2024 (1) TMI 53

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....518 (SC), therefore, this issue is not being pressed, so it is dismissed. 3. Coming to the only other ground no.1 which is against the action of the CIT(A) confirming the disallowance of the provisions made for leave encashment amounting to Rs. 14,70,00,661/- without appreciating that such provision was made on the basis of actuarial valuation carried out by the assessee and that leave encasement was not a statutory liability for the assessee. 4. Brief facts as noted by the Ld. CIT(A) is that the CPC by intimation dated 10.12.2021 made an addition of Rs. 14,99,97,206/- inter-alia by disallowing provision for leave encashment u/s. 43B of the Act to the tune of Rs. 14,70,00,661/- as well as disallowing the Employees Contribution towards PF for late deposit under section 36(1)(va) of the Act to the tune of Rs. 29,96,545/-. By doing so, the losses claimed by the assessee has been determined by the CPC at Rs. 69,27,83,643/- as against Rs. 84,27,80,849/- claimed in the return of income by the assessee. The Ld. CIT(A) took note of the issue raised by the assessee regarding the claim of deduction in respect of the provision made for the leave encashment to the tune of Rs. 14,70,00,66....

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....se the AO is directed to allow amount of leave encashment paid upto the date of filing of return of income. The ground of appeal is 'Partly Allowed'. 5. Aggrieved by the aforesaid action of the Ld. CIT(A), the assessee is before us. 6. We have heard both the parties and perused the record. According to the Ld. AR, leave encashment / leave salary has not become payable during the year under consideration and therefore, not disallowable u/s. 43B of the Act and relied on the following decisions: 1. DCIT V. Ultratech Cements Ltd. (ITA No0. 4385/Mum/2017 (AY 2010-11) 2. Aditya Birla Nuvo Ltd. V. ACIT (ITA No. 4220/Mum/2015 (AY 2010-11) 3. Aditya Birla Nuvo Ltd. V. ACIT (ITA No. 2525/Mum/2014 (AY 2009-10) 4. DCIT V. GBTL [2021] 189 ITD 704 (Mum.) 5. S. Subba Rao & Co. V. UOI [1998] 173 ITR 708 (Andhra Pradesh HC) 6. CIT V. Hindustan Construction Co. Ltd. [2015] 374 ITR 101 (Bombay HC) 7. According to Ld. AR, the return of income filed by the assessee has been processed u/s. 143(1)(a) of the Act by the CPC which disallowed the deduction claimed for the provision made for leave encashment / leave salary to the tune of R....

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....e payment and hence no double claim for deduction. The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. In Metal Box Company of India Ltd. Vs. Their Workmen (1969) 73 ITR 53 the appellant company estimated its liability under two gratuity schemes framed by the company and the amount of liability was deducted from the gross receipts in the P&L account. The company had worked out on an actuarial valuation its estimated liability and made provision for such liability not all at once but spread over a number of years. The practice followed by the company was that every year t....

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....n made by the appellant company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability. The High Court was not right in taking the view to the contrary. The appeal is allowed. The judgment under appeal is set aside. The question referred by the Tribunal to the High Court is answered in the affirmative, i.e. in favour of the assessee and against the Revenue. 8. Thus, according to the Ld. AR, in the light of the Hon'ble Supreme Court decision in Bharat Earth movers Ltd. Vs. CIT (supra), the provision made by the assessee-company for meeting the liability incurred by it under the leave encashment scheme proportionate to the entitlement earned by the Employees, subject to the ceiling on accumulation as applicable on the relevant date was entitled to deduction out of gross receipts of the Accounting Ye....

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....nly) which reads as under: - "Certain deductions to be only on actual payment. 43B. Notwithstanding anything contained in any other provisions of this Act, a deduction otherwise allowable under this Act in respect of - (a).......... (b).......... (c)........... (d)........... (e)........... (f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, (g) ..........., shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him: Provided that nothing contained in this section shall apply in relation to any sum "[*] which is actually paid" by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is f....

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....sertion of clauses have taken place in section 43B of the Act, [from Finance Act, 1987 onwards] and inter-alia, clause (f) has been inserted by Finance Act, 2001 w.e.f 01.04.2002 after the Hon'ble Supreme Court decision in Bharat Earth Movers (supra). Therefore, per-se such an observation made by the Hon'ble High Court in Srikalollu Shubbarao & Co. (supra) cannot come to the aid of the assessee in respect of Clause (f) u/s 43B of the Act. 12. It is true that "provision made by assessee for leave encashment" is allowable u/s. 37 of the Act as per the ratio laid by Hon'ble Supreme Court in Bharat Earth Movers (supra), but if it has to be allowed as deduction for computing the income of assessee u/s. 28 of the Act, then it will be allowed only to the extent actual payment has been made by the assessee to the employee. Section 43B of the Act doesn't put any fetter on the claim of deduction in the previous year any sum paid by assessee/employer in lieu of leave entitlement to an employee and is an allowable deduction in the previous year when payment is made to the employee. The assessee is entitled to deduction of any such on this account subject to payment. Section 43B of the Act a....