As the assessee is regularly following the accounting practice of making provision on year to year basis on the basis of the performance of the employees and the same is definite and accured liability of the assessee for the year for which the services have been rendered by the employees and the same partakes the character of the salary and hence cannot be disallowed. – ITAT Delhi

• Assessee is a company who filed its return of income on 1/11/2004 declaring income of RS. 47,02,97,890/–.

• During the course of assessment proceedings the income of the assessee was determined by the learned assessing Officer at Rs. 513851330/– by passing an order u/s 143 (3) of the income tax act on 26/12/2006 by making disallowances on account of accrued incentive.

• The assessee challenged the order of the learned AO before the learned CIT – A. He partly allowed the appeal of the assessee and therefore the assessee is now in appeal before us.

• The assessee explained that these expenses have been incurred in respect of the payments to be made to the employees for encouraging them to promote business of the assessee.

• The assessee has given a complete detail of these expenditure of the provisions made for the year. The assessee has also stated that no tax is required to be deducted u/s 192 of the income tax act unless the salaries are paid to those employees.

• The above provision has been made by the assessee on year-to-year basis on the basis of the performance of the employees.

• The excess provision is always written back to the profit and loss account in the subsequent year, if it is found to be short, further provision is made.

• This accounting practice is carried on by the assessee consistently.

• As the expenditure has been incurred for the incentive of the employees of the company raised on their performance for the same year for which the actual services have been rendered by the employees, above expenditure has been incurred by the assessee during the year only and exclusively for the purposes of the business.

• It is nothing but additional variable salaries payable to the employees. Same partakes character of salary.

Since, the assessee is religiously following the same accounting practices on year to year basis and is making the provision for “accured incentive” for the staff and is is always writing back the excess provision to the profit and loss account in the subsequent year, if it is found to be short, further provision is made, then in that case, the disallowance made by the Ld. AO shall be reversed and the same shall not be disallowed.