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Whether the Income-tax Appellate Tribunal was justified in allowing deduction for provision made by the assessee towards retrenchment compensation as per Industrial Disputes Act, 1947? Analysis: The case involved a dispute regarding the deduction claimed by an assessee for a provision made towards retrenchment compensation as per the Industrial Disputes Act, 1947. The assessee, a manufacturing unit, sold its business to a private limited company, and claimed a sum by way of retrenchment compensation payable to its workers. The Income Tax Officer (ITO) disallowed the claim, stating that the liability had been taken over by the company. The Appellate Authority Commission (AAC) upheld the disallowance, leading the assessee to appeal before the Tribunal. The Tribunal, after considering the matter, held that the provision made by the assessee for retrenchment compensation was an ascertained liability and thus allowable as a deduction. The Tribunal referred to relevant provisions of the Industrial Disputes Act and previous court decisions to support its decision. It noted that the liability arose when the business was transferred to the limited company, and the provision made by the assessee was proper under the mercantile system of accounting. The Revenue, dissatisfied with the Tribunal's decision, filed an application under the Income Tax Act, arguing that the conditions of Section 25FF of the Industrial Disputes Act were not met, and thus no liability for retrenchment compensation existed for the assessee. The court agreed with the Revenue, emphasizing that the terms of the transfer agreement ensured that the new employer was liable to pay compensation to the workers, and thus no liability existed for the assessee. The court found that the Tribunal had ignored the proviso to Section 25FF and concluded that no deduction should have been allowed to the assessee. In light of the above analysis, the court decided in favor of the Revenue, stating that no liability for retrenchment compensation existed for the assessee, and the Tribunal was not justified in allowing the deduction. The court made no order as to costs due to the absence of representation on behalf of the assessee.
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