Leave encashment provision disallowance remanded for fresh verification, with deduction confined to actual payment only.

The ITAT Kolkata examined a disallowance of provision for leave encashment and the appellate deletion of that addition. It noted that only actual payment toward leave encashment is deductible, following the Supreme Court's reversal of the earlier High Court view on allowability of such provision. As the assessee had made actual payment for the existing liability, the Tribunal set aside the deletion and remanded the matter to the Assessing Officer for fresh adjudication after giving reasonable opportunity of hearing. The provision was to be added back, subject to allowance of the actual payment on verification.

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Issues: Whether the disallowance of provision for leave encashment and the corresponding deletion by the first appellate authority required interference, and whether the matter should be restored to the Assessing Officer for fresh adjudication.

Analysis: The appeal arose from a disallowance of provision for leave encashment made in the assessment completed under section 143(3). The appellate authority had deleted the addition, but the Tribunal noted that the Supreme Court had reversed the earlier High Court view on allowability of such provision and that only actual payment towards leave encashment is deductible. Since the assessee had made actual payment in respect of existing liability, the Tribunal considered it appropriate to send the matter back for fresh examination by the Assessing Officer after granting reasonable opportunity of hearing.

Conclusion: The deletion was set aside for fresh consideration, the provision for leave encashment was to be added back subject to allowance of actual payment, and the issue was remanded to the Assessing Officer.

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