PEOPLES ENGINEERING AND MOTOR WORKS LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) In this reference under Section 256(2) of the I.T. Act, 1961, the following questions have been referred to this court:

(2.) The assessee is a company and the relevant assessment year is 1973-74. Corresponding accounting period ended on 31st December, 1972. Accounts were maintained on mercantile basis. Return of income was filed on the 13th May, 1974, showing a loss of Rs. 1,58,655. The total income, however, was computed at Rs. 88,948 by the ITO in the assessment where a sum of Rs. 2,15,651, being provision for gratuity, was disallowed. The ITO had noticed that an amount of Rs. 28,649 pertaining to the period relevant to the assessment year was only allowable in the assessment. Since the claim was not based oh the actuarial method, according to the ITO, he disallowed the whole amount. The assessee, however, felt aggrieved with the disallowance made in the assessment and preferred an appeal before the AAC. The AAC upheld the disallowance following certain decisions of the Supreme Court.

(3.) The assessee, thereafter, went up in appeal before the Tribunal. The Tribunal observed, inter alia, as follows: