9911796707
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Issues:
1. Change in method of accounting for provision of leave encashment. 2. Claim of deduction under section 37(1) of the Income-tax Act, 1961. 3. Assessment for the years 1982-83 and 1983-84. Analysis: Issue 1: Change in method of accounting for provision of leave encashment The assessee, a company dealing in sales of wires, cables, and leasing of gas cylinders, had a scheme for privilege leave with pay for its employees. The company made payments to workers for leave based on actual payments made, debiting these amounts in its books of account for deduction in the computation of total income. For the assessment year 1982-83, the company claimed deduction based on actual encashment of leave but later sought to change the method of accounting for provision of leave encashment. The IAC rejected this claim as no provision was made in the closed accounts. However, for the assessment year 1983-84, the company made a provision in its books of account for leave encashment liability, claiming it as admissible under section 37(1) of the Income-tax Act, 1961. The IAC rejected this claim as well, leading to appeals before the CIT (A). Issue 2: Claim of deduction under section 37(1) of the Income-tax Act, 1961 The company claimed a liability of Rs. 2,06,541 for leave encashment as admissible under section 37(1) of the Income-tax Act, 1961, for the assessment year 1983-84. The IAC rejected this claim, stating that the change in the method of accounting could not apply to the previous year 1982-83. However, the Tribunal found that the company's change in accounting method for leave encashment was bona fide and consistent, enabling it to determine the liability on a fair and reasonable basis. The Tribunal referred to relevant case law and held that the company's claim for the assessment year 1983-84 was admissible and should be allowed in the computation of total income. Issue 3: Assessment for the years 1982-83 and 1983-84 The CIT (A) upheld the IAC's decision for the assessment year 1982-83, stating that there was no case for interference in the assessment order. However, for the assessment year 1983-84, the Tribunal allowed the appeal, noting that the company's change in the method of accounting was genuine and consistent, leading to a fair and reasonable determination of liability for leave encashment. The Tribunal directed the ITO to allow the claim for the assessment year 1983-84, setting aside the previous orders disallowing the deduction. In conclusion, the appeal was allowed for the assessment year 1983-84 only, with the Tribunal finding in favor of the assessee's claim for deduction under section 37(1) of the Income-tax Act, 1961, based on a genuine change in the method of accounting for leave encashment.
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