2011 (4) TMI 1283

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....e in this appeal of the assessee is against the order of CIT(A) in confirming the action of the Assessing Officer in respect of disallowance of provision for leave liability of Rs. 35,10,435/- in terms of clause (f) of section 43B of the Act. For this, the assessee has raised the following ground No.1: "1. That on the facts and circumstances of the case, the Ld. CIT(A) erred in not holding that provision for leave encashment is neither a statutory nor contingent liability and therefore not to be considered for the purpose of computing disallowance u/s. 43B(f) of I. T. Act, 1961." 3. The brief facts leading to the above issue are that the Assessing Officer observed in assessment order that the assessee has made a provision for leave encas....

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....me referred to in section 28 of that previous year in which the sum is actually paid by the employer to its employees. While inserting clause (f) no special reasons were disclosed. Although such disclosure was not mandatory yet the subject amendment widens the scope of the original section. Leave encashment is neither a statutory liability nor a contingent liability. It is a provision to be made for the entitlement of an employee achieved in a particular financial year. An employee earns certain amount by not taking leave which he or she is otherwise entitled to in that particular year. Hence, the employer is obliged to make appropriate provision for the said amount. Once the employee retires he or she has to be paid such sum on cumulative ....

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....ance of Rs. 15,01,665/- under section 14A by invoking rule 8D of the I. T. Rules, 1962. For this, the assessee has raised the following ground nos. 2 and 3: "2. That on the facts and circumstances of the case, the Ld. CIT(A) erred in confirming the disallowance of Rs. 15,01,665/- attributable to earning dividend income for the year. 3. That without prejudice to Ground No.2 above, though presuming but not admitting that expenses, if any, incurred to earn dividend income which is exempt u/s. 10(34) is not to be allowed, the Ld. CIT(A) further erred in confirming the disallowance made by the Ld. DCIT in a mechanical manner by applying the provisions of Rule 8D which is at an excessive figures." 6. Brief facts leading to the above issue ar....

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....(vi) Even prior to the assessment year 2008-09, when rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub-section (1) of Section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record; (vii) The proceedings for the assessment year 2002-03 shall stand remanded back to the Assessing Officer. The Assessing Officer shall determine as to whether the assesse....