ITAT directs AO to delete the addition by allowing the provision for gratuity made by the Trust  in its books of account

The Income Tax Appellate Tribunal directed the Assessing Officer to delete the addition by allowing the provision for gratuity made by the Trust  in its books of account.


The assessee is a trust and is registered with Charity Commissioner and DIT(E), Mumbai under section 12 A. 

For the year under consideration, the assessee filed its return of income along with income and expenditure account, balance sheet and audit report in Form No. 10 B declaring total income at Rs. Nil. 

During the course of assessment proceedings upon perusal of income and expenditure account, it was observed that assessee has made provision for gratuity of Rs. 8,00,019. 

Since, it was only a provision, the assessee was asked to explain as to why the said amount should not be disallowed.

The Assessing Officer passed under section 143(3) of the Act did not agree with the submissions of the assessee and held that the assessee has made a provision only, which is different than applied.


The Authorised Representative submitted that the assessee was required to make provision based on statutory provisions in accordance with provisions of Payment of Gratuity Act, 1972 and in compliance of AS-15 issued by ICAI.

He contended that the provision made in the books of account is for the period of service already provided by the employees and the charge for gratuity has already been crystalised and liability has been incurred by the assessee.

He further submitted that the provision was required to be maintained in the books of accounts as the same are consistently maintained on accrual basis of accounting to arrive at the income of the trust.


The division bench of members Justice Sandeep Singh Karhail and Om Prakash Kant noted that as per provisions of section 11 (1) (a) of the Act, the income derived from the property held under the trust shall not be included in total income of the previous year to the extent such income is applied for charitable purposes in India.

The bench noted that it has not been disputed that assessee has paid gratuity to its employees in the year of their retirement.

The tribunal directed the AO to delete the impugned addition by allowing the provision for gratuity made by the assessee in its books of account.

Case title: M/s. The Hunger Project v/s Income Tax Officer

Citation: ITA No.1332/Mum./2021

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