WEAVINGS MANPOWER SOLUTIONS PRIVATE LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 3, THANE, MUMBAI

PDF · subscribers
ITA 4017/MUM/2026Status: DisposedITAT Mumbai10 August 2026AY 2022-2310 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the issue required factual verification regarding prior year disallowances, write-backs, and payments. It held that the adjustment made under section 143(1) could not be satisfactorily adjudicated based solely on the return and audit report.

What were the facts?

The assessee's return was processed under section 143(1) and an adjustment was made for alleged inconsistencies in provisions for gratuity and leave encashment between the return and the tax audit report. The assessee contended that these amounts were either disallowed in earlier years or written back, and the adjustment led to double disallowance.

What were the issues?

Whether the adjustment made under Section 143(1) for provisions of gratuity and leave encashment was justified, considering prior year disallowances and write-backs, and if it led to double disallowance.

Which sections of the Income-tax Act were involved?

Section 43B,Section 143(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “G” MUMBAI

Before: SHRI OM PRAKASH KANT & SHRI PAWAN SINGH

For Appellant: Shri M. A. Gohel, CA
For Respondent: Shri Rajgopal Parthasarathi – SR
Hearing: 30/07/2026Pronounced: 10/08/2026

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G” MUMBAI

BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI PAWAN SINGH (JUDICIAL MEMBER)

ITA No. 4016, 4017 and 4018/MUM/2026 Assessment Year: 2021-22, 2022-23 and 2023-24

Weavings Manpower Solutions Deputy Commissioner of Income Private Limited, 2nd Floor, Hari Tax, Circle 3, Thane, Qureshi Om Chambers, B-16 Veera Vs. Mansion, Gokhale Road, Thane – Industrial Estate, Andheri 400602. West, Azad Nagar, Mumbai - 400053. PAN NO. AABCW 0303 L Appellant Respondent

Assessee by : Shri M. A. Gohel, CA Revenue by : Shri Rajgopal Parthasarathi – SR DR.

Date of Hearing : 30/07/2026 Date of pronouncement : 10/08/2026 ORDER PER OM PRAKASH KANT, AM

These three appeals by the assessee are directed against orders passed by the learned Additional/Joint Commissioner of Income-tax (Appeals)-1, Bengaluru, [in short, the learned ‘CIT(A)’] for Assessment Years 2021–22, 2022–23, and 2023–24 respectively. As a common issue in dispute is involved in all these appeals, the same were heard together and are disposed of by way of this consolidated order for the sake of convenience.

Weavings Manpower Solutions 2 Private Limited ITA No. 4016, 4017 and 4018/MUM/2026

2.

The appeal for Assessment Year 2021–22 is taken as the lead case, and the decision thereon shall be followed mutatis mutandis in the other appeals. For ready reference, the grounds raised in ITA No.4016 for Assessment Year 2021–22 are reproduced as under: -

“I. ADDITION UNDER SECTION 43B OF THE ACT - PROVISION FOR GRATUITY AND LEAVE ENCASHMENT - Rs. 65,40,510/-: 1.1 On the facts and in the circumstances of the case and in law the Learned CIT(Appeals) has erred in confirming the addition made by the learned Assessing Officer under Section 43B of the Act for a sum of Rs.65,40,510/-/- for Provision of gratuity and Leave encashment on the basis of alleged inconsistency with Tax Audit Report 1.2 It is submitted that there is no inconsistency between the Disallowance as per Return of Income filed vis-à-vis the disallowance as per the Tax Audit report. The above referred Provision for gratuity and leave encashment was already disallowed in the earlier years and it has been written back during the previous year and hence not taxable. It is only an erroneous presentation in the e-Return of the Income and Tax Audit Report which has led to alleged discrepancy. Since the amounts were already disallowed, no further disallowance was required to be made. 1.3 The learned CIT(Appeals) erred in not considering the claims and contentions of the Appellant as contained in the written submissions furnished by the Appellant in justification of the claim for the deduction and also considering the explanation given. The appellant prays that additional disallowance of Rs. 65,40,510/- made under the Intimation under Section 143(1) of the Act may kindly be deleted as the same is unjustified and unwarranted.” 3. Briefly stated, the facts of the case are that the assessee filed the original return of income for the year under consideration on 10th February, 2022, within the time limit prescribed under section 139(1) of the Act, as extended by the CBDT from time to time till 15th March, 2022, declaring business income of ₹3,78,44,831/- and

