2013 (12) TMI 1662 - AT - Income Tax

Disallowance of Provision for leave encashment u/s 43B(f) - Held that - As decided in THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1 (1) , THRISSUR. VERSUS M/S. KERALA FEEDS LTD., 2013 (9) TMI 1212 - ITAT COCHIN Department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as the outstanding interest demand as of date is concerned, it would be open to the Department to recover that amount in case Civil Appeal of the Department is allowed. We further make it clear that the assessee would, during the pendency of this Civil Appeal, pay tax as if Section 43B(f) is on the Statute Book but at the same time it would be entitled to make a claim in its returns. We set aside the order of Ld CIT(A) on this issue and restore the same to the file of the assessing officer with the direction to examine this issue afresh in accordance with the decision rendered by Hon ble Supreme Court in the case of M/s Exide Industries Ltd COMMR. OF INCOME TAX & ORS Versus M/s EXIDE INDUSTRIES LTD. & ANR. - 2009 (5) TMI 894 - SUPREME COURT - Appeal filed by the assessee is treated as allowed for statistical purposes.

Summary

Issues:
Challenge to disallowance of provision for leave encashment under sec. 43B(f) of the Act.

Analysis:
The assessee appealed against the disallowance of the provision for leave encashment under sec. 43B(f) of the Act by the Ld CIT(A)-II, Kochi. The assessee argued that the provision for leave encashment is a contractual liability, not a statutory one, and hence should not be covered under sec. 43B. The assessee relied on a decision of the Kerala High Court in a similar case. However, the Ld CIT(A) upheld the disallowance, stating that the facts in the current case were different from the precedent cited by the assessee. The Tribunal had previously considered a similar issue in the case of M/s Kerala Feeds Ltd and had set it aside for reconsideration by the AO. The Tribunal noted that the Rajasthan High Court's decision cited by the assessee was not applicable as sec. 43B(f) was inserted later. The Tribunal also discussed the decision of the Kerala High Court in the Hindustan Latex Ltd case, where it was held that the provision of sec. 43B(f) was unconstitutional. However, the Supreme Court had stayed this judgment, and the Tribunal directed the AO to re-examine the issue in light of the Supreme Court's decision in the case of M/s Exide Industries Ltd.

The Tribunal observed that the decision of the Kerala High Court regarding the unconstitutionality of sec. 43B(f) was stayed by the Supreme Court. The Tribunal also mentioned a similar case before the Calcutta Bench of Tribunal, where the matter was remanded to the AO following the decision of the Supreme Court in the Exide Industries Ltd case. Therefore, the Tribunal set aside the Ld CIT(A)'s order and directed the AO to re-evaluate the issue in line with the Supreme Court's decision in the Exide Industries Ltd case. Ultimately, the appeal filed by the assessee was treated as allowed for statistical purposes.