2019 (6) TMI 1287 - AT - Income Tax

Disallowance of provision of leave encashment u/s 43B - 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. MAT computation - provision for gratuity and leave encashment should be added to book profits while computing the book profit u/s 115JB - HELD THAT - Though the actual payment of gratuity may be made at a later point of time upon periodical release of the employees from service, it is provision having been made on actuarial basis, it cannot be stated to be an unascertained liability so as to add it back in terms of Clause (c) to Explanation 1 to Section 115JB It is not emanating from the assessment order as to whether the assessee has furnished the actuarial calculations of the ascertained liability for exclusion from adding the same to its book profit. The assessee is required to furnish before AO the actuarial calculations of the ascertained liabilities and after verification of the same; the AO may allow the assessee to exclude the same from the computation of book profit u/s 115JB. If the assessee chose not file the valuations, then the addition made by the AO stands sustained. Appeal filed by the assessee is allowed for statistical purposes. .

Summary

Issues involved:
1. Disallowance of provision for leave encashment.
2. Addition towards provision for gratuity and leave encashment in computing book profits under section 115JB of the Income Tax Act, 1961.

Detailed Analysis:
1. Disallowance of provision for leave encashment:
The appeal was against the disallowance of provision for leave encashment made by the assessee for the assessment year 2007-08. The Assessing Officer disallowed the claim under section 43B of the Income Tax Act as the actual payment was not made during the assessment year. The ld. CIT(A) confirmed the disallowance citing various judgments and orders, including the stay order by the Supreme Court in the case of Exide Industries Ltd. The Tribunal, considering previous decisions, remitted the matter back to the Assessing Officer to await the final decision of the Supreme Court in the Exide Industries case before applying it to the assessee's case.

2. Addition towards provision for gratuity and leave encashment in computing book profits:
The second issue related to the addition of provision for gratuity and leave encashment to book profits under section 115JB of the Act. The Assessing Officer added back the provision towards ascertained liabilities for gratuity and leave encashment. The ld. CIT(A) upheld this addition, stating that the provision was not established as an ascertained liability by the assessee. However, the Tribunal disagreed, noting that the provision, made on an actuarial basis, should not be considered an unascertained liability. The Tribunal directed the assessee to provide actuarial calculations to establish the ascertained liabilities and exclude them from the computation of book profit under section 115JB. Failure to provide such valuations would result in sustaining the addition made by the Assessing Officer.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the importance of establishing provisions as ascertained liabilities based on actuarial valuations to exclude them from book profits calculation under section 115JB of the Income Tax Act.