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NAINITAL ALMORA KSHETRIYA GRAMIN BANK Versus JOINT COMMISSIOPNER OF INCOME TAX AND OTHERS

2015 (12) TMI 190 - ITAT DELHI

Disallowance on unpaid leave encashment provisions applying provision of section 43B (f) - Held that:- Leave encashment is not a scheme where employer and employee contributes but is a provision to be made according to accrual method of accounting where payment due to employees on their retirement or otherwise for their accrued leave for the tenure of the service. Further it is not for the welfare of the employees but it is wages due to the employees for the services rendered by them according t .....

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h, CA & Shri Raja Kumar, Adv For The Respondent : Shri P Dam Kanunjna, Sr. DR ORDER Per: Prashant Maharishi: 1. All these three appeals are preferred by assessee against the common disallowance u/s 43B (f) of the Act on account of unpaid provision of leave encashment payable to employees for 3 years for AY: 2008-09, 2009-10 & 2010-11. As the claim, reason for disallowance for all the years are identical, these three appeals are disposed off by this common order. 2. The disallowances for .....

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expenditure applying provisions of section 43B (f) of the Act holding that such amount of provisioning is allowable only if paid. AO was of the view that according to clause (f) of Section 43B of the Income Tax Act, any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee shall be allowed in the previous year in which such sum is actually paid irrespective of the previous year in which liability to pay such sum was incurred by the assessee. As in this ye .....

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tted that disallowance made by the AO is incorrect and provisions of section 43B (f) are held to be constitutionally in valid and therefore the disallowance made for all three years be deleted. For this proposition he relied on various judicial precedents as under:- i. Exide Industries Ltd. vs. Union of India, 292 ITR 470 ii. DCIT vs. A.P. State Seeds Development Corporation ltd. ITA no.1459/HYD/2013 iii. Eimco Elecon (India) Ltd. vs. ACIT 22 ITR (Trib.) 380 = iv. Universal Cables vs. DCIT, 954/ .....

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llowed as deduction in computing the business income of the assessee provided such sum is actually paid. If same is not paid in the year of provisioning same shall be allowed subsequently in the year of payment. Hon'ble Calcutta High Court in Exide Industries Ltd. vs. Union of India, 292 ITR 470 has struck down the constitutional validity of section 43B(f) being arbitrary, unconscionable and de horse the facts Apex Court decision in the case of Bharat Earth Movers 245 ITR 428. Subsequently o .....

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ll date. It is made clear that as far as the outstanding interest demand as of date is concerned, it would be open to the Department to recover that amount in case Civil Appeal of the Department is allowed. We further make it clear that the assessee would, during the pendency of this Civil Appeal, pay tax as if Section 43B(f) is on the Statute Book but at the same time it would be entitled to make a claim in its returns." 7. We are afraid we cannot agree with the views of ld. AR that additi .....

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a quasi-judicial authority has to decide the appeal only based on the provisions of section 43B (f) of the Act. In other words, the provisions of section 43B(f) cannot be ignored since the judgment of the Calcutta High Court in the case of Exide Industries Ltd. was stayed by the apex court. Therefore, the claim of the assessee could be allowed only if it is actually paid on the due date for filing the return of income. It is not the case of the assessee that the amount claimed as leave encashme .....

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eals) was set aside by the Tribunal in the light of the stay order of the judgment of the High Court of Calcutta in Excide Industries case (supra) and the SLP stated above is still pending. Therefore, the opinion of the Tribunal so far as disallowance claimed in respect of leave encashment under Section 43B(f) of the Act, as on today, the provision seems to be in force in the light of the stay order granted by the Apex Court in the SLP. Therefore, as long as Section 43B (f) is on Statute, the sa .....

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