M/S.CHENNAI PETROLEUM CORPOR vs. THE DEPUTY COMMISSIONER OF I

T.C.A.No.111 of 2020 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 14.10.2020 CORAM THE HON'BLE MR.JUSTICE T.S.SIVAGNANAM AND THE HON'BLE MRS.JUSTICE V.BHAVANI SUBBAROYAN T.C.A.No.111 of 2020 and C.M.P.No.3890 of 2020 M/s.Chennai Petroleum Corporation Limited, 536, Anna Salai, Teynampet, Chennai-600 018. PAN : AAACM4392C ... Appellant -vs- The Deputy Commissioner of Income-tax, Larger Tax Payer Unit - Appeals, Chennai-600 101.

... Respondent Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961 against the order dated 20.03.2019 made in I.T.A.No.688/Chny/2013 on the file of the Income Tax Appellate Tribunal 'B' Bench, Chennai for the assessment year 2007-08. For Appellant : Mr.R.Vijayaraghavan for M/s.Subbaraya Aiyar Padmanabhan For Respondent : Mr.T.Ravikumar Senior Standing counsel JUDGMENT 1/7 http://www.judis.nic.in T.C.A.No.111 of 2020 (Judgment of the Court was delivered by T.S.Sivagnanam, J.) This appeal has been filed by the assessee under Section 260 A of the Income Tax Act, 1961 ('the Act' for brevity), is directed against the order dated 20.03.2019 made in I.T.A.No.688/Chny/2013 on the file of the Income Tax Appellate Tribunal 'B' Bench, Chennai ('the Tribunal' for brevity) for the assessment year 2007-08. 2.This appeal has been filed by raising the following substantial questions of law:- Provision for Leave Encashment "1.Whether the Tribunal was right in law in holding that the assessee is not entitled for deduction in respect of provision for Leave encashment without appreciating that the amount has been determined scientifically and accurately based on actuarial valuation, and the incurring of expenditure is certain and has arisen in the previous year ended 31st March 2007? 2.Whether the Tribunal was right in law in holding that no expenditure shall be allowed u/s.43B(f) on account of any leave salary unless the expenditure is actually paid? and 3.Whether the Tribunal erred in law in not 2/7 http://www.judis.nic.in T.C.A.No.111 of 2020 appreciating that the Accounting Standard 15 has determined the liability to leave encashment and medical leave, has to be accounted for in the books each year and the Government has also notified in Gazette in GOI GSL No.212(E) dated 27.03.2008?" 3.We have heard Mr.R.Vijayaraghavan, learned counsel appearing for the appellant and Mr.T.Ravikumar, learned Senior Standing Counsel appearing for the respondent. 4.The above substantial questions of law have to be answered against the appellant/assessee in the light of the decision of the Hon'ble Supreme Court in the case of Union of India and others vs. Exide Industries Limited and another [(2020) 107 CCH 0427(SC)], wherein it has been held as follows: 8.The decision of the learned single Judge was appealed and came to be reversed by the Division Bench of the High Court. The Division Bench, while holding clause (f) as unconstitutional, observed thus: "... While inserting sub-section (f) no special reasons were disclosed. His Lordship held that such disclosure was not mandatory. We do not have any reason for disagreement 3/7 http://www.judis.nic.in T.C.A.No.111 of 2020 on such issue provided the subject amendment could be termed as in furtherance to widen the scope of original section on the identical objects and reasons as disclosed at the time of enacting the original provision. As we find, the original section was incorporated to plug in deductions claimed by not discharging statutory liabilities. We also find that provision was subsequently made to restrict deductions on account of unpaid loan to the financial institutions. Leave encashment is neither statutory liability nor a contingent liability. It was a provision to be made for the entitlement of an employee achieved in a particular financial year. An employee earns certain amount by not taking leave which he or she is otherwise entitled to in that particular year. Hence, the employer is obliged to make appropriate provision for the said amount. Once the employee retires he or she has to be paid such sum on cumulative basis which the employee earns throughout his or her service career [sic] unless he or she avails the leave earned [sic] by him or her. That, in our view, could not have any nexus with the original enactment. An employer is entitled to deduction for the expenditure he incurs for running his business which includes payment of salary and other perquisites to his employees. Hence, it is a trading liability. As such he is otherwise entitled to have deduction of such amount by 4/7 http://www.judis.nic.in T.C.A.No.111 of 2020 showing the same as a provisional expenditure in his accounts. The legislature by way of amendment restricts such deduction in case of leave encashment unless it is actually paid in that particular financial year. The legislature is free to do so after they disclose reasons for that and such reasons are not inconsistent with the main object of the enactment. We are deprived of such reasons for our perusal ... " (emphasis supplied) It also held that the subject matter of clause (f) was inconsistent with the original Section 43B and observed as follows: "... We also do not find such enactment consistent with the original provision being Section 43B which was originally inserted to plug in evasion of statutory liability. The Apex Court considered the situation in the case of Bharat Earth Movers (Supra) when sub-section (f) was not there. The Apex Court, considering all aspect as disclosed by us hereinbefore, rejected the contention of the Revenue and granted appropriate deduction to the concerned assessee. The legislature to get rid of the decision of the Apex Court brought out the amendment which would otherwise nullify the judge made law. The Apex Court decisions are judge made law and are applicable to all under the Constitution…" It is noteworthy that the High Court did not question 5/7 http://www.judis.nic.in T.C.A.No.111 of 2020 the existence of power of the legislature to enact the subject clause, as can be discerned from the following observations: "…We, not for a single moment, observe that legislature was not entitled to bring such amendment. They were within their power to bring such amendment. However, they must disclose reason which would be consistent with the provisions of the Constitution and the laws of the land and not for the sole object of nullifying the Apex Court decision." 5.We also had an occasion to consider the similar issue in T.C.A.No.189 of 2018 dated 13.10.2020. Applying the above decision, the present tax case appeal is dismissed and the substantial questions of law are answered against the assessee. No costs. Consequently, connected miscellaneous petition is closed. (T.S.S., J.) (V.B.S., J.) 14.10.2020 [3/5] Index : Yes/No Speaking Order/Non-speaking Order cse 6/7 http://www.judis.nic.in T.C.A.No.111 of 2020 T.S.Sivagnanam, J. and V.Bhavani Subbaroyan, J. cse T.C.A.No.111 of 2020 and C.M.P.No.3890 of 2020 14.10.2020 [3/5] 7/7 http://www.judis.nic.in