TaxTMI 
TaxTMI 
2012 (6) TMI 713
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome Tax Act, 1961(hereinafter referred to as 'the Act'). The claim was allowed treating the same as an expenditure exclusively incurred for the purpose of business. Subsequently, the Commissioner of Income Tax issued notice under Section 263 of the Act and after hearing the objections held that leave encashment is an allowable deduction under Section 43B(f) only and the same can be availed of only with respect to payments made on that account in the previous year. 2. The assessee was before the Tribunal challenging the revision under Section 263 mainly on two grounds (i) being the scope of powers under Section 263 and (ii) Section 43 B(f) being no longer available for the Revenue in view of the judgment of the Calcutta High Court strikin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r on an incorrect application of law. It was also contended that in any event Section 43B(f) has been held to be unconstitutional by the Calcutta High Court as per the decision reported in 2007 (292) ITR 470 Exide Industries Ltd. And another. The Tribunal accepted both the contentions of the assessee and set aside the impugned order passed by the Commissioner under Section 263 of the Act. 3. Revenue has raised the following questions of law:- A. The decision of the Tribunal is not correct and against the facts of the case. B. The Tribunal without considering the case on merit held that there are two possible views in this case. C. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e encashment is not a statutory liability and even in the case of provisions being made the deduction was allowed as a business expenditure; when the liability was not actually incurred in the previous year. In fact the above position was so declared by the decision of the Hon'ble Supreme Court in Bharat Earth Movers v. Commissioner of Income Tax (2000(245) ITR 428). Purportedly to overcome the said decision, the Parliament had brought in an amendment in the year 2001 to deny such deduction in the event of the same being not incurred in the previous year by introduction of Clause (f) to Section 43B. 5. The above provision, specifically Clause (f) of Section 43 B came up for consideration before the Calcutta High Court wherein the amendme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ility towards leave encashment. The liability; being covered by a valid insurance policy, is solely that of the insurer. Even if Section43 B(f) stands, in the case of the assessee, where the liability is borne by the insurer, there can be no situation wherein assessee could make a valid claim for deduction under Section 43B(f) since the actual liability is not incurred in any of the years. However, it cannot be doubted for a moment that the premium paid towards the renewal and continued validity of the insurance policy necessarily becomes business expenditure wholly and exclusively incurred for the business purpose and allowable as a deduction under Section 37. 7. In the said circumstance, the order of the Assessing officer allowing the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... towards premium paid on insurance policy and the liability was allowable as a deduction under Section37 being an expenditure incurred for the purpose of the business. The Commissioner proceeded on a totally wrong premise in finding the claim to be only under Section 43B(f) and then disallowing it. 8. One other circumstance is the Calcutta High Court decision in Exide Industries case (supra). The Calcutta High Court held that leave encashment is neither a statutory liability nor a contingent liability and it is a provision to be made for the entitlement of an employee achieved in a particular financial year. Testing clause (f) with the objects sought to be achieved by the introduction of Section 43 B, it was held that the same could not ....