The Commissioner in revision was not justified in relying on the statement of an employee of the assessee company in preference to the statement made by the Chief Electrical Inspector of the State Government regarding date of installation and use of machinery by the assessee.
1. This appeal is directed against the order of the Commissioner made under Section 263 of the Income-tax Act, 1961 ('the Act').
2. The assessee is a company. The assessment for the assessment year 1978-79 was originally completed on 3-8-1981 on a total income of Rs. 24,30,620. On going through that assessment order the Commissioner felt that the deduction of bonus, the deduction of depreciation and investment allowance in respect of certain machineries and the calculation of extra shift allowance were incorrect and he, therefore, proposed to revise the assessment. The assessee objected to the revision by pointing out that the bonus had been paid in accordance with the Payment of Bonus Act, 1965, and the trainees to whom bonus was paid were entitled to bonus because they were not raw apprentices but were actually semiskilled workers. It was also pointed out that the employees in respect of whom, the Commissioner believed the salary exceeded Rs. 1,600 per month were actually receiving less than Rs. 1,600 per month as could be seen from the acquittance register. With regard to the investment allowance and depreciation in respect of electrical machinery, it was pointed out that the Chief Electrical Inspector had after inspection of the factory on 10-1-1977 granted permission to commission the machinery already installed and the company had reported by letter dated 26-1-1977 that the machinery had been commissioned at 3.00 P.M. on 21-1-1977 and was entitled to investment allowance and depreciation because the machinery had been installed and put to use in the previous year. With regard to the extra shift allowance, the assessee pointed out to the circular of the Board stating that it should be computed with reference to the working of the concern as such. The Commissioner, who had issued the notice on 27-7-1983, passed the order on 1-8-1983 itself withdrawing the allowances given in the assessment order as proposed.
3. The assessee appealed and contends that presumably the Commissioner had no time to apply his mind to the facts given in the objections to the show cause notice and the evidence produced by the assessee to indicate that the allowances given in the assessment order were correct and did not require to be disturbed. After hearing the revenue, we find that there was no justification for making this revision. The facts clearly show that the bonus paid under the Payment of Bonus Act was within the scope of that Act because the trainees were not apprentices employed under the Apprentices Act, 1961, who alone would be excluded from the Payment of Bonus Act and all the employees were receiving emoluments less than Rs. 1,600 per month. Even assuming that there were some employees who are not entitled to bonus under the provisions of the Payment of Bonus Act, in the absence of any allegation that the expenditure was incurred for considerations other than that of business, it is to be allowed either under Section 36(1)(ii) of the Act as bonus other than bonus under the Payment of Bonus Act or under Section 37 of the 1965 Act as expenditure laid out for the purpose of business. The assessee has rightly placed reliance on Circular No. 206) [F. No. 204/64/75-IT(A-II)], dated 9-8-1976--Taxmann's Direct Taxes Circulars, Vol. 1, 1980 edn., p. 201--of the Board, which stated that in respect of employees earning salary of more than Rs. 1,600 per month, the second proviso to Section 36(1) would continue to apply and unless the amount is excessive or unreasonable, it cannot be disallowed. Similarly, with reference to the computation of the extra shift allowance for depreciation, there is again a circular of the Board, which is binding on the revenue. With regard to the investment allowance and depreciation relatable to electrical machinery, there was before the Commissioner a contemporaneous statement of an independent authority, namely, the Chief Electrical Inspector of the Government of Tamil Nadu, which established that the machinery had been installed and used in the previous year. The Commissioner has referred to a certificate given by an employee of the assessee before the ITO giving the dates on which several machines had been installed containing a different date for these machines, But that document cannot prevail over the statement of an independent authority, namely, the Chief Electrical Inspector of Government, who has actually inspected and reported that the machineries were installed and used in January 1977.
Perhaps the Commissioner had no time to look into these aspects of the case since he made the order within three days of the show cause notice. It is clear that the revision made under Section 263 was wholly unjustified by the facts of the case and in the face of the circulars of the Board which were binding on the Commissioner. We must, therefore, cancel his order. The appeal is allowed.