2024 (6) TMI 99 - AT - Income Tax

Disallowance of provision made for leave encashment - assessee is a resident corporate entity and stated to be engaged in the business of manufacturing and trading of pesticides and insecticides etc. - AO rejected assessee s claim stating that such claim having not been made through a revised return of income cannot be accepted - HELD THAT - Undisputedly as per section 43B(f) of the Act deduction on account of payment made towards leave encashment can be allowed only when actual payment is made. The constitutional validity of the aforesaid provision has been upheld in Union of India ors. vs. Exide Industries Limited Anr. ( 2020 (4) TMI 792 - SUPREME COURT ). Therefore disputed deduction can only be allowed on actual payment basis. The Assessing Officer is directed to verify the date of actual payment of leave encashment and allow deduction in the assessment year wherein such payment has been actually made. Ground is allowed for statistical purposes. Taxability of excise duty subsidy - Revenue or capital receipt - assessee availed excise duty subsidy under a scheme in Jammu Kashmir and treated it as revenue in the return of income - HELD THAT - It is observed while deciding identical issue in assessee s own case in assessment year 2011-12 the coordinate Bench 2019 (12) TMI 980 - ITAT DELHI while entertaining the additional ground raised by the assessee has examined the relevant new industrial policy scheme and relying upon various judicial precedents concluded that the excise duty subsidy received by the assessee under the scheme is capital in nature hence not taxable. The aforesaid decision of the coordinate Bench has been upheld Crystal Crop Protection (P) Ltd. 2022 (7) TMI 1162 - DELHI HIGH COURT - Facts being identical we hold that excise duty subsidy received by the assessee being capital in nature is not taxable. Additional ground no. 1 is allowed.

Summary

Issues:
1. Disallowance of provision made for leave encashment.
2. Taxability of excise duty subsidy.

Analysis:

Issue 1: Disallowance of provision made for leave encashment
The assessee challenged the disallowance of provision made for leave encashment in the assessment year 2016-17. The Assessing Officer rejected the claim as it was not made through a revised return of income. The First Appellate Authority upheld the disallowance, stating that deduction for leave encashment is allowable on actual payment basis as per section 43B(f) of the Income Tax Act. The assessee conceded that deduction can only be allowed on payment basis as per a Supreme Court judgment. The Tribunal directed the Assessing Officer to allow the deduction on actual payment basis in compliance with Section 43B(f) of the Act. The ground was allowed for statistical purposes.

Issue 2: Taxability of excise duty subsidy
The assessee raised an additional ground regarding the taxability of excise duty subsidy received under a scheme in Jammu & Kashmir. Initially treated as revenue and offered to tax, the assessee claimed it to be capital in nature and not taxable. The Tribunal admitted the additional ground for adjudication as it involved a legal issue of determining whether the subsidy was revenue or capital. The Tribunal observed that in a previous case, the subsidy was held to be capital in nature and not taxable by a coordinate Bench and the Jurisdictional High Court. Relying on these precedents, the Tribunal held that the excise duty subsidy received by the assessee was capital in nature and not taxable. The additional ground was allowed, and a general ground did not require adjudication.

In conclusion, the appeal was partly allowed, with the disallowance of provision for leave encashment being directed for actual payment basis and the excise duty subsidy being held as not taxable due to its capital nature.