Accrued statutory liability and bona fide accounting change justified deduction for articled clerk stipend despite prior cash accounting.

An accrued statutory liability for stipend payable to articled clerks was deductible when the obligation arose under the Chartered Accountants Act, 1949 and Regulation 32B of the Chartered Accountants Regulations, 1964. A bona fide change from cash accounting to hybrid or mercantile treatment, consistently followed thereafter, did not bar deduction of that liability merely because the assessee had earlier used the cash system. On that footing, the assessment allowing the claim was not erroneous or prejudicial to the revenue, so revision under section 263 was unwarranted.

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Issues: Whether the provision made for stipend payable to articled clerks was an allowable deduction and whether the Commissioner was justified in revising the assessment under section 263.

Analysis: The liability to pay stipend to articled clerks arose under the Chartered Accountants Act, 1949 and Regulation 32B of the Chartered Accountants Regulations, 1964. A statutory liability is deductible when it accrues, and the fact that the assessee had earlier followed cash accounting did not preclude a bona fide conversion, to that extent, into a hybrid or mercantile treatment for the stipulated liability. The conversion was not casual or colourable, but was thereafter followed regularly and consistently. Once the entry was genuine and the liability had accrued, the deduction could not be denied merely because of the earlier cash system. In these circumstances, the assessment order allowing the claim was not erroneous and prejudicial to the revenue.

Conclusion: The provision for stipend was allowable as a deduction and the revision under section 263 was unwarranted.

Final Conclusion: The assessment as made by the Income-tax Officer was upheld and the Commissioner's revisional order was set aside.

Ratio Decidendi: A bona fide and consistently followed change from cash to hybrid or mercantile treatment, applied to an accrued statutory liability, permits deduction of that liability notwithstanding the earlier accounting method.

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