Section 263 revision failed where additional bonus liability had crystallised under amended bonus law before assessment finalisation.

An assessment allowing deduction of additional bonus liability was held not to be erroneous or prejudicial for section 263 purposes because the amended bonus law had already enlarged the legal liability before the assessment was finalised. The Assessing Officer had examined the claim and accepted it after applying his mind, and deduction depended on a liability imposed by law rather than on whether the amount had been booked in an earlier accounting year. On those facts, the Commissioner could not revise the assessment under section 263 in respect of the additional bonus claim.

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Issues: Whether the Commissioner was justified in invoking section 263 to revise the assessment by disallowing the additional bonus liability claimed by the assessee.

Analysis: The assessee claimed deduction of additional bonus on the basis of the amended bonus law that had come into force before the assessment was finalised. The assessment year concerned had already seen the legal liability enlarge under the amended section 12 of the Payment of Bonus Act, 1965, so the liability had crystallised by the time the assessment was being completed. The Assessing Officer examined the claim and allowed it after applying his mind. A deduction depends on the liability imposed by law and not on whether the amount was entered in the books in the earlier accounting year. On these facts, the original assessment could not be treated as erroneous or prejudicial to the interests of the Revenue.

Conclusion: The revision under section 263 was not sustainable so far as the additional bonus claim was concerned and the assessee succeeded on this issue.

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