The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT), allowed deduction as leave encashment was paid as per Section 43B(f) of Income Tax Act, 1961.
During the Financial Year (FY) 2015-2016, it is claimed that the assessee, M/s.Global E-Business Operations Private Limited made payment towards leave encashment amounting to Rupees seven crores and the same was disclosed as part of Clause 26 of Tax Audit Report (TAR) filed in Form 3CD for the said FY.
Though the assessee was eligible to claim the amount of Rupees Seven crores under section 43B of the Income Tax Act, 1961 the assessee had not claimed the payment towards leave encashment in the return of income by the assessee for the reason that during the FY 2006-07 to FY 2012-13, the assessee by placing reliance on the judgment of Exide Industries v. Union of India, had claimed deduction towards provision of leave encashment on accrual basis despite specific provisions of section 43B(f) of the Income Tax Act, 1961 which provides for deduction only on the basis of actual payment.
The AO during the assessment proceedings did not accept the claim in FY 2006-07 and FY 2012-13 relevant to the assessment year s2007-08 and 2013-14. Accordingly, the AO made an adjustment. Subsequently the Supreme Court of India overruled the judgment in the case of Exide Industries and upheld the constitutional validity for deduction of leave encashment on payment basis under section 43B(f) of the Income Tax Act., 1961.
A Division Bench consisting of George George K, Judicial Member and Padmavathy S, Accountant Member held that “Taking into consideration the circumstances under which the assessee did not claim a sum amounting to Rupees seven crores being leave encashment actually being paid during the previous year relevant to Assessment Year 2016-2017 we are of the view that the assessee should be allowed leave encashment actually paid as per provisions of section 43B(f) of the Income Tax Act, 1961.
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