Leave encashment disallowance under return processing was unsustainable where the assessee had already accounted for the prior-year liability.

Leave encashment paid during the year against prior years' liability could not be disallowed again in processing under section 143(1) where the assessee's return already reflected the relevant disallowance for the unpaid provision. The processing adjustment wrongly treated the actual payment as separately disallowable despite the existing computation treatment, so the addition was held unsustainable and was deleted.

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Issues: Whether the addition/disallowance made in respect of leave encashment paid during the year against prior years' liability was sustainable in processing under section 143(1).

Analysis: The assessee's computation showed that although a provision for leave encashment had been created, a separate amount was actually paid during the year towards prior years' leave encashment. The adjustment made by the processing authority treated the actual payment as disallowable, but the record showed that the assessee had itself already made the relevant disallowance for the unpaid provision. On these facts, the payment made during the year could not be disallowed again while processing the return.

Conclusion: The disallowance was unsustainable and the addition was directed to be deleted, in favour of the assessee.

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