2022 (10) TMI 463 - AT - Income Tax

Disallowance of provision made in respect of an anticipated loss being the diminution in the value of Govt. of India Fertilizer Bonds - CIT-A had followed the decision in assessee s own case for AYs. 2009-10, 2010-11 2014-15 2018 (4) TMI 1581 - ITAT CUTTACK and 2018 (4) TMI 1581 - ITAT CUTTACK to delete the addition - .HELD THAT - As the assessee is not fixing the rates in respect of the diminution, which is being fixed by an authority under the Govt. which has a responsibility of fixing the rates in respect of the bonds/security. In lieu of the cash subsidy due from the Govt. of India, the assessee had been forced to accept the fertilizers bonds issued by the Govt. of India - loss in respect of the diminution in the value of the fertilizer bonds was specifically computed on the basis of the rates fixed by the Clearing Corporation of India Limited (CCIL), a corporation under the Govt. of India, which is cast to the duty in respect of the valuation of bonds and other securities - the methodology adopted by the assessee was a scientific method. It was supported by the rates issued by the Govt. of India itself and the loss was actually determinable, though would be actually incurred at the time of redemption. CIT(A) has correctly followed the judicial discipline in following the order of the coordinate bench of the Tribunal in assessee s own case.Case of Tripty Drinks (P.) Ltd 1977 (9) TMI 29 - ORISSA HIGH COURT distinguished - Decided against revenue. Disallowance of leave encashment claimed u/s.43B(f) - HELD THAT - We have considered the rival submissions. As it is noticed that the issue of liability of leave encashment claimed u/s.43B(f) of the Act is now squarely covered by the decision of the Hon ble Supreme Court in the case of Exide Industries Ltd. 2020 (4) TMI 792 - SUPREME COURT the AO is directed to verify the actual payments of the leave encashment and allow the same on actual payments.

Summary

Issues:
1. Disallowance of provision for anticipated loss on Govt. of India Fertilizer Bonds.
2. Disallowance of leave encashment claimed under Section 43B(f) of the Act.

Issue 1: Disallowance of provision for anticipated loss on Govt. of India Fertilizer Bonds:

In the appeal filed by the revenue (ITA No.354/CTK/2019), the main contention was against the deletion of disallowance of a provision made for an anticipated loss on Govt. of India Fertilizer Bonds. The revenue argued that the bonds were forced on the assessee in lieu of cash subsidy from the Govt. of India, and the valuation should only be considered a business loss when the bonds are redeemed. The revenue cited a High Court decision to support its argument against the methodology adopted by the assessee. However, the assessee, a manufacturer of phosphatic fertilizers, defended its position by stating that the loss was computed based on rates fixed by an authority under the Govt., and the methodology was scientific and supported by the Govt.'s rates. The assessee also referenced previous Tribunal decisions in its favor. The Tribunal found that the methodology adopted by the assessee was rational and distinguishable from the case cited by the revenue. The Tribunal upheld the decision of the CIT(A) to delete the addition, as it followed the judicial discipline of a coordinate bench and found no reason to interfere.

Issue 2: Disallowance of leave encashment claimed under Section 43B(f) of the Act:

In the appeal by the assessee (ITA No.326/CTK/2019), the challenge was against the disallowance of leave encashment claimed under Section 43B(f) of the Act. Both parties agreed that this issue was now covered by a Supreme Court decision upholding the constitutional validity of Section 43B(f) and requiring actual payment of liability for deduction. The assessee argued that actual payments had not been allowed and requested the AO to consider and allow the claim. The Tribunal, considering the Supreme Court decision, directed the AO to verify the actual payments of leave encashment and allow them accordingly. Consequently, the appeal of the revenue and the cross objection of the assessee were dismissed, while the appeal of the assessee was partly allowed.

In conclusion, the Tribunal's judgment addressed the issues of disallowance of provision for anticipated loss on Govt. of India Fertilizer Bonds and disallowance of leave encashment claimed under Section 43B(f) of the Act. The Tribunal upheld the decision of the CIT(A) regarding the first issue and directed the AO to verify and allow actual payments of leave encashment for the second issue.