₹3.80 Lakh Leave Encashment Disallowed u/s 43B:ITAT Rules CPC Had No Jurisdiction and Deletes Addition [Read Order]

The Kolkata Bench of Income Tax Appellate Tribunal ( ITAT ) held that the Centralized Processing Centre (CPC) had no jurisdiction to disallow a genuine payment of ₹3.80 lakh towards leave encashment under Section 43B of Income Tax Act,1961.

Clinisys (India) Private Limited,appellant-assessee, had created a leave encashment provision of ₹32,98,103 during the year and paid ₹3,80,401 for prior years, thereby suo motu disallowing ₹29,17,702 in its return of income. Despite this, the Assessing Officer (Centralized Processing Centre) [AO (CPC)] added the payment made during the year back to the appellant-assessee’s income while processing the return.

In the appellate proceedings, the Commissioner of Income Tax (Appeals)[CIT(A)] upheld the addition by noting that the appellant-assessee had reported in Form 3CD, serial number 26B(b), that ₹32,98,103 was not paid within the stipulated time, while only ₹29,17,702 was disallowed under Section 43B.

The CIT(A) also recorded that no supporting evidence such as challans, books of accounts, or other documents was furnished to prove payment before filing the return. On this basis, the CIT(A) concluded that the AO (CPC) had correctly made the addition.

The two member bench comprising Pradip Kumar Choubey (Judicial Member) and Rajeh Kumar (Accountant Member) after considering the submissions and examining the record, noted that out of the total provision of ₹32,98,103 created during the year, the assessee had adjusted ₹3,80,401 towards payment of leave encashment pertaining to earlier years. It held that such actual payment could not be disallowed by the AO/CPC.

The appellate tribunal therefore set aside the order of the CIT(A), directed deletion of the addition, and allowed the appeal.

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