2016 (8) TMI 1223 - AT - Income Tax

Disallowance for provisions of leave encashment - Held that - We restore the matter back to the file of the AO by setting aside the order of CIT(A) and decide the issue accordingly. The ground raised by the assessee is allowed for statistical purposes. Disallowance of compensation paid to the investor by the assessee - Held that - As decided in assessee s own case for AY-2002-03 wherein it has been held that the contractually and statutorily and assessee was duty bound to make the payment so as to keep assessee s business interest and accordingly the compensation paid by the appellant was allowed as deduction by directing the AO.

Summary

Issues:
1. Disallowance of leave encashment provision
2. Disallowance of compensation paid to investors

Issue 1: Disallowance of leave encashment provision
The appeal was against the disallowance of ?21,67,547 by the CIT(A) regarding provisions for leave encashment not paid before the due date of filing the return of income. The AO disallowed the amount under section 43B(f) of the Act. The assessee requested restoration of the matter to the AO based on a Tribunal decision in a similar case. The Tribunal referred to the decision of the Hon'ble Supreme Court in the case of "Exide Industries Ltd" and directed the AO to keep recovery of tax and interest in abeyance pending the Supreme Court's decision. The Tribunal upheld the decision of the Co-ordinate Bench and restored the matter to the AO for fresh adjudication based on the Supreme Court's decision. The appeal was allowed for statistical purposes.

Issue 2: Disallowance of compensation paid to investors
The revenue appealed against the deletion of ?36,21,660 disallowance by the CIT(A) regarding compensation paid to investors by the assessee. The AO disallowed the compensation, stating it was not agreed that the fund manager would pay compensation to customers for service deficiencies. The CIT(A) allowed the appeal based on a previous Tribunal decision in the assessee's case, holding that the compensation was deductible to protect the assessee's business interests. The Tribunal upheld the CIT(A)'s decision, following the previous Tribunal ruling, and dismissed the revenue's appeal. The appeal of the assessee was allowed for statistical purposes.

In conclusion, the Tribunal addressed the issues of disallowance of leave encashment provision and compensation paid to investors, providing detailed analysis and referring to relevant legal precedents and decisions to arrive at its conclusions.