INCOME TAX ACT, 1961

Section 43B

Business disallowance under section 43B - Provision for leave liability and transitional liability - Adjustment for leave provided in opening general reserve as per AS-15 (Revised 2005) -

Assessee in the revised computation filed with the revised return of income had claimed deduction of leave encashment at Rs. 85,34,740. The amount had been claimed as deduction, although the same have not been debited in the Profit & Loss Account and the same had been adjusted against reserve & surplus as per the transitional provisions of Accounting Standard-15 issued by the Institute of Chartered Accountants of India. The assessee had further submitted that such sum should be allowed by invoking the provisions of section 43B. Besides, certain sum being a current year leave liability, had been debited in the Profit & Loss Account. Although both the aforesaid sum had not been paid, therefore, the AO was of the view that these leave liabilities cannot be allowed under section 43B(f) and therefore, he disallowed the total leave liability. CIT(A) confirmed the addition made by the AO.Held: The Calcutta High Court had struck down provision of section 43B(f), while deciding the case of Exide Industries v. UOI (2007) 292 ITR 470 (Cal) : 2007 TaxPub(DT) 1321 (Cal-HC). However, Revenue filed SLP against this order before Supreme Court. The Supreme Court in the case of CIT v. Exide Industries Ltd. in SLP (Civil) CC 12060/2008 during hearing on 8-9-2008 passed the interim order. Supreme Court had not stayed the judgment of the Calcutta High Court during leave proceedings. But, the Supreme Court had only passed an interim order on the impugned issue. based on the identical facts, the Co-ordinate Bench of ITAT, Kolkata in the case of SICPA v. Dy. CIT (2017) 186 TTJ 289 (Kol-Trib) : 2017 TaxPub(DT) 1117 (Kol-Trib), had remitted the matter back to the file of the AO. Therefore, the order of CIT(A) was set aside and the issue was remitted back to the file of the AO to pass order based on the outcome of the main appeal on merits by the Supreme Court as stated.