TMI Blog2024 (1) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... enactment is directed and the court should prefer a construction which advances this object rather than one which attempts to find some way of circumventing it. (Refer RBI Vs. Peerless General Finance [ 1996 (1) TMI 332 - SUPREME COURT] ). Even if we apply the purposive construction and look at the purpose of introducing clause (f) in section 43B of the Act with effect from 01.04.2002 (by Finance Act, 2001) after the Hon ble Supreme Court decision in Bharat Earth Movers Ltd [ supra] the Legislative intent is clear that in computing the income of an assessee in a previous year u/s 28 of the Act, the assessee be allowed deduction of any sum which is actually paid; and clause (f) read with Explanation 3B makes it clear that Post 01.04.2001, deduction of any sum on account of payment towards employees leave encashment would be allowed only in the previous year when assessee makes actual payment. A literal interpretation of relevant section 43B of the Act also supports the view of CIT(A), therefore, the action of Ld. CIT(A) is legally sustainable and so it is upheld. Appeal of assessee stands dismissed. - SHRI ABY T. VARKEY, JM AND SHRI AMARJIT SINGH, AM For the Appellant : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bharat Earth movers Ltd. Vs. CIT [245 ITR 428 (SC)]. The assessee also referred to the decision of the Hon ble Andhra Pradesh High Court in the case of Srikakollu Shubbarao Co. (173 ITR 708), wherein the Hon ble High Court has held that section 43B of the Act applies to statutory payments which are payable; and the Ld. AR also referred to the decision of this Tribunal in assessee s predecessor-company for A.Y. 2008-09 (ITA No. 3178/Mum/2012) wherein the Tribunal had held that leave salary provision is not disallowable u/s. 43B(f) as it is not statutory liability relying on the decision of the Srikakollu Shubbarao CO. (supra), and that the decision of the Tribunal in assessee s predecessor company (supra) has not been contested by the department in the Hon ble High Court meaning, the Department has accepted the decision of the Tribunal on this issue; and the assessee also prayed before the Ld. CIT(A) that even if the disallowance of the provision is confirmed for leave encashment under section 43B of the Act, then in such an event, the assessee may be allowed to claim deduction of the leave encashment that has been actually paid before the date of filing of the return of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra) had answered the question of law raised before it in favour of assessee by reversing the decision of Hon ble Karnataka High Court and the question of law was viz. whether on facts and in the circumstances of the case, the provision for meeting the liability for encashment of earned leave by the Employee is an admissible deduction and the Hon ble Supreme Court answered the question of law as under: Shri S.E. Dastur, the learned senior advocate for the appellant company has submitted that the liability is a certainty. Provision is made for meeting the liability to the extent of entitlement of the officers and staff to accumulate earned/vacation leave subject to the ceiling limit of 240/126 days as may be applicable. Having accumulated leave in a particular year, in the succeeding year the employee may either avail the leave or apply for its encashment. If he avails the leave then additional provision for encashment is not made in the reserve account. However, if he does not avail the leave and instead chooses to encash his entitlement, he becomes entitled to an additional number of days as accumulated leave. For example, having rendered service for 365 days in the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w principles were laid down by this court, the relevant of which for our purpose are extracted and reproduced as under:- (i) For an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is paid; (ii) permissible only in case of amounts actually expended or (ii) Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business; (iii) A condition subsequent, the fulfillment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration , therefore, no disallowance under section 43B of the Act ought to have been made by Ld. CIT(A). 9. Per contra, Ld. DR supporting the action of the CPC/Ld. CIT(A) submitted that the Parliament in order to overcome the ratio/outcome of the Hon ble Supreme Court decision in the case of Bharat Earth movers Ltd. Vs. CIT (supra) introduced a new Clause under section 43B of the Act i.e. Clause (f). According to him, by insertion of clause (f), the provision for leave encashment will be allowed only on the basis of actual payment. According to him, this Clause (f) has been inserted by the Finance Act, 2001 w.e.f. 01.04.2002 i.e. from AY 2002-03 onwards. Therefore, according to him even though deduction were allowed regarding provision made in the Accounts (leave encashment) upto AY 2001-02 but would be allowed as deduction only on the basis of actual payment from AY 2002-03 onwards. Therefore, according to him, the Ld. CIT(A) has correctly disallowed the provision for leave encashment and directed the AO to allow the actual payment made (leave encashment) for the year under consideration after verification. According to him, the Parliaments action of introducing clause (f) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.] 11. Section 43B of the Act, is an overriding section and states that even if a deduction is allowable under this Act, but for computing the income u/s 28 of the Act, deduction shall be allowed in the year in which such sum is actually paid. Clause (f) of section 43B of the Act, specifically deals with sum payable to the employee in lieu of any leave at his credit. Therefore, per-se the impugned action of Ld. CIT(A) is legally sustainable view. The assessee s reliance in the case of Srikalollu Shubbarao Co. (supra) of Hon ble Andhra Pradesh High Court for claiming the deduction (provision for leave encashment) cannot be accepted for the reason that firstly before the Hon ble High Court that assessee had filed a Writ Petition (in respect of assessment year 1984-85) challenging the vires of section 43B of the Act wherein at that given point of time there was only two clauses (a) (b) u/s. 43B of the Act i.e. (a) any sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposive Construction Rule . It is well accepted cannon of statutory construction that it is the duty of the court to further Parliament s aim of providing a remedy for the mischief against which the enactment is directed and the court should prefer a construction which advances this object rather than one which attempts to find some way of circumventing it. (Refer RBI Vs. Peerless General Finance AIR 1996 SC 646). Even if we apply the purposive construction and look at the purpose of introducing clause (f) in section 43B of the Act with effect from 01.04.2002 (by Finance Act, 2001) after the Hon ble Supreme Court decision in Bharat Earth Movers Ltd., the Legislative intent is clear that in computing the income of an assessee in a previous year u/s 28 of the Act, the assessee be allowed deduction of any sum which is actually paid; and clause (f) read with Explanation 3B makes it clear that Post 01.04.2001, deduction of any sum on account of payment towards employees leave encashment would be allowed only in the previous year when assessee makes actual payment. A literal interpretation of relevant section 43B of the Act also supports the view of Ld CIT(A), therefore, the action of Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X
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