Partially allowed appeal on leave encashment & ex-gratia provision, disallowed amount under section 43B upheld.

The Tribunal partly allowed the assessee's appeal, remanding the issue of leave encashment provision and provision for ex-gratia expenses to the AO for fresh adjudication based on the Supreme Court's decision. The disallowance of the amount added under section 43B in the prior assessment year was upheld. The order was pronounced on 25/10/2016.

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Issues Involved:
1. Disallowance of provision for leave encashment under section 43B of the Income Tax Act.
2. Disallowance of provision for ex-gratia expenses.
3. Disallowance of an amount added under section 43B in a prior assessment year in respect of provision for ex-gratia.

Issue-wise Detailed Analysis:

1. Disallowance of Provision for Leave Encashment under Section 43B:
The assessee contested the disallowance of Rs. 3,53,84,604/- for leave encashment under section 43B of the Income Tax Act. The counsel for the assessee argued that this issue was already covered by the Tribunal's decision for the assessment year 2008-09. The Tribunal's decision in the case of “Aaditya Birla Finance Ltd. Vs. ACIT” was cited, where the matter was restored to the AO to be adjudicated in light of the pending decision of the Hon'ble Supreme Court in the case of “Exide Industries Ltd.” The Tribunal noted that the Hon’ble Supreme Court had stayed the judgment of the Calcutta High Court, which had declared section 43B(f) arbitrary. Consequently, the Tribunal directed that the matter be restored to the AO to be decided afresh as per the Supreme Court’s final decision on “Exide Industries Ltd.”

2. Disallowance of Provision for Ex-Gratia Expenses:
The assessee raised an issue regarding the disallowance of Rs. 2,29,36,844/- for ex-gratia expenses. The Tribunal observed that there was confusion due to a clerical error in the tax auditor’s report, which mentioned unpaid gratuity instead of ex-gratia. The assessee clarified this error before the CIT(A), but the wrong figure was still mentioned. Given this confusion, the Tribunal directed the assessee to present the correct factual matrix before the AO, who would then examine and decide the issue in accordance with the law. This ground was allowed for statistical purposes.

3. Disallowance of Amount Added under Section 43B in Prior Assessment Year:
The assessee argued that Rs. 4,42,26,646/- added under section 43B in the assessment year 2008-09 for provision of ex-gratia should be disallowed in the current year since it was allowed in the earlier year. The Tribunal noted that the CIT(A) had deleted this addition in the assessment year 2008-09, and the Department did not file an appeal against this decision. Therefore, the Tribunal held that this amount should be disallowed in the current assessment year, as the relief had already been granted in the previous year. This ground was decided against the assessee.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes. The Tribunal remanded the issue of leave encashment provision to the AO for fresh adjudication based on the Supreme Court’s decision. The provision for ex-gratia expenses was also remanded to the AO for re-examination. The disallowance of the amount added under section 43B in the prior assessment year was upheld. The order was pronounced in the open court on 25/10/2016.

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