In a partial relief to TV Today Network, the Income Tax Appellate Tribunal (ITAT), Delhi Bench ruled that the claim of leave encashment to be allowed on an actual payment basis and not on an accrual basis.
The appellant, TV Today Network gas contended that the Commissioner of Income Tax (Appeals) erred in law and on facts in sustaining a disallowance of a sum of Rs. 54,38, 500/- towards leave encashment in view of provisions of section 43B (f) of the Income Tax Act 1961, in doing so, the commissioner of Income Tax (Appeals) has failed to appreciate the fact that the provision for leave encashment was based upon the actuarial valuation which is again based on scientific calculations and is not based on any estimate basis and as such, the same should have been allowed.
The Assessing Officer made the addition of Rs. 1,03,15,922/- in respect of provision for interest payable to Prasar Bharti, the addition of Rs. 3,34,81,847/- relating to consumption debtors, addition of Rs. 54,38,500/- relating to unpaid leave encashment as well as made disallowance of Rs. 9,90,264/- u/s 14A read with Rule 8D. The Assessing Officer also made disallowance of Rs 43,14,198/- in respect of late deposit of employee contribution to the provident fund.
The assessee contended that claim on an “accrual basis” was made by the assessee in its return of income by following the judgment of the High Court of Calcutta in the case of Exide Industries vs. UOI. However, the said judgment has been reversed by Apex Court vide judgment dated 24.04.2020 in the case of UOI vs Exide Industries Ltd. wherein, it has been held that the claim with regards to “leave encashment” has to be allowed on a cash basis i.e. actual payment basis and not on an accrual basis.
The Coram of Judicial Member, Prashant Maharishi and Judicial Member, Suchitra Kamble relied on the Apex Court’s decision in the case of Exide Industries wherein it was held that the claim with regard to leave encashment has to be allowed on a cash basis i.e. actual payment basis and not on an accrual basis. It is pertinent to note that the payments with regards to the leave encashment have been made in subsequent assessment years i.e. 2013-14 and thus, the tribunal directed the Assessing Officer to verify and allow the deduction under section 43B on an actual payment basis as held in the decision of the Apex Court.
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