Law:

Section:

I. Section 40A(7) read with section 256 of the Income-tax Act, 1961 - Business disallowance - Gratuity - Assessment year 1976-77 - ITO allowed deduction on account of gratuity on basis of actuarial report and disallowed excess claim for gratuity - Tribunal deleted disallowance - Whether question of law arose from Tribunal's order - Held, yes FACTS-I According to the actuarial certificate, the liability of the assessee for gratuity for the relevant year was Rs. 4,77,446. The assessee further claimed a sum of Rs. 3,06,175 on account of payment of gratuity to the employees who retired during the year under reference. This excess amount was disallowed by the IAC as it did not fulfil the conditions prescribed by section 40A(7)(b). However, the Commissioner (Appeals) deleted the disallowance which was also affirmed by the Tribunal . On application under section 256(2): HELD-I A question of law as to whether the Tribunal was justified in upholding the order of the Commissioner (Appeals) deleting the disallowance made by the IAC on account of gratuity payment amounting to Rs. 3,06,175 arose from the Tribunal's order. II. Section 143 of the Income-tax Act, 1961 - Assessment - Additions to income - Assessment year 1976-77 - IAC made addition on account of fall in gross profit rate - Tribunal deleted addition on ground that without rejecting books of account, it could not be said that expenditure had been inflated - Whether question of inflation of expenditure was a question of fact which could not be called for reference - Held, yes FACTS-II There was a fall in the rate of the gross profit as much as by 6.4 per cent. The assessee was asked to give reasons for the abrupt fall in the gross profit rate to which a reply was given that it was due to increase in expenditure on salaries and wages, fuel consumption and stores consumption. The assessee was directed to furnish the details of the percentage of consumption of the different items but, in spite of repeated reminders, he failed to furnish the same. The IAC held that the assessee-company had failed to discharge the onus of proof regarding the fall in the gross profit rate and that the expenses under various heads had…

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