2012 (8) TMI 186 - AT - Income Tax

Proceedings u/s 263 of the Act - disallowance of unpaid leave encashment by invoking the provisions of sec.43B(f) of the Act Held that - Operation of the decision of the Hon ble Kolkata High Court referred to by the assessee in the case of M/s. Exide Industries Ltd. & Anr. In support of its case has been stayed by the Hon ble Supreme Court - Supreme Court has observed that 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 - assessing officer is directed to add back to the total income being encashment of earned leave not paid by the due date u/s 43B

Summary

Issues:
1. Condonation of delay in filing the appeal.
2. Allowability of unpaid leave encashment as deduction u/s 37.
3. Invocation of revisionary jurisdiction u/s 263 based on sec.43B(f) of the Act.

Analysis:
1. The appeal was filed with a delay of 4 days, which was condoned by the ITAT due to reasonable cause shown in the petition and affidavit filed by the assessee's General Manager. The delay was considered justified, and the case proceeded to be disposed of on merits.

2. The dispute revolved around the allowability of unpaid leave encashment as a deduction u/s 37 of the Income-tax Act. The CIT initiated revisionary jurisdiction u/s 263 based on sec.43B(f) of the Act, seeking to disallow the unpaid leave encashment. The CIT accepted the assessee's objection regarding interest payable u/s 244A but rejected the contention on unpaid leave encashment, citing a stay on a relevant High Court decision by the Supreme Court.

3. The ITAT analyzed the assessment order and found it lacking in discussion on the provisions of sec.43B(f) regarding unpaid leave encashment. Quoting judgments from the Hon'ble Karnataka High Court, the ITAT emphasized the necessity for proper reasoning in assessment orders, especially when allowing deductions. The ITAT upheld the CIT's decision to invoke revisionary jurisdiction u/s 263, as the Supreme Court's stay on the High Court decision meant sec.43B(f) was applicable during the pendency of the appeal, justifying the disallowance of unpaid leave encashment.

In conclusion, the ITAT dismissed the assessee's appeal, affirming the CIT's decision to disallow the unpaid leave encashment as a deduction under sec.43B(f) of the Income-tax Act, 1961.