TaxTMI 
TaxTMI 
2016 (7) TMI 1267
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....ommissioner of Income Tax (Appeals) has erred in confirming the disallowance made by the learned Assessing Officer towards provision for leave encashment of Rs. 12,25,159/- & Rs. 6,45,604/- for the assessment years 2009-10 & 2010-11 respectively debited to the profit and loss account by invoking the provisions of section 43B(f) of the Act under normal computation and under section 115JB of the Act. ii) The learned Commissioner of Income Tax (Appeals) has erred by not allowing full relief as claimed by the appellant in respect of the addition made by the learned Assessing Officer under section 14A of the Act both under normal provisions and under section 115JB of the Act. ITA Nos.1919 & 1920/Mds/2015: (Revenue's Appeal) 3. The Revenue in these appeals has raised several identical grounds and they are concised herein below for adjudication:- i) The learned Commissioner of Income Tax (Appeals) has erred by holding that provisions of section 40(a)(ia) of the Act will not be applicable on credit card commission payments. ii) The learned Commissioner of Income Tax (Appeals) has erred in holding that investments made in wholly owned subsidiary companies ha....
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....sessee, by way of "leave encashment", is allowable as deduction, only if such amounts are paid on or before the due date of filing the return u/s.139(1) of the Act. 4.1.3 The provisions of section 43B(1) of the Act are unambiguous and very clear, that the expenses are allowable only on actual payment. The provisions of section 43B of the Act are not with reference the accrual or crystallization of the liabilities. Also, the question of ascertainment or un-ascertainment of such expenses will not arise once the expenses come under the purview of section 43B of the Act. Therefore, since the allowability of expenses of "leave encashment" is brought into the provisions of section 43B of the Act, it is on par with .any other sums mentioned under section 43B of the Act, where the amounts are allowable as deduction only on actual payment basis. The decision of the Supreme Court in the case of Bharat Earth Movers Ltd v. CIT, 245 ITR 428 (sq, was rendered prior to 2001, where the "leave encashment" was not part of the provisions of section 43B of the Act. Only subsequent to the decision of the Supreme Court (in Bharat Earth Movers Ltd) , the legislature amended the statutes, w.e.f. ....
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.... accordance with the provisions of section 43B(f) of the Act. Section 43B(f) of the Act clearly provides that any sum payable by the assessee as employer in lieu of any leave at the credit of his employee shall be allowed in which the sum is actually paid before the due date of filing of the return as per section 139(1) of the Act. Hence this issue is held in favour of the Revenue. However, while determining the book profit under section 115JB of the Act, the provision made for leave encashment has to be allowed as deduction because as per Explanation [I] (c) ascertained liabilities has to be given effect for arriving at the book profit. Therefore the profit & loss arrived after debiting the ascertained liability of the amount payable to the employees cannot be altered by the Revenue to the extent it remains unpaid. Accordingly, this ground raised by the assessee is partly allowed for both the assessment years as indicated herein above. Ground No.2: Addition u/s.14A of the Act: 6.1 During the course of assessment proceedings, the learned Assessing Officer invoked the provisions of section 14A r.w.r 8D of the Rules and made addition in the hands of the assessee. 6.2 On appeal,....
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....ompanies should be excluded from the ambit of the 'value of investments' for the purpose of Rule 8D. The Assessing Officer is directed to exclude the investments in the subsidiary companies from the ambit of the value of investments for the purpose of Rule 8D and recomputed the disallowance under section 14A r.w.r.8D in accordance with the direction of the ITAT contained in assessment year 2008-09 not only for the purpose of normal provisions of but also for the purpose of section 115JB of the Act. The assessee partly succeeds in its appeals in this regard." 6.3 We do not find it necessary to interfere with the order of the learned Commissioner of Income Tax (Appeals) on this issue because he has only followed the order of the Chennai Bench of the Tribunal, however we hereby direct the learned assessing officer to ensure whether the assessee had made investments in its sister/associate company for strategic purpose and out of its interest free funds as clarified by the Chennai bench of the Tribunal in the case of Rane Holdings Ltd. Vs. ACIT in ITA No.115/Mds/2015 vide order dated 06.01.2016 and if found so delete the disallowance made by invoking the provisions of sectio....
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....ded back while computing book profit under Explanation-1 to s. 115JB(para 6). Respectfully following the above decisions, I uphold the addition made by the Assessing Officer. This ground is dismissed." However, on perusing the Explanation-1(f) of Section-115JB(2) of the Act, we do not find merit in the contention of the Ld. CIT (A). The relevant provision of the Act is extracted herein below for reference:- Section.115JB Explanation-[1] - For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section(2), as increased by - (a) To (e) ---------------------------------------------------- (f) the amount or amounts of expenditure relatable to any income to which [Section-10 (other than the provisions contained in clause (38) thereof] or section 11 or section 12 apply; (g) To (j) ----------------------------------------------------- From the above it is apparent that the aforesaid provision of the Act does not refer to any disallowance made U/s.14A of the Act while arriving at the Book Profit for the purpose of Section- 115JB(2) of the Act. Further Section 14A o....
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....ion (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company." From the above decision it is clear that while computing the "Book Profit" of the company under the provisions of section 115JB of the Act; any disallowance made under the normal provisions of the Act also cannot be given effect to for arriving at the "Book Profit" for the purpose of Section 115JB of the Act. Accordingly, this ground raised by the assessee is allowed in its favour." 6.4 Therefore, following the order of the Chennai Bench of the Tribunal, we hereby direct the learned Assessing Officer to compute the book profit of the assessee without making addition on account of section 14A r.w.r.8D in the case of the assessee. Accordingly, this issue allowed in favour of the assessee for both these assessment years. ITA Nos.1919 & 1920/Mds/2015: (Revenue's Appeal) Ground No.1: Applicability of Section 40(a)(ia) of the Act on credit card commission withheld: 7.1 During the course of assessment proceedings, the learned Assessing Officer observed that the assessee had paid credit card commission towards various....