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Facts
The assessee, a private limited company, appealed against an order confirming the disallowance of a provision for Exgratia/Long Term Service Award of ₹88.00 lakh and a provision for Leave Encashment of ₹1,20,565 for AY 2022-23.
Held
The Tribunal remitted the issue of Exgratia/Long Term Service Award disallowance back to the Assessing Officer for proper verification of the ascertainment of liability. The disallowance of Leave Encashment was reversed as the assessee had already offered it to tax.
Key Issues
Whether the provision for Exgratia/Long Term Service Award was an ascertained liability? Whether the disallowance of Leave Encashment amounted to double disallowance?
Sections Cited
143(3), 144B, 43B
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Income Tax Appellate Tribunal, PUNE BENCHES “A”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BOARD, ACCOUNTANT MEMBER :
The captioned appeal at the instance of assessee pertaining to A.Y. 2022-23 is directed against the order dated 25.02.2025 framed by National Faceless Appeal Centre, Delhi arising out of Assessment Order dated 07.03.2024 passed u/s.143(3) r.w.s.144B of the Income Tax Act, 1961.
Assessee has raised following grounds of appeal :
“The following grounds are taken without prejudice to each other - Issue 1-Provision for Long-Term Service Award
1. That the learned CIT(A) erred in law and on facts in upholding the disallowance of ₹88,00,000 made on account of provision for long- term service award, without appreciating that the said provision was ascertained, based on a reasonable estimation, and actually paid in subsequent years.
2. That the CIT(A) failed to appreciate the supporting evidence including employee-wise working and post-year-end payments, and erred in treating the same as an unascertained liability.
3. That the disallowance is against the principles laid down by the Hon'ble Supreme Court in Bharat Earth Movers Ltd. v. CIT ((2000) 245 ITR 428 (SC)). Issue 2-Provision for Leave Encashment (₹1,20,565) 4. That the learned CIT(A) erred in confirming the disallowance of ₹1,20,565 on account of provision for leave encashment, without appreciating that the said sum had already been disallowed suo motu by the appellant in the computation of income filed with the return.
5. That the confirmation of the said disallowance has resulted in double disallowance, which is factually incorrect and unjustified.
6. That the lower authorities failed to consider the computation of income and tax audit report, leading to an erroneous enhancement of total income. General 7. That the orders passed by the authorities below are arbitrary and contrary to law and facts, and hence liable to be set aside.
8. The appellant craves leave to add to, alter, amend, or withdraw any of the above grounds at the time of hearing.”
The first issue for our consideration is regarding disallowance of provision for Exgratia/Long Term Service Award at ₹88.00 lakh.
At the outset, ld. Counsel for the assessee submitted that the said provision for Exgratia/Incentive to employees is an ascertained liability and the payment has been made in the subsequent year and Tax at source has been deducted and therefore the same deserves to be allowed.
On the other hand, ld. Departmental Representative supported the order of ld.CIT(A).
We have heard the rival contentions and perused the record placed before us. We observe that the assessee is a Private Limited company and return of income for A.Y. 2022- 23 furnished on 29.10.2022 declaring income of ₹98,68,020. After the case being selected for scrutiny, assessment u/s.143(3) r.w.s.144B of the Act framed on 07.03.2024 making certain disallowance/additions. Against these additions assessee preferred appeal before ld.CIT(A) and partly succeeded. In the assessee’s appeal, the first issue is raised against the disallowance of deduction for Exgratia/Long Term Service Award at ₹88.00 lakh.
The contention of ld. Counsel for the assessee is that the alleged provisioning is an ascertained liability and deserves to be allowed. During the course of hearing, ld. Counsel has referred to a chart placed at page 97 of the paper book providing details of employees and the number of years of their service and the gross salary. In this detail, reference has been made to the monthly salary for October, 2023 (F.Y. 2023-24) for 11 employees and for the remaining 03 employees the major sum of ₹56.00 lakh has been paid, details of salary are not available. Ld. Counsel for the assessee fairly admitted that for the alleged provisioning made during F.Y. 2021-22 the details exhibiting the ascertained liability based on the salary paid to the employees during F.Y. 2021-22 are not available on record and if an opportunity is granted the same shall be placed before ld. Jurisdictional Assessing Officer in order to satisfy that correct provisioning has been made.
Under these facts and circumstances, we are of the considered view that provisioning of Exgratia/Long Term Service Award at ₹88.00 lakh would be allowed to the assessee only if the assessee satisfies the ld. JAO about the calculation of ascertainment of the liability during the year under consideration. For this purpose, we remit back the first issue raised by the assessee to the file of ld. JAO who shall carry out the exercise and decide in accordance with law. Accordingly, the first issue raised in the Grounds of appeal is allowed for statistical purposes.
9. The second issue for our consideration is disallowance of provision for Leave Encashment at ₹1,20,565.
We have heard the rival contentions and perused the record placed before us. Ld. Counsel for the assessee has referred to the relevant pages of the paper book including the computation of income to show that the alleged sum has already been added back to the income and offered to tax and the alleged disallowance would tantamount to double addition. Ld. Departmental Representative could not controvert the said contention. We have gone through the computation of income which is placed at pages 2 to 6 of the paper book and find that the assessee had added inadmissible expenses which include disallowance u/s.43B of the Act and further details show unpaid expenditure u/s.43B and which contains the Leave Encashment amount of ₹5,43,783 and there is further details of such Leave Encashment and the Leave Encashment for F.Y. 2021-22 is stated at ₹1,20,565. It is also admitted that such provision for Leave Encashment is not allowed and the expenditure can be claimed in the year of payment. However, since the assessee has suo motu added the alleged sum to its total income the impugned disallowance is uncalled for. Finding of ld.CIT(A) is reversed. The second issue raised by the assessee in the Grounds of appeal is allowed.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced on this 04th day of December, 2025.