 43B(f).

Analysis: The claim was on an accrual basis without actual payment, and the statutory bar under section 43B(f) was applied. The assessee's reliance on the stayed High Court decision did not displace the clear statutory position for the years in question.

Conclusion: The issue was decided against the assessee; the disallowance was sustained.

Final Conclusion: The common order granted substantial relief to the assessee on the main recurring claims relating to employee incentive, depreciation on OB vans, business losses, consumption incentives, and section 14A disallowance, while sustaining the disallowance of interest-related TDS, software expenditure for remand in part, and leave encashment.

Ratio Decidendi: A performance-linked employee incentive, when quantified on a consistent and ascertainable basis, is deductible as salary-related business expenditure; depreciation depends on ownership and actual business use rather than only formal registration; Rule 8D cannot be invoked without recording dissatisfaction under section 14A; and leave encashment remains hit by section 43B(f) unless actually paid.

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