THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.27 of 2000 Dated:26.12.2011 Between: Commissioner of Income Tax, Visakhapatnam. …Applicant and Sri R.Sanjeeva Rao, Vijayawada. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.27 of 2000 ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) The Commissioner of Income Tax got the following question referred to the opinion of this Court under Section 256(1) of the Income Tax Act, 1961 (the Act). Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is justified in holding that 40% of incentive bonus should be allowed as an expenditure in addition to the standard deduction under Section 16(i) more so when the expenditure involved, if any, in traveling is covered by the conveyance, additional conveyance provided by the employer and exempted under Section 10(14) of the Income Tax Act? The brief fact of the matter is as follows. The respondent/assessee at the relevant time was Development Officer. For the relevant assessment year, he claimed 40% deduction out of incentive bonus received by him and deducted the entire conveyance allowance and additional conveyance allowance in computation of his income. The assessment was completed accepting the deductions. The Commissioner of Income Tax initiated proceedings under Section 263 of the Act and opined that the deductions claimed by the assessee and accepted by the Assessing Officer were erroneous and directed the Income Tax Officer to withdraw the deduction of 40% out of incentive bonus allowed in the original assessment. On appeal by the assessee, the Tribunal cancelled the revisional order of the Commissioner. Aggrieved by the same, the Revenue sought reference under Section 256(1) of the Act. The question referred to hereinabove is squarely covered by a judgment of Division Bench of this Court in Commissioner of Income Tax v B. Chinnaiah[1], wherein it was held as under. … In view of the above judgments, it cannot but be held that “incentive bonus”, whether treated as part of the salary or perquisite, is taxable under the head “Salary” and the permissible deductions under the said head are as specified under Section 16 of the Act. It is nobody’s contention that 40 percent of the bonus, deducted by the assessee as expenditure and upheld by the Tribunal, falls under any of the items under section 16. Thus the expenditure is other than permissible deduction under section 16 of the Act. It has already been observed above that the only permissible deductions under the head “Salary” are those mentioned in section 16 and if any expenditure does not fall within the meaning of section 16, it cannot be allowed. … Following the above, the reference is answered in the negative in favour of the Revenue and against the assessee. The Referred Case is accordingly disposed of without any order as to costs. _______________ (V.V.S.RAO, J) ____________________ (B.N.RAO NALLA, J) 26.12.2011 vs [1] (1995) 214 ITR 368