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(2) Having come to the conclusion that the assessee was entitled to deduct the provision of accrued liability for bonus payable to the employees for the previous year, that is, Rs. 42,67,500, was the Appellate Tribunal right in disallowing the amount of Rs. 19,53,904 being bonus for the year preceding the previous year ?

(3) Whether, on the facts and in the circumstances of the case, the assessee is not entitled to the deduction of the bonus paid to the employees in the previous year towards liability for the same in the year preceding the previous year as well as the amount towards provision being accrued liability in respect of bonus payable to the employees for the previous year ?

(2) Having come to the conclusion that the assessee was entitled to deduct the provision of accrued liability for bonus payable to the employees for the previous year, that is, Rs. 54,86,496, was the Appellate Tribunal right in disallowing the amount of Rs. 37,84,808 being bonus of the year preceding the previous year ?

(3) Whether, on the facts and in the circumstances of the case, the assessee is not entitled to the deduction of the bonus paid to the employees in the previous year towards liability for the same in the year preceding the previous year as well as the amount towards provision being accrued liability in respect of bonus payable to the employees for the previous year ?

(4) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the entire expenditure incurred by the assessee for the maintenance of their buildings given for the residence of their employees and the depreciation thereon should be subjected to the disallowance under Section 40A(5) of the Income-tax Act, 1961 ?"

3. Except the variation regarding the amounts, the questions that arise for consideration for both the years are substantially the same. We shall proceed to state the facts with reference to the assessment year 1977-78 which is the subject-matter of Income-tax Reference No. 90 of 1984. As stated, admittedly, the assessee follows the mercantile system of accounting. The practice of the assessee in the past, till the assessment year in question, was to make a provision in the accounts for the bonus that is payable relating to the year of account, add back such provision to the profits according to the profit and loss account and deduct from such amount the bonus that is actually paid during the previous year. For the first time, in the assessment year 1977-78, the assessee desired to depart from this practice. It wrote a letter dated August 20, 1979, to the Income-tax Officer. It stated that in addition to the claim for the payment relating to the preceding year, that was actually paid, for this assessment year the assessee has decided to claim the bonus for the current year's "accrued liability". The reason stated was that the company was converted into a rupee company. The assessee claimed Rs. 42,67,500 as "a provision" for this (current) assessment year and Rs. 19,53,904 as bonus "paid" relating to the preceding accounting year. The bonus related to the estate staff and labour. The Income-tax Officer held that the reason stated for deviation from the practice hitherto adopted was untenable and allowed only the liability of the preceding accounting year, that was "actually paid", as a deduction. This was confirmed in appeal by the Commissioner of Income-tax (Appeals). He added that regarding the bonus payment, the assessee was following the cash system of accounting or the actual payment basis. Before the Appellate Tribunal, the assessee claimed that it is entitled to deduction on actual payment basis relating to the previous year as also for the deduction of bonus payable for the current year on the basis of accrued liability. The Tribunal noticed that the assessee was following the mercantile system of accounting, but at the assessment stage, the bonus has been allowed only on "actual payment" basis and such assessments were not disputed by the assessee in the past. Relying on the decision of the Calcutta High Court in Seth Chemical Works v. CIT, [1983] 140 ITR 507, the Tribunal directed the Income-tax Officer to allow the sum of Rs. 42,67,500 in the place of Rs. 19,53,904 (limited to accrued liability). The decision of the Madras High Court in CIT v. Coimbatore Cotton Mills Ltd., [1983] 140 ITR 562, relied on by the assessee, was distinguished and held to be inapplicable.

5. We heard counsel for the assessee, Mr. P.K. Kurian, as also counsel for the Revenue, Mr. P.K.R. Menon. Counsel for the assessee broadly highlighted two points or aspects which are germane to answer the questions referred by the Appellate Tribunal for the decision of this court. They are : (1) The Income-tax Officer allowed deduction of bonus that was actually paid during the previous year. This is on actual payment basis or on cash basis. It was upheld by the Commissioner of Income-tax (Appeals). There was no appeal by the Revenue against that portion of the order. Even at the assessment stage, the assessee had also claimed deduction for payment of bonus for the current year on the basis of accrued liability. The Appellate Tribunal upheld this claim. In doing so, the Tribunal negatived the claim allowed by the Income-tax Officer and upheld by the Commissioner of Income-tax (Appeals) on the basis of actual payment basis. The Appellate Tribunal was incompetent to do so in an appeal filed by the assessee. The relief granted by the Income-tax Officer and upheld by the Commissioner of Income-tax (Appeals) cannot be interfered with. This is all the more so in the absence of an appeal by the Revenue. Reliance was placed on the decisions in CIT v. Mahalakshmi Textile Mills Ltd., [1967] 66 ITR 710 (SC), L.K. Shaik Mohammed Brothers v. CIT, [1978] 112 ITR 622, 623 and 624 (Mad) and Reform Flour Mills (Pvt.) Ltd. v. CIT, [1978] 115 ITR 598, 608 (Cal). (2) No doubt, the assessee was following the mercantile system of accounting. Consistent with the past practice, it is entitled to deduction of the bonus actually paid during the previous year on actual payment basis. In addition, in view of the mercantile system of accounting adopted by the assessee, the assessee is also entitled to claim bonus for the current year's accrued liability. The deduction for payment of bonus, on both counts, can be claimed. Both of them should have been allowed. Reliance was placed on the following decisions : Central Paints Ltd. v. CIT, [1984] 146 ITR 212 (MP), CIT v. Swadeshi Cotton and Flour Mills Private Ltd., [1964] 53 ITR 134 (SC) and CIT v. Coimbatore Cotton Mills Ltd., [1983] 140 ITR 562, 564 (Mad).