Leave salary provision under Section 43B(f) disallowed but unlimited carry forward of unabsorbed depreciation under Section 32(2) allowed

The Madras HC ruled on two tax issues. First, regarding deduction for leave salary provision under Section 43B(f), the court held that the provision made by the assessee was clearly disallowable under the statutory language, deciding in favor of the revenue. Second, on the eight-year limitation for setting off unabsorbed depreciation under Section 32(2), the court followed its precedent in Tamil Nadu Small Industries Corporation Limited, holding that Circular No. 14 of 2001 removed the eight-year restriction, allowing unlimited carry forward and set-off of unabsorbed depreciation from assessment years 1997-98 to 2001-02, deciding in favor of the assessee.

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Issues:
1. Deduction for provision made for leave salary under section 43B(f) of the Income Tax Act, 1961.
2. Fixing limitation for setting off unabsorbed depreciation under section 32(2) of the Income Tax Act.
3. Reopening of assessment under section 147 of the Income Tax Act, 1961.

Issue 1: Deduction for provision made for leave salary under section 43B(f) of the Income Tax Act, 1961:
The case involved a question of law regarding the deduction for provision made for leave salary under section 43B(f) of the Income Tax Act, 1961. The court referred to a similar issue addressed by the Kerala High Court in Dhanalakshmi Bank Ltd. v. Commissioner of Income-tax, Cochin. The court noted that the provision under Section 43B(f) allows deduction only on actual payment, and in the present case, the appellant had made a provision that called for disallowance under this section. The court ruled in favor of the revenue and against the assessee, based on the clear language of the provision.

Issue 2: Fixing limitation for setting off unabsorbed depreciation under section 32(2) of the Income Tax Act:
The second issue involved the fixing of a limitation for setting off unabsorbed depreciation under section 32(2) of the Income Tax Act. The court cited a decision in The Commissioner of Income Tax V. Tamil Nadu Small Industries Corporation Limited, where it was held that the Tribunal was right in permitting the carry forward of depreciation loss beyond the eight-year period mandated under section 32 of the Act. The court referred to relevant provisions and held in favor of the assessee, dismissing the appeal and answering the substantial question of law against the revenue.

Issue 3: Reopening of assessment under section 147 of the Income Tax Act, 1961:
The final issue addressed the reopening of assessment under section 147 of the Income Tax Act, 1961, and whether it was affected by the principle of merger theory. The court considered the arguments presented and referred to previous judgments. It ultimately decided in favor of the assessee, following the precedent set in previous cases and dismissing the appeal against the revenue. The court did not award any costs in these Tax Case (Appeals) and closed the connected Miscellaneous Petition.

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