TaxTMI 
TaxTMI 
2023 (1) TMI 219
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....at on the facts and in the circumstances of the case, the Learned CIT(A) had grossly erred in not rendering specific instructions to the AO to recompute the "Accumulation of Income" as specified under section 11(1 )(a) of the Act on gross receipts of the Trust without placing cognizance to the submission preferred before him 3. That on the facts and in the circumstances of the case, the Learned CIT(A) grossly erred in confirming the action of the AO in disallowing provision for accrued and determined liability of Rs.11,02,552/-. 4. That on the facts and in the circumstances of the case, the Learned C1T(A) grossly erred in confirming the action of the AO in computing the Capital Gain on sale of assets at Rs.l0,08,645/- as against Rs.4,14,577/- claimed. 5. That in view of the facts and in the circumstances of the case, the Learned CIT(A) grossly erred in not understanding the fact that even otherwise the entire income of the Appellant is exempt under 10(21) of the Act. 6. For that in view of the facts and circumstances the appellant craves the right to put additional grounds/ and/or to alter/amend/modify the present grounds at the time of hearing. 3. The issue raised on grou....
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....ation of income. In other words, the application of income has to be taken into account from the said gross receipts for the purpose of accumulation u/s11(1)(a) of the Act. The case of the assessee is squarely covered by the decision of co-ordinate Bench of Kolkata in the case of Kanehialall Lohia Trust vs. ITO in [2020] 120 taxmann.com 208 (Kol-Trib). Accordingly we set aside the order of Ld. CIT(A) on this issue and direct the AO to compute the income to be accumulated u/s 11(1)(a) of the Act on the gross receipts. Accordingly ground no. 2 is allowed. 8. Issue raised in ground no. 3 is against the order of Ld. CIT(A) confirming the action of AO in disallowing the provisions created for accrued and determined liability of Rs. 11,02,552/-. 9. Facts in brief are that the AO during the assessment proceedings observed that the assessee has booked in the income and expenditure account a sum of Rs. 43,14,446/- representing the provisions created for payment of gratuity and leave encashment. According to the AO, the said provisions cannot be allowed as expense and accordingly Rs. 43,14,446/- was disallowed by the AO in the assessment framed. However the actual payment made by the asses....
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....to pay such sum was incurred by the trust or institution according to the method of accounting regularly employed by it). Provided that where during any previous year, any sum has been claimed to have been applied by the trust or institution, such sum shall not be allowed as application in any subsequent previous year." A perusal of the above amendment by Finance Act, 2022 by inserting explanation is very clear and conspicuous that w.e.f AY 2023-24 any sum payable by any trust or institution shall be considered as application of income in the previous year in which sum is actually paid by it irrespective in which the liability to pay such sum was incurred by the trust/institution according to the method of accounting regularly employed by it. So we draw strength from the said explanation to section 11(7) that prior to AY 2023-24 the expenses were allowable to the trust as application of income even on accrual basis and thereafter specifically provided to be treated as application of income on the payment basis w.e.f. AY 2023-24. We have perused the provisions of section 11(1) of the Act which specifies only application of income and not the actual spending which has been amended....
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....he said sum (Rs. 3 lacs) was held to be not a case of application. Therefore in the peculiar facts of the case, it was observed that 'except for the making of entries in the assessee's own books, which entries could have been reversed if and when the assessee chose to do, the assessee has not done in anything which can be characterize the payment as donation or application of the income of the trust for any charitable purpose'' which was not the case of the present assessee as misinterpreted by the AO, therefore, according to the Ld. AR the case of Nachimuthu Industrial Association (supra) is distinguishable on facts. Therefore, according to the Ld. AR, the provision for gratuity is required to be made since it is a statutory obligation and, therefore, he prayed that the provision for gratuity need to be considered as application of income. We agree that the gratuity to the employees is a statutory obligation, and therefore is obliged by law to disburse the same when the employees demit office or superannuate. In this case, the assessee has booked provision for gratuity as per the actuarial valuation and the manner and determination of the same is a scientific process adopted by ex....
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.... a contingent liability; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated. 6. So is the view taken in Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1, wherein this Court has held that the liability on the assessee having been imported, the liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be discharged at a future date. There may be some difficulty in the estimation thereof but that would not convert the accrued liability into a conditional one; it was always open to the tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case." 4.7. Therefore, in the light of the aforesaid discussion and the ratio of the case law supra, we are of the opinion that the assessee's claim in respect of provision for gratuity as per the actuarial valuation should have been allowed in the facts and circumstances of the case; and....