TaxTMI 
TaxTMI 
TaxTMI 
2009 (4) TMI 475
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.... an approved gratuity fund on the facts and in the circumstances of the case? 3. Whether the Tribunal's order dt. 21st June, 1990 in ITA No. 529/Mad/1987 rendered in the assessee's own case for the asst. yr. 1982-83 could be said to be an order rendered per incuriam and not binding in view of non-consideration of correct legal position in this regard?" 2. We have heard the rival submissions in the light of the material placed before us and the precedents relied upon. This appeal is directed against the order passed under s. 263 of the Act. The assessee is a company. For the relevant assessment year in the balance sheet of the assessee a provision for gratuity was reflected at Rs. 7,85,600. The assessee claimed this as deduction in the return of income. The AO allowed the same without making any discussion in the order of assessment. Thereafter the CIT assumed jurisdiction under s. 263 of the Act, as in his opinion the order was erroneous and prejudicial to the interest of the Revenue. In the case of Rampyari Devi Saraogi vs. CIT (1968) 67 ITR 84 (SC) the Hon'ble apex Court has held that in order that the CIT may consider an order to be erroneous for the purposes of s. 263, the er....
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.... the matters dealt with therein, in computing the income referred to in s. 28- ......... (v) any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust." The term 'paid' is defined under s. 43(2) of the Act as under: "43. In ss. 28 to 41 and in this section, unless the context otherwise requires,- ......... (2) 'paid' means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head 'Profits and gains of business or profession'." 6. According to the learned Departmental Representative s. 40A(7) overrides the provisions of s. 36(1)(v). Sec. 40A(7) reads as under: "40A(1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provisions of this Act relating to the computation of income under the head 'Profits and gains of business or profession'. ......... (7)(a) Subject to the provisions of cl. (b), no deduction shall be allowed in respect of any provision (whether called, as such or by any other name) made by the a....
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....34 ITR 863 (All) it was held that even under the mercantile system of accounting a liability incurred cannot be entered in the accounts as an expenditure unless the liability has become an ascertained sum of money. Until ascertained, the liability no doubt exists, but proceedings have yet to be taken in some way or other to determine the exact amount. A vague liability to make a payment cannot be entered into accounts and in that state it cannot be said to have been incurred so as to count as "paid" within the meaning of s. 43(2). 9. In the facts of the present case we find that the assessee did not describe with exactitude the true nature of the liability. The CIT found that the approved gratuity liability as on 31st March, 1981 and 31st March, 1980 was Rs, 55,35,469 and Rs. 51,97,480 respectively. Hence, the amount payable as contribution to the fund was only Rs. 3,37,989. The AO has allowed Rs. 7,85,600, Accordingly the CIT directed the AO to withdraw the excess allowance of Rs. 4,47,611. In arriving at this conclusion reliance was placed on the decision of the Hon'ble apex Court rendered in the case of Shree Sajjan Mills Ltd. vs. CIT (l985) 49 CTR (SC) 193 : (1985) 156 ITR 585....
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....e under any other provision relating to the head 'Business or profession' will be disallowed in cases to which the provisions of s. 40A apply.......... Contingent liabilities do not constitute expenditure and cannot be the subject-matter of deduction even under the mercantile system of accounting. Expenditure which is deductible for income-tax purposes is towards a liability actually existing at the time but setting apart money which might become expenditure on the happening of an event is not expenditure." It may be stated that for the asst. yr. 1973-74 onwards the applicable law would be in accordance with s. 40A(7), as declared by the Hon'ble apex Court in the case of Shree Sajjan Mills Ltd. cited supra. 10. It was further alleged by the learned counsel for the assessee that since provision was made by the assessee for the purpose of payment of a sum by way of contribution towards approved gratuity fund, as such the amount of provision should be allowed within the meaning of s. 40A(7)(b). 11. We find it difficult to accept the contention raised by learned counsel because the assessee did not comply with the conditions contained under s. 40A(7)(b) of the Act. In the case of C....