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2022 (9) TMI 304 - AT - Income TaxAssessment of trust - Disallowance on account of provision for gratuity expenditure - ascertained liability, provided in the books of accounts by the appellant - Scope of term “applied" v/s “spent" - HELD THAT:- As per provisions of section 11 (1) (a) the income derived from the property held under the trust shall not be included in total income of the previous year to the extent such income is applied for charitable purposes in India. While dealing with the issue whether provision for gratuity and leave encashment would tantamount to application of income in the case of a trust, the coordinate bench in Anandlal & Ganesh Podar Society [2021 (8) TMI 287 - ITAT MUMBAI] held that 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. In the present case, it has not been disputed that assessee has paid gratuity to its employees in the year of their retirement. It is also not in dispute that the provision for gratuity complies with required statutory provisions and accounting standards. It is also the fact that assessee has consistently prepared its accounts following mercantile system of accounting and made provision for gratuity in the similar manner, as is made in the year under consideration. We direct the AO to delete the impugned addition by allowing the provision for gratuity made by the assessee in its books of account. Accordingly, grounds raised by the assessee in the present appeal are allowed.
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