2021 (12) TMI 441 - AT - Income Tax

Appellant's Tax Appeal Partially Allowed for Leave Encashment & Section 14A Disallowances

The tribunal partially allowed the appellant's appeal, directing the Assessing Officer to reevaluate disallowances related to leave encashment and section ... Non deduction of TDS on interest payable to Prasar Bharti - whether as per the provisions of section 196 of the Act, no tax is required to be deducted on the payments being made to a “Corporation” and M/s Prasar Bharti is a corporation created under a statute enacted by Central Government - HELD THAT:-As regards Ground No. 1, 1.1 & 1.2, the same is covered against the assessee, hence, dismissed Disallowance towards leave encashment in view of provisions of section 43B (f) - HELD THAT:- Hon’ble Apex Court in case of Exide Industries [2007 (6) TMI 175 - CALCUTTA HIGH COURT] held that the claim with regard to leave encashment has to be allowed on cash basis i.e. actual payment basis and not on accrual basis. It is pertinent to note that the payments with regards to the leave encashment have been made in subsequent assessment year i.e. 2013-14 and thus, we direct the Assessing Officer to verify and allow the deduction u/s 43B on actual payment basis as held in the decision of the Hon’ble Apex Court. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Hence, Ground No. 2, 2.1 2.2 & 2.3 are partly allowed. Addition u/s 14A r.w.r. 8D - HELD THAT:- As the assessee has earned only ₹ 2,34,585/- as exempt income. The assessee also disallowed a sum of ₹ 29,04,491/- u/s 14A. The Ld. AR at the time of hearing contended that the said disallowance was erroneously made by the assessee. This issue needs to be verified. Therefore, we are remanding back this issue to the file of the Assessing Officer and decide the same afresh - Ground No. 3 is partly allowed for statistical purpose. Issues:1. Disallowance under section 40(a)(ia) for non-deduction of TDS on interest payable to Prasar Bharti.2. Disallowance of leave encashment under section 43B(f) of the IT Act 1961.3. Disallowance under section 14A read with Rule 8D of the Act.Issue 1: Disallowance under section 40(a)(ia)The appellant challenged the disallowance of a sum under section 40(a)(ia) for non-deduction of TDS on interest payable to Prasar Bharti. The appellant argued that no tax deduction was required on payments to a 'Corporation,' citing section 196 of the Act. The appellant also highlighted a previous favorable decision by the CIT (A) for the Assessment Year 2008-09. The tribunal dismissed this ground, upholding the disallowance.Issue 2: Disallowance of leave encashment under section 43B(f)Regarding the disallowance of leave encashment under section 43B(f), the tribunal noted that the Hon'ble Apex Court had ruled that leave encashment claims must be allowed on a cash basis, not on accrual basis. As the payments for leave encashment were made in a subsequent assessment year, the tribunal directed the Assessing Officer to verify and allow the deduction on an actual payment basis. The appellant's reliance on an interim order from the Hon'ble Apex Court was considered, and the issue was partly allowed.Issue 3: Disallowance under section 14A read with Rule 8DThe tribunal observed that the appellant had earned only a specific amount as exempt income, yet had disallowed a larger sum under section 14A. The appellant contended that subsequent judgments limited disallowances under section 14A to the amount of exempt income. The tribunal remanded this issue to the Assessing Officer for further examination, allowing the appellant an opportunity to be heard. Consequently, this issue was partly allowed for statistical purposes.In conclusion, the tribunal partially allowed the appellant's appeal, directing the Assessing Officer to reevaluate the disallowances related to leave encashment and section 14A. The judgment emphasized adherence to legal precedents and principles of natural justice in resolving the tax disputes raised by the appellant.