Gratuity and retrenchment allowance claims failed where no actual payment, retrenchment, or statutory compliance was proved.

Gratuity claimed as business expenditure was disallowed because it was only a provision, no actual payment was shown during the relevant accounting period, and the conditions of section 40A(7) of the Income-tax Act, 1961 were not satisfied. Retrenchment allowance was also disallowed because the business continued, no actual retrenchment was established, no notice under section 25F of the Industrial Disputes Act, 1947 was issued, and no payment was made. The enhanced claim based on a connected firm's case was rejected because that decision did not create a deductible liability in the assessee's hands.

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Issues: Whether the assessee was entitled to deduction of amounts claimed as gratuity and retrenchment allowance, including the enhanced claim, as business expenditure.

Analysis: The claim for gratuity was treated as a mere provision, since no actual payment during the relevant accounting period was established and the conditions for allowance under section 40A(7) of the Income-tax Act, 1961 were not shown to have been satisfied. The employees had neither retired nor had their services been terminated during the accounting period. The retrenchment claim also failed because the business continued, no actual retrenchment was shown, no statutory notice under section 25F of the Industrial Disputes Act, 1947 was issued, and no actual payment was made. The enhanced claim based on the decision in the connected firm's case was rejected because that decision did not create a deductible liability in the assessee's hands.

Conclusion: The deductions for gratuity and retrenchment allowance were rightly disallowed, and the enhanced claim also failed.

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