Weavings Manpower Solutions 3 Private Limited ITA No. 4016, 4017 and 4018/MUM/2026

total income at Nil, after setting brought forward business loss of ₹3,78,44,831/-.

4.

The return of income filed by the assessee was processed under section 143(1) of the Income-tax Act, 1961 (in short, "the Act") by the Assistant Director of Income-tax, Central Processing Centre (CPC), on 13th November, 2022, wherein the business income was determined at ₹5,81,59,167/- and the total income was assessed at ₹2,03,17,340/- after setting off brought forward loss of the earlier years amounting to ₹3,78,44,831/-. The learned CPC made an adjustment of ₹2,02,43,467/-, the details of which are as under:-

Sl.No. Particulars Amount in Amount Proposed Income Tax mentioned in adjustment to Return Form total income Annexure 3CD 1 There is inconsistency in 6,54,322 47,32,895 40,78,573 Any amount debited to profit and loss disallowance under section 43B claimed in return and audit report 2 There is inconsistency in 1,37,02,957 0 1,37,02,957 Any sum payable to an employee as bonus or commission for services rendered claimed in return and audit report. 3 There is inconsistency in 25,05,250 43,313 24,61,937 Any sum payable towards leave encashment claimed in return and audit report. Total 2,02,43,467

Weavings Manpower Solutions 4 Private Limited ITA No. 4016, 4017 and 4018/MUM/2026

5.

On further appeal before the learned CIT(A), the assessee did not press the ground regarding the disallowance relating to donation and commission expenses amounting to ₹1,37,02,957/-. Therefore, the learned CIT(A) sustained the addition aggregating to ₹65,40,510/-, comprising disallowance under section 43B towards gratuity amounting to ₹40,78,573/- and disallowance towards leave encashment amounting to ₹24,67,937/-.

6.

Before us, the learned counsel for the assessee submitted that due to an inadvertent mistake in the presentation of the figures in the tax audit report vis-à-vis the income-tax return, the CPC had not taken into account the provisions of gratuity and leave encashment written back during the year under consideration and made the adjustment as reproduced above. The relevant submission of the assessee in respect of leave encashment and provision for gratuity is reproduced as under:-

“1.3] LEAVE ENCASHMENT: Provision for Leave Encashment during the year 27,85,893/- Less: Paid before the filing of Return of Income (1,99,625/-) Disallowed in A.Y. 2020-21 and paid during the year (62,063/-) Disallowed in A.Y. 2020-21 & Written Back (24,43,187/-) Disallowance 81,018/- Add: Allowed as deduction in A.Y. 2020-21 18,750/- Net Disallowance for A.Y. 2021-22 99,768/- Please note that the sum of Rs. 24,43,187/- is in respect of amounts disallowed under Section 43-B of the Act in earlier years and written back in the Profit & Loss A/c for the year ended 31.03.2020. Since the said amount was disallowed in earlier years, the same is not taxable when written back. The kind attention of

Weavings Manpower Solutions 5 Private Limited ITA No. 4016, 4017 and 4018/MUM/2026

