2020 (11) TMI 566 - HC - Income Tax

Supreme Court rules on deduction for provision of Leave encashment

The Supreme Court dismissed the appeal under Section 260 A of the Income Tax Act, 1961, ruling against the assessee regarding the entitlement to deduction ... Provision for Leave Encashment - Validity of order the Tribunal holding that no expenditure shall be allowed u/s.43B(f) on account of any leave salary unless the expenditure is actually paid? - HELD THAT:- The above substantial questions of law have to be answered against the appellant/assessee in the light of the decision of the Hon'ble Supreme Court in the case of Union of India and others vs. Exide Industries Limited [2020 (4) TMI 792 - SUPREME COURT] . - Decided in favour of revenue. Issues:- Provision for Leave EncashmentAnalysis:The appeal was filed under Section 260 A of the Income Tax Act, 1961 against an order made by the Income Tax Appellate Tribunal. The substantial questions of law raised in the appeal included whether the assessee is entitled to deduction for provision for Leave encashment, the applicability of section 43B(f) regarding leave salary expenditure, and the compliance with Accounting Standard 15 regarding liability to leave encashment. The Court heard arguments from both parties and referred to a decision of the Hon'ble Supreme Court in a similar case involving Exide Industries Limited. The Supreme Court's decision emphasized the necessity of actually paying the leave encashment amount in the same financial year to claim a deduction, highlighting that leave encashment is not a statutory liability but a trading liability. The Court noted that the legislature has the power to amend laws but must provide reasons consistent with the Constitution and laws. Based on the Supreme Court's decision and previous rulings, the Court dismissed the appeal, answering the substantial questions of law against the assessee. No costs were awarded, and the case was closed accordingly.