TMI Blog1987 (3) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... remental liability to gratuity according to the actuarial valuation for the years ended March 31, 1973, March 31, 1974, and March 31, 1975, in the assessment for the assessment year 1975-76 ? " For the assessment year 1975-76 relevant to the accounting year ending March 31, 1975, the assessee claimed deduction of Rs. 32,16,950 as provision for gratuity. The assessee admitted before the Income-tax Officer that the provision was made towards the liability which arose prior to March 31, 1974. Since the provision was thus not relevant to the liability which arose in the accounting year relevant to the assessment year 1975-76, the Income-tax Officer disallowed the claim. This is what he has stated at page 3 of the paper book : " Gratuity Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esenting what the Tribunal refers to as " incremental liability to gratuity " for the years ending March 31, 1,973, March 31, 1974, and March 31, 1975. The Tribunal held that the assessee complied with the provisions of section 40A(7) to the extent of the " incremental liability " for the said years in the sum of Rs. 11,96,413. The Tribunal stated: ". ...... The assessee has created the gratuity fund, the fund has been approved by the Commissioner of Income-tax and the provision has been made in the accounts for the year ended March 31, 1975, to the extent of Rs. 32,16,950. The amounts of Rs. 9,60 lakhs and Rs. 2,36,413 have also been paid to the gratuity fund on March 30, 1976, and March 30, 1977 ...... .." The Tribunal overlooked the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending March 31, 1975, in respect of the liability which arose prior to March 31, 1974. All this apart, what is more fundamental is that the Tribunal wrongly in our view, thought that an " incremental liability" was a concept germane to section 40A(7)(b)(ii) and that an allowance could be claimed under that caption for amounts in excess of the " admissible amounts " defined under Explanation I to section 40A(7)(b)(ii) of the Act. The Tribunal allowed the claim up to Rs. 11,96,413 on the misconception that what was in excess of the 8 1/3 ,per cent. permissible under section 40A(7)(b)(ii) could be allowed de hors the section by calling it an " incremental liability ". This was clearly wrong, for the section does not permit it. No other provis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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