Your Honour, in this behalf is invited to the Statement of Computation of Total Income for the A.Y. 2020-21, Paper-Book Page No. 229-230. This amount has accordingly been reduced from the Gross sum of Rs. 27,85,893/- to be disallowed under Section 43B as per Tax Audit Report and Net amount of Rs 99,768/- (Rs 27,85,893/- minus Rs. 24,85,893/- minus Rs. 43,313/- paid during the year as per Tax Audit Report) is to be disallowed. 1.4] PROVISION FOR GRATUITY: Provision for Gratuity during the year 40,78,573/- Less: Disallowed in A.Y. 2020-21 and Paid during the year (36,058/-) Disallowed in A.Y. 2020-21 & Written Back (30,23,033/-) Disallowance 10,19,482/- Add: Allowed as deduction in A.Y. 2020-21 36,058/- Net Disallowance for A.Y. 2021-22 10,55,540/-

Please note that the sum of Rs. 30,23,033/- is in respect of Provision of Gratuity disallowed under Section 40A (7) read with Section 43-B of the Act in earlier years and written back the Profit & Loss A/c for the year ended 31.03.2020. The kind attention of Your Honour, in this behalf is invited to the Statement of Computation of Total Income for the A.Y. 2020-21, Paper-Book Page No. 229-230. Income for the A.Y. 2020-21, Paper-Book Page No. 229-230. The said amount was disallowed in earlier years, the same is not taxable when written back. This amount has been reduced from the Gross sum of Rs.40,78,573/- to be disallowed under Section 43B as Tax Audit Report and Net amount of Rs 10,55,540/- (Rs 40,78,573/- minus Rs. 30,23,033/- ) is considered for disallowance The Net Provision for Gratuity is already disallowed for Rs.10,19,482/- under Part A - OI of "Other Information" Schedule 9 disallowable under Section 40A - Page no. 31 of the Return of Income and Paper-Book Page No. 32. Please note that the CPC process just picked up the amount reported under the head "Payments during the Year" and comparing the same with liabilities incurred & paid during the year, worked out alleged inconsistency resulting into disallowance under Section 43-B of the Act at Rs.40,78,573/-. The partial comparison with one of the two figures has led to unwarranted inconsistency and unwarranted addition. In view of the disallowances already made as above, the Appellant submits that further disallowance of the same amount by way of Adjustment under Section 143(1)(a) of the Act is unwarranted and unjustified and also leads to same amount getting taxed twice. Accordingly, the Appellant prays that the said disallowance may kindly be deleted as the same is not permissible under the law.

Weavings Manpower Solutions 6 Private Limited ITA No. 4016, 4017 and 4018/MUM/2026

The Working of Net Disallowance under Section 43-B of the Act is enclosed herewith as Paper-book Page No. 157. It is to be noted that the Net disallowance under Section 43-B of the Act worked out from Return of Income [Paper-book Page No. 93-94], filed as under. In view of the above, the Appellant submits that further disallowance of the same amount by way of Adjustment under Section 143(1)(a) of the Act is unwarranted and unjustified and also leads to same amount getting taxed twice. Accordingly, the Appellant prays that the said disallowance may kindly be deleted.”

7.

We have considered the rival submissions and perused the material available on record. The controversy lies in a narrow compass. The dispute is not with regard to the legal admissibility of deduction under section 43B of the Act, but relates to the correctness of the adjustment made while processing the return under section 143(1) on account of the alleged inconsistency between the figures reported in the return of income and those reflected in the tax audit report in respect of gratuity and leave encashment.

8.

Before adverting to the facts of the present case, it would be apposite to briefly notice the scheme of section 43B. The provision permits deduction of specified statutory liabilities and employee benefit obligations, including gratuity and leave encashment, only on actual payment or to the extent otherwise permissible under the statute. At the same time, where an amount had already been disallowed in an earlier year under section 43B and is subsequently written back or paid, the computation has necessarily to be examined in the light of the earlier year's treatment so as to ensure

Weavings Manpower Solutions 7 Private Limited ITA No. 4016, 4017 and 4018/MUM/2026

that neither a double deduction nor a double disallowance results. The provision is intended to tax real income and does not contemplate repeated disallowance of the very same amount merely because of the manner in which the figures are presented in the return or the audit report.

