Per Shri S.N. Rotho, Accountant Member - This appeal has been filed by the assessee against the order dated 21-12-1979 of the Commissioner (Appeals). The assessee is a limited company deriving income from business as a dealer in cotton yarn, silk yarn, soapstone powder, etc. Besides, the assessee also deals in shares and earns income by way of Mukadami Commission'. The assessment year involved in this appeal is 1976-77 with the year ended 31-3-1976- as the relevant previous year.

2. The only ground taken in this appeal is that the Commissioner (Appeals) erred in not allowing a sum of Rs. 7,541 being the liability for gratuity which accrued for the previous year under consideration, as computed on actuarial basis. Before the ITO, the assessee claimed to deduct a sum of Rs. 27,330 as gratuity liability computed on actuarial basis while computing the income from its business. No provision for the said amount was made in the acounts but the claim for deduction was made in the course of assessment proceedings. The ITO observed that though the AAC has allowed a similar claim of the assessee in the assessment year 1975-76, yet the said decision of the AAC had not been accepted by the department and appeal has been filed before the Tribunal. Hence, he did not agree to deduct the aforesaid sum of Rs. 27,330 while computing the business income and completed the assessment, accordingly.

3. The assessee appealed to the Commissioner (Appeals) and contended that its claim should have been allowed. However, the assessee reduced its claim from Rs. 27,330 made before the ITO to only Rs. 7,541 representing the incremental liability for gratuity relating to the services rendered by the eligible employees of the assessee during the year under consideration. Reliance was placed on several decisions of the Tribunal including the one passed in the case of Empire Dyeing & Mfg. Co. Ltd. [IT Appeal No. 1875 (Bom.) of 1975]. The case of the assessee was that the conditions laid down in section 40A(7) of the Income-tax Act, 1961 ('the Act') for getting the deduction for the provision for liability applied only to a case where provision for such liability was made, in the books of account and so, those conditions did not apply to a case where the assessee makes no such provision in its books of account. As stated earlier, the assessee did not make any provision for liability to pay gratuity in its books of account and, therefore, argued that its claim could not be denied by invoking the provisions of section 40A(7). The Commissioner (Appeals) did not agree with the above argument of the assessee because the Special Bench of the Tribunal in their order dated 12-6-1979 in [IT Appeal No. 1599 (Mad.) of 1977-78] have held that the conditions prescribed under section 40A(7) equally apply to the assessees who have made such provisions in the books of account and also those who make no such provision in their accounts but claim the same as a deduction before the ITO. Relying on the aforesaid decision of the Special Bench of the Tribunal, the Commissioner (Appeals) rejected the claim of the assessee.

4. An alternative ground was raised before the Commissioner (Appeals) by the assessee regarding a sum of Rs. 5,710 being actual payment of gratuity made during the year under consideration. This payment was made out of the provisions created in the assessment year 1973-74. The Commissioner (Appeals) found that though the said provision was originally allowed as a deduction in the assessment, it was withdrawn later by an order under section 154 of the Act dated 17-3-1978. That order has become final and, as a consequence, no amount stood allowed as a - deduction on accrual basis regarding the liability for gratuity in the assessment 1 year 1973-74. Hence, the Commissioner (Appeals) allowed the deduction of Rs. 5,710 actually paid during the year under consideration obviously on the basis of actual payment as distinguished from accrual of the liability.

5. In this fur