2014 (4) TMI 1139 - HC - Income Tax

High Court rules in favor of assessee on leave encashment under Income Tax Act

The Commissioner of Income Tax-IV Versus Honeywell Automation India Ltd.

The High Court addressed the applicability of Section 10A of the Income Tax Act, 1961, and the issue of leave encashment. The Court found in favor of the ... Provision of leave encashment - admissible deduction - Held that:- After having perused the order of the Appellate Tribunal in the light of the judgment of Hon'ble Supreme Court in the case of “Bharat Earth Movers Ltd. v. C.I.T., (2000 (8) TMI 4 - SUPREME Court ) we are of the opinion that the point is covered against the Revenue and in favour of the assessee. In paragraph 25 of the order under challenge, the Tribunal has reproduced the observations of the Hon'ble Supreme Court wherein held that the amount should be capable of being estimated with reasonable certainty although the actual quantification may not be possible. In the present case material was brought before the Tribunal to show that the provision for leave encashment has to be made by the employer. That is pertaining to the benefit which is availed by the employees. Such of the employees who do not avail of the leave to their credit get the benefit of this scheme. The amounts have to be paid at the end of their tenure/service. In such circumstances, the provision is made by the assessee in the account for the same. That is an estimation and which is permissible in terms of the Supreme Court's judgment. The view taken by the Tribunal is possible in the given facts and circumstances. Therefore, on this count no substantial question of law arises for determination in this appeal. Issues involved:1. Applicability of Section 10A of the Income Tax Act, 19612. Provision of leave encashmentAnalysis:1. The High Court heard the appeal regarding the applicability of Section 10A of the Income Tax Act, 1961. The Income Tax Appellate Tribunal had partly allowed the assessee's appeal and set aside the order of the Commissioner of Income Tax (Appeals) for a specific purpose. The Court inquired about the implementation of the Tribunal's direction by the Assessing officer, granting two weeks for a response. The issue of Section 10A applicability was under consideration.2. The Court then addressed the issue of leave encashment amounting to Rs. 51,53,103/-. After examining the Tribunal's order in light of the Supreme Court judgment in 'Bharat Earth Movers Ltd. v. C.I.T., (245 ITR 428 (SC))', it was concluded that the point favored the assessee. The Supreme Court held that the amount should be estimable with reasonable certainty, even if actual quantification is not possible. The provision for leave encashment made by the employer, benefiting employees who do not utilize their accrued leave, was considered permissible estimation as per the Supreme Court's ruling. The Tribunal's view on this matter was found valid, and no substantial question of law arose for determination in the appeal.3. The Court granted two weeks to the Counsel for the Appellant-Revenue to ascertain compliance with the Tribunal's remand order. The case was adjourned to a later date for further proceedings.