2012 (1) TMI 331 - AT - Income Tax

Summary

Issues involved: Assessment of disallowance of expenditure u/s 43B(f) for payment made to LIC as premium, eligibility of payment for leave encashment benefit under mercantile system of accounting.

Assessment of disallowance u/s 43B(f): The assessee, a banking company, paid &8377; 30 lakh to LIC as premium, leading to a disallowance issue under sec. 43B(f). The Assessing Officer disallowed the expenditure citing a pending appeal, but the Commissioner of Income-tax (Appeals)-II, Dehradun, deleted the disallowance following the Tribunal's decision for Assessment Year 2006-07. The revenue appealed, contending that the liability to pay leave encashment benefit was not incurred during the relevant year. The Tribunal noted that the issue was covered by previous decisions and held in favor of the assessee based on the nature of the payment and the insurance policy taken to discharge the liability, allowing the deduction of &8377; 30 lakh.

Eligibility of payment for leave encashment benefit: The revenue argued that the liability for leave encashment benefit was not incurred during the relevant year, thus not eligible for deduction under the mercantile system of accounting. The Tribunal considered the facts and previous decisions, emphasizing the nature of the payment and the insurance policy taken by the assessee. Referring to relevant case laws, the Tribunal concluded that the premium paid for the insurance policy was eligible for deduction, as the liability was discharged through the policy. Consequently, the disallowance of &8377; 30 lakh was deleted, and the appeal was dismissed on 11th January, 2012.