1989 (4) TMI 56

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....ncome-tax Act, 1961, did not apply to a case where no provision on account of gratuity liability has been made in the accounts and/ or whether section 40A(7) applied to such a case is a debatable matter and in that view holding that the allowance of Rs. 1,08,864 being liability for payment of gratuity against the express prohibition contained in section 40A(7)(ii) was not a mistake apparent from the record subject to rectification under section 154 of the Income-tax Act, 1961 ?" The facts relating to this reference shortly stated are that in respect of the assessment year 1973-74, the assessee had claimed deduction of Rs. 1,08,864 on account of gratuity and the Income-tax Officer allowed the claim by his order dated August 30, 1974. The ....

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....s pointed out that the assessee had made very small provision but the claim before the Income-tax Officer was in respect of the liability which had been actuarially valued and claimed. It was contended that the amount of Rs. 1,08,864 had not been provided in the assessee's accounts and reliance was placed on an order of the Tribunal in which it was held that the provisions of section 40A (7) (b) were not applicable where provision was not made but the claim was made on the basis of actuarial valuation. It was also contended that as the matter was arguable and more than one view was possible, the provisions of section 154 could not be applied. The Tribunal, after hearing the parties, held as follows : "We have considered the facts of the ....

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....ective amendment by insertion of section 40A(7) prohibiting the allowance of provision for gratuity when no approved gratuity fund existed. The provision of section 40A(7) shall be deemed to have been included in the statute from the date on which the amendment came into force, i.e., April 1, 1973, and the assessment order having been passed subsequent to that date, it must be in consonance with the amended provision. If the assessment order is plainly and obviously inconsistent with the specific and clear provision as amended retrospectively, undisputably there is a mistake apparent from the record. In the light of the retrospective amendment, the assessment order has to be revised. No question of construction and the legal effect of the a....