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Help please ,,,,,,,audit query

Arif Mohammed Khan (KNOWLEDGE SEEKER) (146 Points)

04 August 2012

Our client has stopped their business and they made a Payable entry(31/03/2012) for Retirement compensation/gratuity of Rs.324725/- ( paid by cash in April) whether this amount can be claimed as an expense or not? Site with relavent sections like ----Sec:40A(7),,,Sec:43B,,,Sec:139(1) etc... Thanking You,,

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4 Replies

Rahul jha ( CA) (37 Points)
Replied 04 August 2012

one time Gratuity/ Retirement Compension can not be paid without actuarial valuation and it also should not be paid in cash as per sec. 43B

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Saurabh Maheshwari (B.com,ACA) (5923 Points)
Replied 04 August 2012

Offcourse the exps can be claimed as business because your client will be assessable in respect of business gain(loss) earn by him during FY 2011-12, since the gratuity provision has been made on 31st March,2012 then it can be claimed as exps provided the valuation has been maded by an approved actuary before the closing of FY 2011-12.

Saurabh Maheshwari (B.com,ACA) (5923 Points)
Replied 04 August 2012

PS But since the payment in excess of Rs. 20000 has been made in cash , then this will be hit by Sec 43B.

But you can still avoid disallowance u/s 43B by reversing the payment i.e by receiving the same back from the employee, and finally making payment by cheque., if the valuation has been made by the actuary.

S Gupta (Finance Manager) (92 Points)
Replied 04 August 2012

I agree with the above, but if you have provision in your books, the payment should be made against that provision only. This amount can't be claimed as expenditure at the time of payment. You can claim the expenses at the time of making of provision and not payment basis.