TMI Blog2022 (9) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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. - ITA No.1332/Mum./2021 And ITA No.1467/Mum./2021 - - - Dated:- 5-9-2022 - Shri Om Prakash Kant, Accountant Member And Shri Sandeep Singh Karhail, Judicial Member For the Assessee : Shri Vinod Garg a/w Shri Jatin Proothi For the Revenue : Shri Ajeya Kumar Ojha ORDER PER SANDEEP SINGH KARHAIL, J.M. The aforesaid appeals (one by post being ITA No. 1332/Mum/2021 and one by hand being ITA No.1467/Mum/2021) have been filed by the assessee challenging the impugned order dated 09/03/2021, passed under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id to the employees in the year of their resignation / termination of employment. 1.4 That on the facts and law involved the Ld. CIT(A) erred in confirming the disallowance made by Ld. AO towards provision for gratuity when such provision was consistently made in the books of accounts by following mercantile system of accounting in the earlier years and no such disallowance was made. 1.5 That the disallowance as made by Ld. AO and confirmed by Ld. CIT(A) is based on erroneous views and / or non-appreciation of the facts and law involved and without properly considering the submissions and material on record. As such too the disallowance is unwarranted and not capable of being sustained. 2. That the assessment as made and the order of the Ld. CIT(A) are against law and facts of the case involved. 3. That the grounds of appeal as herein are without prejudice to each other. 4. The only grievance of the assessee, in the present appeal, is against disallowance of provision of gratuity of Rs. 8,00,019 made in the books of account. 5. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a trust and is register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rive at the income of the trust. The learned AR further submitted that the assessee has opened a separate bank account for the purpose of depositing the amount of provision for gratuity charged to income and expenditure account and the amount of provision which is charged to the income and expenditure account is transferred to such earmarked account. It is only from such earmarked account, the assessee actually paid gratuity to the employees in the year of the retirement. The learned AR submitted that for the purpose of section 11 of the Act, the income is only required to be applied‟ and not actually spent‟. Therefore, even if the funds, which have been allocated for the purposes as required under the aforesaid section, same will be deemed to have been applied by the assessee. In support of its submissions, the learned AR placed reliance upon the decision of the coordinate bench of the Tribunal in Anandlal Ganesh Podar Society vs DCIT, in ITA No. 5962/Mum/2019. 7. On the other hand, learned Departmental Representative vehemently relied upon the orders passed by the lower authorities. 8. We have considered the rival submissions and perused the material availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. 15. In CIT v. Indian Jute Mills Association[1982] 134 ITR 68 the Calcutta High Court while constructing the expression 'expenditure incurred' in section 44(A) of the Act observed: depreciation claim shall include the expenditure incurred. 16. Thus, In our considered view, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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