1991 (3) TMI 386

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....mmissioner:      1. Whether, on the facts and in the circumstnaces of the case and in law, the Tribunal was justified in holding that the assessee was entitled to the deduction of both the amounts of Rs. 12,84,200 and Rs. 14,39,543 respectively, being the actual payment of bonus and the provision for the payment of bonus during the previous year?      2. Whether, on the facts and in the circumstnaces of the case and in law, the Tribunal was justified in holding that the following amounts were the part of the profits attributable to its priority industry for the purpose of deduction under section 80-1 of the Income-tax Act, 1961:      (i )Rs. 3,50,000, being the technical c....

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.... Rs. 4,26,907 being interest on short-term deposits and Rs. 2,67,978 being the rent received represented its profits and gains attributable to the priority industry. However, the ITO held that these amounts were not attributable to the priority industry and excluded them from the profits of the priority industry, thereby reducing the deduction allowable to the assessee under section 80-1. It is common ground that with the introduction of the Payment of Bonus Act, 1965, payment of bonus to the employees became the assessee's statutory obligation. However, even though the assessee was following mercantile system of accounting in respect of other income and expenditure, it continued to follow cash method of accountancy with regard to bonus ....

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....Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363, held that the provision for bonus of Rs. 14,39,453 was allowable as deduction. However, for reasons stated by him in the order, he directed that the deduction for smaller amount of Rs. 12,84,200 on cash basis could not, at the same time, be allowed. Accordingly, he directed the withdrawal of the deduction for that amount. The Tribunal has considered this issue in its order at length. It has come to the conclusion that the AAC was not right in withdrawing the deduction of the sum of Rs. 12,84,200 which was allowed by the ITO. 4. So far as the second question referred to us at the instance of the Commissioner is concerned, the counsel are agreed that the issue is covered by our Court's decision ....

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....      "Method of accounting.-(1) Income chargeable under the head 'Profits and gains of business or profession' or Income from other sources' shall be computed in accordance with the method of accounting regularly employed by the assessee:      Provided that in any case where the accounts are correct and complete to the satisfaction of the Assessing Officer but the method employed is such that, in the opinion of the Assessing Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Assessing Officer may determine:      Provided further that where no method of accounting is regularly employed by the....

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.... accounting can be changed bona fide and regularly. If the method is followed regularly and is bona fide, there does not appear to be any reason why the change should not be allowed. Dr. Balasubramanian, it may be stated, had contended that the assessee could not change the method of accounting without seeking permission of the ITO and that it will be for the ITO to impose conditions for allowing the change of method. However, he was not able to point out any authority in support of his submission. Accordingly, we proceed to examine the issue on the basis that the change of method in this case as regards bonus has been bona fide and has been consistently and regularly followed thereafter by the assessee. 7. The question that requires con....