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TMI Blog1983 (1) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings and found that the assessee-company had stopped the practice of providing for gratuity payable to its employees into the trust fund every year. The assessee had adopted the system of making cash payment of gratuity to its employees. In the light of this fact, the learned Commissioner was of the view that provisions made for the assessment years 1973-74 to 1976-77 under section 40A(7) of the Act, which were allowed to the assessee, were required to be withdrawn as the relevant conditions were not satisfied. According to the learned Commissioner, the assessee was allowed deduction of provision of gratuity amounting to Rs. 6,21,764 during the assessment years 1973-74 to 1976-77 as per the details set out in his order. According to him, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was no provision in the Act to withdraw the deduction already granted in respect of the provision for gratuity. The said provision was allowed in accordance with the provisions of section 40A(7) on fulfilment of requisite conditions. Though the assessee has not changed the accounting system and even if it is so assumed, the taxing authorities have no power to bring the amount to tax which has already been allowed as there was no provision in the statute to enable them to do so. The entire addition was, therefore, unjustified. 4. The learned departmental representative, on the other hand, contended that the said amount was rightly taxed in the assessment year under appeal inasmuch as the assessee had derived a benefit by claiming deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee having fulfilled the requisite conditions, was allowed deduction in respect of the provision for gratuity for the assessment years 1973-74 to 1976-77. Now the grievance of the learned Commissioner seems to be that the assessee having made cash payments of gratuity, the payments made to the fund have been wrongly allowed ; as a consequence taxable as 'income' in the bands of the assessee for the year under appeal. We fail to see any statutory sanction behind this action. At best, section 41(1) of the Act could help the case of the revenue but it has to be remembered that the said section creates a notional and vicarious liability and, therefore, has to be strictly construed. This section lays down that where an allowance or deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready allowed, but subsequently is required to be withdrawn a statutory provision is made to enable the taxing authorities to withdraw the claim or allowance already granted. In this connection, the provision relating to development rebate as laid down in section 155(5) of the Act may be referred. In other words, in absence of any statutory provision to enable the taxing authorities to tax the impugned amount which has already been allowed in the past years, the action of the learned Commissioner to direct the ITO to tax the amount as 'income' of the year is wholly unwarranted. The order of the ITO, therefore, cannot be said to be erroneous insofar as it is prejudicial to the interests of the revenue. There is absolutely no material to supp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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