TMI Blog1995 (8) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... es liable to be added while working out book profit. 2. The assessee-company filed its return for the assessment year 1989-90 declaring total income of Rs. 4,63,140. In the computation attached with the return, assessee surrendered and added back Rs. 6,20,000 representing provision for gratuity which was admitted to be hit by section 40A(7) of the Income Tax Act. The assessee filed separate computation under section 115J of the Income-tax Act. In the said computation above provision of gratuity amounting to Rs. 6,20,000 was not taken into account. The Assessing Officer added provision of gratuity for computing book profit under section 115J of Income-tax Act also and created additional demand by making adjustments noted earlier. 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at under clause (c) of Explanation to section 115J(1), the Assessing Officer could add, 'the amount or amounts set aside to provisions made for meeting liabilities other than ascertained liabilities'. The bone of contention is that, according to the assessee, the provision made by the assessee was an ascertained liability and, therefore, could not be added for purposes of section 115J in adjustments made under section 143(1)(a) of the Income-tax Act. The learned revenue authorities have held otherwise. 5. Before us, Shri Syali contended that before the introduction of section 40A(7) w.e.f.1-4-1973, any provision for gratuity computed on legal and scientific basis was a deductible expenditure. In the case of the assessee, provision for gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f gratuity. Ordinarily, an appropriation to gratuity reserves is a contingent liability, for under any scheme, the liability to pay gratuity to its employees would arise only when employment of the employee is determined by death, incapacity, retirement or resignation. All the abovementioned events are bound to happen. Therefore assessee can work out on an actuarial valuation of its estimated liability and make provision of such a liability not at once but spread over a number of years. Such discounted value of liability if worked out on scientific basis will constitute a provision representing fair accurately known existing liability for the year and deductible out of the profit. 7. The question of nature of liability under the scheme of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, provided its discounted present value is ascertainable, it can be taken into account as trading expenses if they are sufficiently certain to be capable of valuation and if profits cannot be properly estimated without taking them into account." Their Lordships after considering relevant case law remitted the matter back to the Tribunal to ascertain exact amount of liability which could be treated as a provision. It is clear from above discussion that present liability of gratuity on scientific basis can be worked out and deducted from the profit of the year [subject of course to provision of section 40A(7) of the Act]. Such a liability might be contingent but its present discounted value is ascertainable. It is difficult to lay down tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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