K.N. Seth, J. - (1.) THESE three references may conveniently be disposed of together. I.T.R. No. 765 of 1975 relates to the assessment years 1958-59 to 1970-71. The Tribunal has referred the following common question in respect of all these years : " Whether, on the facts and in the circumstances of the case, there was any material on the record to sustain the finding of the Tribunal that the assessee-company was maintaining the cash system of accounting ? "
(2.) THIS very question has been referred to in I.T.R. No. 432 of 1976, which relates to the assessment year 1972-73. In I.T.R. No. 834 of 1977 arising out of the assessment year 1972-73, apart from the aforesaid question, which is referred to as question No. (i), two other questions have been referred for the opinion of this court. They are : " (ii) Whether, on the facts and in the circumstances of the case, the method of accounting employed by the assessee is such that the income for the assessment year 1971-72 could be properly deduced therefrom without adding to the assessee's total income a sum of Rs. 1,44,471, being the difference on account of excess of closing balance of bills receivable over the opening balance of the same ? (iii) Whether, on the facts and in the circumstances of the case, the payment of special bonus of Rs. 82,307 was allowable under Section 37 of the Income-tax Act, 1961, in view of the specific provisions of Section 36(1)(ii)?" The assessee is a public limited company engaged in the publication of a Hindi daily newspaper, Aaj. The previous year for each of the assessment year ended on 13th April of each year. The main dispute was against the addition of the difference between the outstandings at the beginning of the assessment year and at the close of the assessment year, The addition was made on the ground that the assessee was following the hybrid system of accounting. Various items were added by the ITO to the income returned by the assessee. When the matter came up before the Tribunal it gave a direction to the ITO to check whether the bills paid by the assessee were also taken into consideration. The ITO and the AAC gave a finding that the bills payable had been taken into consideration in the assessee's account books and the additions were confirmed by them. This point again came up in appeal before the Income-tax Appellate Tribunal. It again set aside the order of the AAC with a direction whether the bills with regard to the purchases of raw materials were outstanding at the end of any of the previous years involved and were not debited to the purchases account in the years of their purchase. The AAC was also directed to examine items of expenditure and the value of stock debited each year in similar manner and decide whether and how far his examination justified the assessee's claim that it should be assessed in respect of receipts by way of sale on cash bills. In the appeal, the AAC observed that while the figures of bills receivable had been indicated in the assessee's balance-sheet, there were no figures of bills payable shown as outstanding on the liabilities side. The assessee had made a provision for Rs. 43,607 on account of gratuity to workers under the provisions of the Working Journalists (Conditions of Service and Miscellaneous Provisions) Act, 1955, and had claimed deduction for this amount for the year 1958-59. The AAC, therefore, concluded that this fact clearly showed that the appellant's contention that it consistently followed the cash system of accounting in respect of expenditure as well as receipts was not correct because the gratuity was provided for in the accounts even though it had not been actually paid. The AAC also pointed out that initially, the assessee filed certain statements according to which certain amounts were outstanding on account of bills payable at the end of the year. Subsequently, the figures submitted by the assessee admitted that there were no bills payable in respect of purchases made at the end of the four years under consideration and the appellants contention to the contrary before the Tribunal was not correct. The assessee filed a list of bills payable in respect of salary and wages for the last month of each accounting year, which was actually paid in the first month of the succeeding accounting year. The salary and wages for the last month of the accounting year became payable not on the last day of the relevant accounting year but on the 1st day of the subsequent accounting year. Therefore, the AAC held that the assessee's contention that the assessee did not provide for salaries and wages which accrued during the last month of the relevant accounting year in the profit and loss account of that accounting year is without any substance because, according to the AAC, the liability for payment of salaries and wages for the last month of a particular accounting year accrues not on the last day of the month but on the first day of the subsequent month. On these facts, the AAC held that there was no accrued liability on account of salaries and wages payable for the last month of the assessee's accounting year. In the appeal before the Tribunal, it observed as follows: "The finding of the Appellate Assistant Commissioner that bills receivable or sundry debtors were shown on the assets side of the balance-sheet is not correct. It is significant that neither in paragraph 10 nor paragraph 13 of the AAC's order he has mentioned a single item of bills receivable or sundry debtors and, as already pointed out, the departmental representative has admitted before us that no item of bills receivable or sundry debtors are to be found in any of the balance-sheets relevant for 1958-59 to 1970-71 assessment years filed before the Income-tax Officer along with the return of total income."
(3.) ON the question of liability of salaries and wages, the Tribunal held : " That the liability for payment of salaries and wages to an employee accrues on the last day of that very month and not on the first day of the succeeding month." Further, the Tribunal, after examining the expenses on electricity and other bills, came to the following finding : "We have found as a fact that the salaries and wages payable to the employees of the company for the last month of each of the accounting years were not provided for in the books of account and profit and loss accounts of the company in the last month of each of the accounting years, which shows that the assessee was maintaining the cash system of accounting." ;