Tribunal upholds CIT(A) decision on provision for loss, directs verification of leave encashment payments

The Tribunal upheld the CIT(A)'s decision to delete the disallowance of a provision for anticipated loss on Govt. of India Fertilizer Bonds, finding the assessee's methodology rational and supported by government rates. Regarding the disallowance of leave encashment claimed under Section 43B(f) of the Act, the Tribunal directed the AO to verify actual payments, following a Supreme Court decision upholding the section's validity. The appeal of the revenue and cross objection of the assessee were dismissed, while the assessee's appeal was partly allowed.

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Issues:
1. Disallowance of provision for anticipated loss on Govt. of India Fertilizer Bonds.
2. Disallowance of leave encashment claimed under Section 43B(f) of the Act.

Issue 1: Disallowance of provision for anticipated loss on Govt. of India Fertilizer Bonds:

In the appeal filed by the revenue (ITA No.354/CTK/2019), the main contention was against the deletion of disallowance of a provision made for an anticipated loss on Govt. of India Fertilizer Bonds. The revenue argued that the bonds were forced on the assessee in lieu of cash subsidy from the Govt. of India, and the valuation should only be considered a business loss when the bonds are redeemed. The revenue cited a High Court decision to support its argument against the methodology adopted by the assessee. However, the assessee, a manufacturer of phosphatic fertilizers, defended its position by stating that the loss was computed based on rates fixed by an authority under the Govt., and the methodology was scientific and supported by the Govt.'s rates. The assessee also referenced previous Tribunal decisions in its favor. The Tribunal found that the methodology adopted by the assessee was rational and distinguishable from the case cited by the revenue. The Tribunal upheld the decision of the CIT(A) to delete the addition, as it followed the judicial discipline of a coordinate bench and found no reason to interfere.

Issue 2: Disallowance of leave encashment claimed under Section 43B(f) of the Act:

In the appeal by the assessee (ITA No.326/CTK/2019), the challenge was against the disallowance of leave encashment claimed under Section 43B(f) of the Act. Both parties agreed that this issue was now covered by a Supreme Court decision upholding the constitutional validity of Section 43B(f) and requiring actual payment of liability for deduction. The assessee argued that actual payments had not been allowed and requested the AO to consider and allow the claim. The Tribunal, considering the Supreme Court decision, directed the AO to verify the actual payments of leave encashment and allow them accordingly. Consequently, the appeal of the revenue and the cross objection of the assessee were dismissed, while the appeal of the assessee was partly allowed.

In conclusion, the Tribunal's judgment addressed the issues of disallowance of provision for anticipated loss on Govt. of India Fertilizer Bonds and disallowance of leave encashment claimed under Section 43B(f) of the Act. The Tribunal upheld the decision of the CIT(A) regarding the first issue and directed the AO to verify and allow actual payments of leave encashment for the second issue.

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