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From the facts, it is noticed that the objection of the Revenue is with regard to the assessee’s failure to follow the AS-15 and the ‘actuarial method’ referred therein and not disputed the quantification of the ‘provision of gratuity. In other words, the incorrect quantification of the provision makes the provisions as an unascertainable liability and therefore, such provisions should be dealt with as per the provisions of s. 115JB r/w Expln. 1(c) and accordingly, the book provisions should be increased. On the other hand, the case of the assessee is that it is an ascertained liability as evident from the books and method of quantification does not decide the issue of ascertainment or otherwise of the liability and therefore, the provision for gratuity is required to be excluded for the purpose of determining the book profits. Considering the rival positions, it is noticed that the said provision of s. 115JB are code by itself and determination of the book profits has to be done only as per the provisions of s. 115JB, which unambiguously provides for exclusion of provisions of ascertained liabilities for the purpose of ‘book profits’. In this regard, we have perused the apex Court judgment in the case ofBharat Earth Movers vs. CIT (2000) 162 CTR (SC) 325 : (2000) 245 ITR 428 (SC)and the relevant portions of the same reads as under : "Business liability arising in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with the reasonable certainty without actual quantification. Till these requirements are satisfied the liability is not a contingent one. The liability is one present/though it will be discharged at a future date. It does not make any difference if the date of liability has to be discharged it is not certain. 19. Thus, although the provision are not allowable as deduction, certain provisions which are capable of estimation with reasonable certain without quantification are allowable as they are ascertainable. On finding that the actual quantification is not a legal necessary in matters of ascertainment of the gratuity’, we are of the opinion that the provision of gratuity in the assessee’s case is capable of being estimated with reasonable certainty and therefore, it is not a contingent or unascertained liability. Thus, it is an ascertained liability and the same falls outside scope of the provisions of cl. (c) of the Expln. 1 to s. 115JB warranting no addition to the ‘book profits’. Accordingly, the ground 4 of the assessee is allowed." Following the above said decision, we hold that the Provision for gratuity is an ascertained liability eligible to be deducted from net profit for the purpose of computing book profit under s. 115JB of the Act.

Shanti Prime Publication Pvt. Ltd.

Sec. 143(3) OF income Tax Act, 1961— Transfer Pricing --- The assessee was engaged in the business of providing software development and premium solution worldwide. The assessee was a subsidiary of company named Key Management Group (KMG) (Inc), USA. The issue was related to transfer pricing adjustment made by the TPO and partially confirmed by DRP. Both the parties were in appeal challenging the decision rendered by DRP. The assessee-company pays commission to KMG USA for the marketing services rendered by it. The assessee-company applied CUP method (Internal CUP) to bench mark the international transactions entered with its AE. The TPO, however, rejected the CUP method and adopted TNMM method as most appropriate method and accordingly made transfer pricing adjustment. The DRP granted relief with respect of comparable. Accordingly Tribunal submitted that issues relating to transfer pricing adjustment was restored to the file of the AO/TPO and  remitted the matter back to the AO to consider the above submissions de novo after affording due opportunity of being heard to the assessee-company.The AO noticed that the assessee, while computing deduction under s. 10B, has not reduced the expenditure from export turnover. The AO computed the deduction under s. 10B of the Act by reducing. The DRP has referred to both ss. 10B and 10A in its directions. The grounds urged by both the parties refer to s. 10A only. Thus, there was confusion about the section under which the deduction was claimed by the assessee.the assessee has claimed the provision for doubtful debt under s. 36(1)(vii) of the Act, as the same is in the nature of "bad debts written off", since the assessee had deducted the "Provision for doubtful debts" amount from the "Sundry debtors balance" shown in the asset side of Balance sheet.  Since the impugned claim has not been examined by the AO in terms of 36(1)(vii) of the Act, tribunal restore the issue for examining the same afresh.
Tribunal held that the Provision for gratuity is an ascertained liability eligible to be deducted from net profit for the purpose of computing book profit under s. 115JB of the Act. Accordingly, the assessee was allowed."
The appeal of the assessee as well as revenue were treated as partly allowed.--- KMF INFOTECH LTD. vs. DEPUTY CIT. [2020] 23 ITCD Online 146 (BANG)

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