2018 (5) TMI 1899 - AT - Income Tax

Deduction u/s.43B - Allowability of Leave encashment - whether said expenditure is in the nature of contingent liability and the actual payment was not made during the respective Assessment Years? - Whether the provision of leave encashment was created based on actuarial valuation as per report obtained from consulting Actuary and that provision of Leave encashment was created in the books in line with AS-15 of employees benefits prescribed by ICAI - HELD THAT - AO/assessee shall follow the directions issued by the Hon ble Supreme Court in the case of M/s.Exide Industries Ltd. Anr. Vs. Union of India Ors. 2009 (5) TMI 894 - SC ORDER . When the question of law in the case of M/s.Exide Industries Ltd. Anr. Vs. Union of India Ors. becomes final the AO shall amend the impugned orders conformably to such decisions as per Sec.158A of the Income Tax Act 1961. - Appeals filed by the assessee are treated as partly allowed for statistical purposes.

Summary

Issues:
1. Disallowance of provision for leave salary as business expenditure under section 43B.
2. Application of the decision of the Kolkata High Court in the case of M/s. Exide Industries Ltd. & Anr. Vs. Union of India & Ors.
3. Interpretation of Section 43B(f) and its applicability to the case.
4. Compliance with the directions issued by the Supreme Court in Appeal (Civil) No(s).22889/2008 dated 08.05.2009.

Analysis:
The Appellate Tribunal ITAT Chennai dealt with appeals filed by an assessee against the orders of the Commissioner of Income Tax (Appeals) concerning the disallowance of provision for leave salary as business expenditure under section 43B for the assessment years 2008-09, 2010-11, and 2014-15. The assessee, a software development and SAP implementation services company, claimed the provision for leave salary based on actuarial valuation in line with AS-15 of employees' benefits prescribed by ICAI. The AO disallowed the claim on the grounds of non-payment during the respective assessment years, citing the decision of the Kolkata High Court in the case of M/s. Exide Industries Ltd. & Anr. Vs. Union of India & Ors. (2008) 292 ITR 470.

The Ld.CIT(A) confirmed the disallowance, leading the assessee to file appeals. The grounds of appeal for the assessment year 2008-09 included contentions against the disallowance of provision for leave encashment and referenced the decision of the Chennai Tribunal in the case of Indian Overseas Bank. During the hearing, the Ld.AR highlighted the order of the Ld.CIT(A) and the Supreme Court's stay order on the Kolkata High Court decision in the Exide Industries case. The Kerala High Court's decision in the case of South Indian Bank Ltd. was also discussed, emphasizing the requirement for actual payment basis under Section 43B(f).

The Tribunal acknowledged the Supreme Court's directions in the Exide Industries case and instructed the AO and assessee to comply accordingly. It was decided that the AO should amend the orders in line with the final decision in the Exide Industries case under Sec.158A of the Income Tax Act, 1961. The appeals were treated as partly allowed for statistical purposes, with the final order pronounced on May 30, 2018, in Chennai. The judgment emphasized the importance of following the Supreme Court's directives and awaiting the final decision in the pending Civil Appeal of the Exide Industries case for proper application to the assessee's situation.