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Issues:
Income-tax assessment for the year 1973-74, disallowance of gratuity provision under section 40A(7), rectification under section 154, compliance with conditions for allowance of gratuity deduction, interpretation of section 40A(7)(b)(ii) and (i), approval of gratuity fund, retrospective effect of section 40A(7), applicability of conditions for deduction, existence of approved gratuity fund, distinction between sub-clause (i) and (ii) of section 40A(7)(b). Analysis: The appeal before the Tribunal concerned the income-tax assessment for the year 1973-74 of the assessee, T.I. Miller Ltd., Madras, related to the disallowance of gratuity provision under section 40A(7) by the Income Tax Officer (ITO). The ITO initially disallowed the gratuity provision due to non-compliance with conditions, but later allowed a deduction of Rs. 1,65,354 under section 155(13) of the Income-tax Act, 1961. Subsequently, a reassessment was conducted, leading to the disallowance of the gratuity provision by the ITO based on non-compliance with section 40A(7). The Commissioner (Appeals) allowed only a partial deduction, leading to the appeal by the assessee before the Tribunal. The main contention of the assessee was that there was no mistake in the ITO's order that could be rectified under section 154. The debate centered around the interpretation of section 40A(7) and whether the assessee fulfilled the conditions for the deduction of the gratuity provision. The Commissioner (Appeals) had allowed a partial deduction based on the assessee's compliance with transferring amounts to an approved gratuity fund. The Tribunal analyzed the provisions of section 40A(7) and the retrospective effect of the Finance Act, 1975, which inserted the section. It was highlighted that the liability to payment of gratuity was statutorily created, and the conditions for allowance of provision were examined in detail. The Tribunal found substantial merit in the assessee's claim and held that the ITO's withdrawal of the allowance was not a rectifiable mistake under section 154. The Tribunal's analysis delved into the distinction between sub-clause (i) and (ii) of section 40A(7)(b) and the applicability of conditions for deduction. It was concluded that the deduction allowed by the ITO was not an obvious mistake and that more than one view was possible on the debatable question. Consequently, the Tribunal modified the Commissioner (Appeals) order and restored the original allowance granted by the ITO, thereby allowing the appeal by the assessee.
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