9.

Reverting to the facts of the present case, the assessee's consistent case is that the apparent inconsistency noticed by the CPC arose on account of the manner in which the particulars were reflected in the return of income vis-à-vis Form No.3CD. According to the assessee, substantial amounts representing provision for gratuity and leave encashment had already been disallowed in the earlier assessment years. During the year under consideration, part of such amounts was either actually paid or written back in the Profit and Loss Account. Consequently, while computing the income for the year, only the net amount remaining liable for disallowance under section 43B was claimed. It has further been contended that the CPC merely compared isolated figures appearing in the return and the tax audit report without considering the effect of the write- back of amounts already disallowed in the earlier years, thereby resulting in duplication of the disallowance.

10.

The working furnished before us prima facie indicates that the assessee has attempted to reconcile the figures by reducing the amounts already disallowed in the earlier years and written back

Weavings Manpower Solutions 8 Private Limited ITA No. 4016, 4017 and 4018/MUM/2026

during the year under consideration. Likewise, in respect of gratuity also, the assessee has furnished a detailed reconciliation explaining that the provision disallowed in the earlier years has been duly adjusted while arriving at the net disallowance for the year under consideration. These factual assertions, however, require verification from the return of income, the tax audit report, the computation of income of the earlier years and the supporting books of account.

11.

Having regard to the nature of the controversy, we find that the issue cannot be satisfactorily adjudicated merely on the basis of the figures appearing in the return of income or the tax audit report in isolation. What requires examination is whether the impugned amounts had, in fact, suffered disallowance in the earlier years, whether the corresponding amounts were written back or paid during the year under consideration, and whether the adjustment made by the CPC has resulted in taxing or disallowing the same amount more than once. Such an exercise necessarily involves reconciliation of the relevant records and factual verification, which could not appropriately be undertaken while processing the return under section 143(1).

12.

Considering the totality of the facts and circumstances, we are of the view that the ends of justice would be adequately served by restoring the matter to the file of the jurisdictional Assessing

Weavings Manpower Solutions 9 Private Limited ITA No. 4016, 4017 and 4018/MUM/2026

Officer. The assessee shall furnish complete reconciliation of the provisions for gratuity and leave encashment, the corresponding disallowances made in the earlier years, the amounts written back or actually paid during the year under consideration, together with all supporting documentary evidence. The Assessing Officer shall verify the aforesaid reconciliation from the relevant records and thereafter determine the correct amount, if any, liable for disallowance under section 43B in accordance with law. Needless to observe, if it is found that the amounts sought to be disallowed had already suffered disallowance in the earlier years, no further disallowance shall be made merely because of the manner in which the particulars were reported in the return of income or the tax audit report.

13.

We, accordingly, set aside the impugned order of the learned CIT(A) on this issue and restore the matter to the file of the jurisdictional Assessing Officer for fresh adjudication in the light of the above observations after affording the assessee a reasonable opportunity of being heard. The ground raised by the assessee is allowed for statistical purposes.

14.

Since the facts and circumstances in the other two appeals are identical to those in Assessment Year 2021–22, following our findings for Assessment Year 2021–22 and for the sake of consistency, the appeals for Assessment Years 2022–23 and 2023–

Weavings Manpower Solutions 10 Private Limited ITA No. 4016, 4017 and 4018/MUM/2026

24 are also restored to the file of the Assessing Officer with mutatis mutandis findings.

15.

In the result, all the three appeals of the assessee are allowed for statistical purposes.

Order pronounced in the open Court on 10/08/2026.

Sd/- Sd/- (PAWAN SINGH) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 10/08/2026 M. Ranganath Vittal , Sr. P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai

More judgments on Section 43B

All 7,161 judgments and leading authorities on Section 43B →

Recent GST High Court judgments

Search GST case law →