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2014 (9) TMI 9 - HC - Income TaxAscertainment of liability towards leave encashment contingent liability - Mercantile system of accounting - application of Bharat Earth Movers Versus Commissioner of Income-Tax [2000 (8) TMI 4 - SUPREME Court] Held that:- The assessee filed the return of income attaching the Statutory Audit report dated 29.7.1998, the note No.17 of Schedule XIV regarding accounting of gratuity and leave encashment benefits to the staff (amount not ascertained) clearly mentioned that it was on cash basis instead of accrual basis - the assessee was able to quantify the gratuity amount as at 31.3.1998 and 302.80 lakhs as on 31.3.1997 - leave encashment benefits was stated to be not ascertained - for the previous assessment year they have followed the cash system of accounting and since they have switched over to mercantile system of accounting from the accounting year 1998-99, they should have estimated the encashment benefits with reasonable certainty based on the relevant data available, which they failed to do at the first instance. Since the assessee is following mercantile system of accounting from the accounting year 1998-99, they should have determined the leave encashment amount on the basis of accepted principles of commercial practice and accountancy - Even though they may not be in a position to give the accurate details, but that does not allow the assessee to claim a figure in an arbitrary manner without there being any supportive material - in view of the vagueness in the nature of the leave encashment benefits as claimed by the assessee, the assessee is not entitled to claim deduction on the leave encashment, which was rightly rejected by the AO as well as the CIT(A) - there could be an estimation with reasonable certainty though no actual quantification is required - there is no attempt on the part of the assessee to satisfy the requirements except placing reliance on the decision - for the relevant AY, the assessee has been inconsistent that for the benefit of leave encashment deduction, they are following cash system of accounting and for the rest, they are following mercantile system of accounting thus, the Tribunal was not justified in passing a cryptic order by just following the decision which is not applicable to the facts of the present case Decided in favour of Revenue.
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