Gratuity deduction requires an actual book provision or contribution to an approved fund; a revised return claim alone is insufficient.

Section 40A(7)(b)(i) permits gratuity deduction only where an actual provision or appropriation is made during the relevant accounting year for contribution to an approved gratuity fund, or where gratuity has become payable in that year. A mere claim in a revised return, without a corresponding book provision or actual contribution during the year, is insufficient. The article also notes that the absence of a statutory obligation to contribute a fixed annual amount meant the liability did not arise by operation of law, so the principle that omission of a book entry does not defeat an accrued liability was inapplicable. On those facts, the deduction failed.

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Issues: Whether an assessee could claim deduction for gratuity by merely identifying and earmarking an amount in the revised return, without making a provision in the books or an actual contribution to the approved gratuity fund during the relevant accounting year.

Analysis: Section 40A(7) is an overriding provision and permits deduction only where a provision is made for payment by way of contribution to an approved gratuity fund or for gratuity that has become payable during the previous year. The expression "provision made" contemplates an appropriation of money for a known and existing liability. On the facts, no provision was made in the books, no actual contribution was made during the accounting year, and the amount was only claimed in the revised return. The approved gratuity fund and its rules did not create a statutory obligation to contribute a fixed amount every year. The principle that failure to make a book entry does not defeat a statutory liability was held inapplicable because the liability here did not attach or accrue by operation of law.

Conclusion: The assessee was not entitled to deduction under section 40A(7)(b)(i), and the deduction claim failed.

Final Conclusion: The question referred was answered against the assessee and in favour of the Revenue; gratuity deduction was disallowed on these facts.

Ratio Decidendi: For deduction of gratuity under section 40A(7)(b)(i), there must be an actual provision or appropriation made during the relevant accounting year for contribution to the approved gratuity fund; a mere claim in the return without a book provision does not suffice.

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