Law:

Section:

Section 37(1) of the income-tax act, 1961-Business expenditure-During accounting year relevant to assessment year 1973-74 assessee-firm decided to close its business and entered into agreement with employees to pay them retrenchment compensation and notice pay and credited said amounts in accounts of workmen and debited in its profit and loss account in that year-Actual payment of these sums was, however, made in subsequent accounting year in April when business was actually closed-Whether assessee's claim for deduction of impugned sums could not be allowed in assessment year 1973-74 since liability to pay impugned amounts arose after closure of business and not while running business-Held, on facts, yes Section 254 of the income-tax act, 1961-Appellate tribunal-Orders of-Whether tribunal can for first time refer to a fact in statement of case, which fact is not supported by materials which were available before tribunal at time of hearing of appeal-Held, no Facts During the accounting year relevant for the assessment year 1973-74, the assessee-firm decided to close down its business and entered into an agreement with its employees agreeing to pay them gratuity, retrenchment compensation and notice pay and it credited the amounts due to the workmen under the aforesaid accounts in their accounts and debited the same in its profit and loss account. However, the actual payment of gratuity, retrenchment compensation and notice pay was made only in the subsequent accounting year in April 1973, when the business was actually closed. For the assessment year 1973-74, the assessee's claim for deduction of the amounts paid towards gratuity, retrenchment compensation and notice pay was disallowed by the ITO on the ground that the said sum was not deductible under section 36(1)( v). On appeal, the AAC confirmed the ITO's order. On second appeal, the Tribunal held that the amount paid towards the gratuity liability was deductible, but the amounts paid towards retrenchment compensation and notice pay were not deductible, as the amounts paid towards retrenchment compensation and notice pay on the closure of the business of the assessee could not be held to be a business…

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