Tribunal decision: Leave encashment granted, loss on contracts dismissed, foreign tax rate upheld

The Tribunal allowed the claim for provision for leave encashment, stating it is allowable based on entitlement earned by the employee. The loss on unmatured foreign exchange contracts was dismissed as not pressed. The Tribunal upheld the higher tax rate for foreign companies, citing legal explanations and precedents, leading to the dismissal of the discrimination claim and partial allowance of the appeal.

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Issues involved: Disallowance of provision for leave encashment, disallowance of loss on unmatured foreign exchange contracts, tax rate discrimination for foreign companies.

Provision for Leave Encashment: The AO disallowed the provision for leave encashment as a contingent liability, citing legal precedents. The CIT(A) upheld the decision, but the Tribunal referred to the Supreme Court judgment in Bharat Earth Movers Ltd. and allowed the claim, stating that the provision made on the basis of entitlement earned by the employee is allowable.

Loss on Unmatured Foreign Exchange Contracts: The assessee did not press this ground during the hearing, leading to its dismissal as not pressed.

Tax Rate Discrimination: The assessee argued that the higher tax rate for foreign companies was discriminatory. The Tribunal, citing the case of M/s BNP Paribas, held that the higher tax rate for foreign companies did not violate the non-discrimination clause due to the Explanation in Section 90 of the IT Act and the judgment in ACIT Vs. J.K. Synthetics. Consequently, the ground raised by the assessee was dismissed, and the appeal was partly allowed.

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