N.K. Billaiya, Accountant Member - This appeal by the Revenue is directed against the order of the Ld. CIT(A)-15, Mumbai dt.3.1.2011 pertaining to A.Y. 2004-05.

2. The grievance of the Revenue read as under:

"1. Whether on the facts and circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of ex-gratia payment u/s. 37(1) of Rs. 71,43,000/-

2. The Ld. CIT(A) has further erred in deleting the disallowance of entrance fees paid to clubs of Rs. 1,73,085/-

3. The Ld. CIT(A) has further erred in deleting the addition made by the AO estimating the value of land @ Rs. 200/- sq. mt.

3.1. The CIT(A) ought to have referred the matter to the valuation cell (DVO) or adopted the circle rate.

4. The Ld. CIT(A) has further erred in deleting the addition of Rs. 30,10,523/- made by the AO in respect of transfer pricing adjustments."

3. The assessee is engaged in the business of manufacturing and trading of various kinds of dyes and pigments for paint, ink, plastic, rubber, leather, agrochemicals, pharmaceuticals etc.

4. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that in the balance-sheet, there is ex-gratia gratuity payable to the tune of Rs. 71.43 lacs. The assessee was asked to explain the same. The assessee explained that during the year, the company has provided retirement benefit Rs. 71.43 lacs towards ex-gratia gratuity payable to certain employees who retire or die after putting in minimum 15 years of service. It was explained that the same has been worked out on the basis of actuarial valuation as on 31.3.2004. It was further explained that the said payment is in nature of ex-gratia/staff welfare payment which is over and above normal gratuity payment and the same arises out of contractual obligation with employees. The assessee also furnished a certificate from CA in this respect. The reply filed by the assessee did not find favour from the AO who was of the opinion that it is in the nature of unascertained liability because there cannot be any scientific method of working out of such payment and disallowed the same.

5. The assessee carried the matter before the Ld. CIT(A) and reiterated what has been stated before the AO. The Ld. CIT(A) was convinced that there was an actuarial valuation and therefore it can be said that reliable estimate has been made. The Ld. CIT(A) went on to rely upon the decision of the Hon'ble Supreme Court in the case of Rotak Controls India (P.) Ltd. v. CIT [2009] 314 ITR 62/180 Taxman 422 and deleted the said addition.

6. Aggrieved by this Revenue is before us. The Ld. Departmental Representative strongly supported the findings of the AO.

7. The Ld. Counsel for the assessee reiterated what has been submitted before the lower authorities and further relied upon the decision of the Hon'ble Supreme Court in the case of Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53.

8. We have carefully perused the orders of the lower authorities and the decision relied upon by the Ld. Counsel. We find force in the submission of the Ld. Counsel. The Hon'ble Supreme Court in the case of Metal Box Co. of India Ltd. (supra) has thus held as under:

"An estimated liability under a scheme of gratuity, if properly ascertainable and its present value is discounted, is deductible from the gross receipts while preparing the profit and loss account. This is recognised in trade circles and there is nothing in the Bonus Act which prohibits such a practice. Such a provision provides for a known liability of which the amount can be determined with substantial accuracy. Therefore, the estimated liability for the year on account of scheme of gratuity should be allowed to be deducted from the gross profits. The allowance is not restricted to the actual payment of gratuity during the year."

Respectfully following the aforementioned findings of the Hon'ble Supreme Court, ground No. 1 is dismissed.

9. Ground No. 2 relates to the deletion of the disallowance of entrance