Duplicate taxation prevention requires adjustment where unpaid bonus provisions are later offered to tax, while qualifying employee incentives remain deductible.

Unpaid bonus provisions are disallowable in the year claimed unless the statutory payment condition is met, but the corresponding income must be reduced if the same amount was offered to tax in the succeeding year, preventing duplicate taxation. Provisions against standard assets may qualify for deduction under the framework for bad and doubtful debts. A provision for income tax already added back in the computation cannot be disallowed again. Following recomputation of the preceding year, any remaining unabsorbed depreciation may be carried forward and set off in the following year. Ex-gratia employee incentives paid under an employee incentive policy are allowable business expenditure in the year of payment and are not disallowable merely because the liability accumulated earlier.

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Issues: (i) Whether disallowances under Section 43B for unpaid bonus provisions could be sustained where the amount was offered to tax in the succeeding year; (ii) whether provisions made against standard assets were deductible; (iii) whether a provision for income tax already added back in the computation could be disallowed again; (iv) whether brought-forward unabsorbed depreciation was available for set-off after recomputation of the preceding year; and (v) whether ex-gratia payments were allowable as business expenditure.

Issue (i): Validity of disallowance of bonus provisions under Section 43B and prevention of double taxation.

Analysis: A bonus provision charged to the profit and loss account is subject to disallowance under Section 43B in the year in which it is claimed if the statutory payment condition is not met. However, where the same amount has subsequently been offered to tax, retaining both adjustments would result in double taxation. Verification was therefore directed to determine whether the amount was offered in the succeeding assessment year.

Conclusion: The disallowance for the relevant year was sustained, subject to reduction from the assessee's income if the amount had been offered to tax in the succeeding year.

Issue (ii): Deductibility of provisions made against standard assets under Section 36(1)(viia) and Section 36(1)(vii) of the Income-tax Act, 1961.

Analysis: Following the applicable Special Bench ruling, the provisions made against standard assets were held eligible for deduction under the statutory framework governing provisions for bad and doubtful debts.

Conclusion: The disallowances relating to provisions against standard assets were deleted.

Issue (iii): Whether a provision for income tax already added back in the computation of income could be disallowed again.

Analysis: The computation of income showed that the provision for income tax debited to the profit and loss account had already been added back. A further disallowance by the Assessing Officer would constitute a duplicate adjustment.

Conclusion: The disallowance of the provision for income tax was deleted.

Issue (iv): Whether brought-forward unabsorbed depreciation could be carried forward and set off after recomputation of the preceding assessment year.

Analysis: The Tribunal directed recomputation of the preceding year's total income after giving effect to the relief granted. Any loss or unabsorbed depreciation remaining thereafter was held eligible for carry forward and set-off against the income of the following assessment year.

Conclusion: The claim for carry forward and set-off of unabsorbed depreciation was allowed for statistical purposes, subject to recomputation.

Issue (v): Whether ex-gratia payments to employees could be disallowed under Section 37(1) on the ground that the liability related to an earlier year.

Analysis: Ex-gratia payments made pursuant to the bank's employee incentive policy were treated as salary or incentive payments rather than statutory bonus. The payments were allowable business expenditure in the year of payment and could not be disallowed under Section 37(1) merely because the liability had accumulated over earlier years.

Conclusion: The disallowance of the ex-gratia payment was deleted.

Final Conclusion: Relief was granted on the disallowances relating to standard-asset provisions, the already-added-back income-tax provision, ex-gratia payments, and the consequential depreciation claim, while the bonus-provision adjustment remained subject to verification to prevent duplicate taxation.

Ratio Decidendi: An amount disallowed under the applicable statutory provision cannot be taxed again when it has been offered to tax in a succeeding year; provisions against standard assets may qualify for deduction under the applicable bad-debt provision, and ex-gratia employee incentives are allowable business expenditure when incurred in the year of payment.

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