Per Shri C. Kochunni Nair, Judicial Member - The question that arise in the appeals of the assessee for the assessment years 1978-79 to 1980-81 are dealt with as follows :
2. (i) Foreign exchange fluctuation Rs. 13,471 - Whether revenue or capital [Assessment year 1978-79] :
We agree with the reasoning and conclusions of the Commissioner (Appeals). That is also supported by the decision in the case of Poysha Industrial Co. Ltd. v. ITO  4 ITD 41 (Bom.). Ground rejected.
3. (ii) Disallowance under sections 40(c) and 40A (5) of the Income-tax Act, 1961 (the Act) [Assessment years 1978-79 and 1979-80] :
We agree with the reasoning and conclusions of the Commissioner (Appeals). The submission raised in the grounds of appeal before the Commissioner (Appeals) as well as before us that commission is not salary and that it is the principal and agent relationship and not employer and employee are not acceptable to us. Ground rejected.
4. (iii) Bonus under the Bonus Act [Assessment years 1978-79 to 1980-81] :
The accounting year is 30-6-1977 for the assessment year 1978-79 and so on. The assessee follows mercantile system of accounting. It made a rough estimated provision of Rs. 7,24,441 for the assessment year 1978-79, Rs. 10,87,227 for the assessment year 1979-80 and Rs. 14,50,000 for the assessment year 1980-81. The ITO said that the assessee is, as regards bonus, following cash system. What the ITO said was that the provision for bonus for each year is added back in the adjustment statement and what was actually paid in the year relating to the earlier year is claimed and allowed as deduction. So, on that basis, he did not allow anything in respect of the provision for the assessment year 1978-79, because it was only a provision paid in the subsequent year. There being also no payment in accounting year relevant to the assessment year 1978-79 relating to last year, nothing on that count was also deducted. Then for the assessment year 1979-80 the provision made was added back and actual payment of Rs. 7,11,669 relating to the assessment year 1978-79 was allowed. For the assessment year 1980-81 actual payment of Rs. 8,34,529 relating to payment for the assessment year 1979-80 was allowed as deduction. The actual payment relatable to the assessment year 1980-81 which according to the ITO is to be allowed only in the assessment year 1981-82 is Rs. 11,15,401. The Commissioner (Appeals) agreed with this type of assessment.
5. We are inclined to agree with the assessee and allow the provision in the respective years in which it was made but only to the extent of actual payment made in subsequent years. The ITO is wrong in thinking that the assessee is following cash system with regard to bonus. The method of accounting even for that item is really mercantile. The assessee is making a provision for bonus in the accounts. It is only in income-tax adjustment statement for the income-tax purposes that it is being added back. The method of accounting is to be found out not from what the assessee did in income-tax proceedings before the ITO to determine the assessable total income, but from the what the assessee used to do in the preparation of its profit and loss account to ascertain the commercial profits. So the system being mercantile and the bonus being a statutory liability, the provision are to be deducted in the year itself in which they are made. So we are allowing a deduction of Rs. 7,11,669 for the assessment year 1978-79 and Rs. 8,34,529 in the place of Rs. 7,11,669 for the assessment year 1979-80. However, we are not specifying the amount for the assessment year 1980-81. The provision is for Rs. 14,50,000. But payment relating to the assessment year 1980-81 in subsequent year is only of Rs. 11,15,401.76. So the provision up to the payment amount only can be allowed as a deduction. That can be allowed also as it does not exceed the maximum of 20 per cent provided under the Bonus Act. But the assessment orders shows that a sum of Rs. 2,73,522 has been already debited to profit and loss account of that year. So the ITO may decide whether the amount allowable is Rs. 11,15,401 or that figure less Rs. 2,73,522 that should be allowed as a deduction. Ground allowed in part.
6. (iv) Sales tax liability Rs. 8,96,353 [Assessment year 1979-80]
We agree with the reasoning and conclusions of the ITO and the Commissioner (Appeals). In fact, the interest of the assessee has been very well protected by the ITO, the IAC (Assessment) and the Commissioner (Appeals), when they assure that it will be allowed in the assessment year 1982-83. The assessee may do well to claim it in time for that year. There is also no liability for this year. The tax liability for escaped assessment which can be determined only be reassessment proceedings does not accrue on the issue of a notice as to why a reassessment should not be made. Ground rejected.
7. (v) Flood relief Rs. 1,02,681 [Assessment year 1979-80] :
A nearby river got flooded and breach also had occurred in the dam. Many villages were inundated. Many of the workers and relatives stayed in those or nearby villages. The assessee spent much amount in cash and king on flood relief. The assessee claimed 50 per cent of it, perhaps under section 80G of the Act. The IAC (Assessment) directed its disallowance both under section 37(1) of the Act and also under section 80G on the ground that it is only in king and not cash. The following ground was raised before the Commissioner (Appeals) :
'3. Your petitioner had at the request of the Government officers provided food and cloth to the persons who were affected by floods in the area from where the workers of the petitioner come. The expenditure was incurred at the request of the Government officials of the place under whose jurisdiction your petitioner functions and it is out of commercial expediency that the expenses was incurred. The entire expenditure is not claimed but only 50 per cent of its donation. The disallowance is not justified.'
8. The Commissioner (Appeals) held that it is neither laid out wholly and exclusively for the purpose of business, nor supported by a certificate under section 80G. We are inclined to allow it under section 37. It is well supported by commercial expediency. It is not as if it is a welfare scheme for workers or their rehabilitation from ravages of flood. So the argument of the departmental representative that there is no evidence that villages were occupied by workers, what benefit the workers got and the like are not relevant. This is an expenditure supported by commercial expediency. The averments in the ground reproduced above are not disputed by the Commissioner (Appeals). That is was a flood relief organised by the Government as is usual and obligatory on such occasions is beyond dispute. It is the Government represented by local officials that generally takes the lead in these matters. Such practice is an accepted fact. So the averments in the grounds are well supported and borne out by facts and circumstances. In the grounds before us it is also stated that the expenditure was incurred by the assessee-company on the strong representation and recommendation of the workers of the assessee-mill. That averment also in a situation like that would have been only a truth. It is acceptable to us. In such situations of devasting floods everybody contributes their might for relief. So the workers would have ordinarily requested the mill to take a lead in such matters. So the expenditure was at the behest, initiative and desire of the local officials and mill workers. The assessee in private enterprise cannot afford to displease the local officials nor their workers. Non-corporation with the local officials or indifference to the request of the workers will lead to difficult situations. The adverse effect of such a conduct can well be imagined than described. So, the expenditure incurred at the behest of Government officials and mill workers is amply supported by commercial expediency. It is, therefore, allowable under section 37. There is nothing personal, capital, charitable or donative in such expenditure. It is all incurred only because of pressure from outside authorities. It was not a voluntary charitable donation. So it is allowed. Ground allowed.