Law:

Section:

Section 28(i), read with section 145, of the Income-tax Act, 1961-Business loss/deduction-Up to accounting year ending 31-12-1967, assessee-company, following mercantile system of accounting, debited in its books payment of gratuity when actually made-After filing return for assessment year 1968-69, assesses decided to make provision for meeting gratuity liability not all at once but by spreading it over number of years on actuarial valuation by making provision therefore in promt and loss account of each year-Accordingly, before completion of assessment, it obtained an actuarial valuation of its gratuity liability for the year 1967 and claimed that the same be allowed as deduction-Whether amount of estimated gratuity liability allowable as deduction-Held, on facts, yes Facts The industrial court made an award that the assessee-company would pay gratuity to its employees on the happening of certain specified events. The assessee-company which followed the mercantile system of accounting, accepted the award and, from time to time, paid gratuity to its employees accordingly. The payments, when actually made, were debited in the books of account and allowed as a deduction in computation of the income for the relevant year for the purpose of income-tax. For the assessment year 1968-69, pertaining to the accounting year ending 31-12-1967, the assessee filed its return of income on 10-7-1968. Before the assessment was completed, the assessee decided to obtain an actuarial valuation of its estimated gratuity liability and to make provision for meeting such liability not all at once in the year in which the gratuity became payable to any employee but by spreading it over a number of years by making a provision thereof in the profit and loss account of each year on the basis of the present value of such estimated liability. It, accordingly, obtained an actuarial valuation of its gratuity liability for the calendar year 1967 and decided to charge against that year's income the cost of making provision for such liability. On 10-12-1970, the assessee wrote to the ITO that the gratuity payable by it for the year ending 31-12-1967 was estimated at Rs. 29,637 on the basis of…

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