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2021 (8) TMI 287 - AT - Income TaxDisallowance of provision for gratuity and leave encashment - HELD THAT:- The provisions are necessary to be made for certain purposes like, provision for depreciation is to be made in respect of decrease in value of property through wear and tear, deterioration or obsolescence and allowance is made for this purpose in book-keeping, accountancy, etc. It is the provision made for the loss or expenses incurred through using the asset for earning profits, and should, therefore, be charged against those profits as they are earned. If depreciation is not provided for, the books will not contain a true record of revenue or capital. If the asset were hired instead of purchased, the hiring fee would be charged against the profits, having been purchased, the asset is, in effect, then hired by capital to revenue, and the true profit cannot be ascertained until a suitable charge for the use of the asset has been made. Likewise, the provision for gratuity and leave encashment also required to be provided as mandated by Law. Without being such provisions made, the balance sheet will not present a true and fair view of the state of affairs. In CIT v. Indian Jute Mills Association [1981 (2) TMI 34 - CALCUTTA HIGH COURT] held while constructing the expression 'expenditure incurred' in section 44(A) of the Act observed: "depreciation claim shall include the expenditure incurred." Thus, in case of trust, the meaning ‘applied’ need not be construed as ‘spent’. It includes the necessary provisions required to be made as per statutory requirement. Therefore, we direct the AO to allow the provision for gratuity and leave encashment as applied for the object of the trust. Accordingly the ground raised by the assessee is hereby allowed.
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