Loading judgment…
Facts
The assessee, Crystal Crop Protection Limited, initially claimed a deduction of Rs. 1,81,08,383/- for leave encashment through a revised computation, which the Assessing Officer disallowed on the grounds that it was not made through a revised return of income and was allowable only on an actual payment basis as per Section 43B(f). Additionally, the assessee received excise duty subsidy of Rs. 6,17,88,640/- for a manufacturing unit in Jammu & Kashmir, which was initially offered to tax but later claimed as capital in nature and not taxable via an additional ground.
Held
The Tribunal upheld that leave encashment deduction is allowable only on an actual payment basis, directing the AO to verify payment dates and allow deduction in the relevant assessment year, citing the Supreme Court decision in *Union of India & ors. vs. Exide Industries Limited & Anr.*. On the issue of excise duty subsidy, the Tribunal admitted the additional ground and, following its own previous decision and the Jurisdictional High Court's ruling in the assessee's own case (*PCIT Vs. Crystal Crop Protection (P) Ltd.*), held that the subsidy is capital in nature and therefore not taxable.
Key Issues
Whether the provision for leave encashment is deductible on an accrual basis or only on actual payment under Section 43B(f). Whether the excise duty subsidy received by the assessee under the New Industrial Policy of J&K is revenue or capital in nature and thus taxable.
Sections Cited
Section 43B(f)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI SAKTIJIT DEY & SHRI NAVEEN CHANDRA
O R D E R PER SAKTIJIT DEY, VP:
The captioned appeal has been filed by the assessee against order dated 28.06.2019 of learned Commissioner of Income Tax (Appeals)-2, New Delhi, for assessment year 2016-17.
At the outset, learned counsel appearing for the assessee, under instruction, did not press ground no. 1. Accordingly, ground no. 1 is dismissed as not pressed.
In ground no. 2 assessee has challenged the disallowance of provision made for leave encashment. Briefly, the facts are, assessee is a resident corporate entity and stated to be engaged in the business of manufacturing and trading of pesticides and insecticides etc. In assessment year under dispute, assessee filed its return of income on 26.11.2016 declaring income of Rs. 18,34,81,000/-. In course of assessment proceedings, the assessee, through a revised computation of income, claimed deduction of leave encashment amounting to Rs. 1,81,08,383/-. However, the Assessing Officer rejected assessee’s claim stating that such claim having not been made through a revised return of income cannot be accepted. Assessee contested the disallowance before learned First Appellate Authority. While deciding the issue, learned First Appellate Authority sustained the disallowance on the reasoning that in terms of section 43B(f), deduction on account of leave encashment is allowable on actual payment basis and not on accrual basis.
We have heard the parties and perused the material on record. Before us, learned counsel appearing for the assessee conceded that as per judgment of the Hon’ble Supreme Court in the case of Union of India & ors. vs. Exide Industries Limited & Anr. (Civil Appeal no. 3545/2009, judgment dated 24.04.2020), deduction on account of payment of leave encashment can only be allowed on payment basis. However, he submitted that a direction may be issued to the Assessing Officer to allow the claim on payment basis in terms of Section 43B(f) of the Act.
4.1 Undisputedly, as per section 43B(f) of the Act, deduction on account of payment made towards leave encashment can be allowed only when actual payment is made. The constitutional validity of the aforesaid provision has been upheld by the Hon’ble Supreme Court in Union of India & ors. vs. Exide Industries Limited & Anr. (supra). Therefore, disputed deduction can only be allowed on actual payment basis. The Assessing Officer is directed to verify the date of actual payment of leave encashment and allow deduction in the assessment year wherein such payment has been actually made. Ground is allowed for statistical purposes.
Besides the aforesaid ground, vide letter dated 18.01.2023, the assessee has raised an additional ground on the issue of taxability of excise duty subsidy. Briefly, the facts are, the assessee had set up a manufacturing unit in the state of Jammu & Kashmir. In terms with New Industrial and other concessions scheme issued by the State of Jammu & Kashmir, the assessee availed excise duty subsidy amounting to Rs. 6,17,88,640/- in the year under consideration.
5.1 In the return of income filed for assessment year under dispute, assessee treated the excise duty subsidy as revenue in nature and offered to tax. However, through an additional ground raised before us, the assessee has claimed that the excise duty subsidy is capital in nature, hence, not taxable. To justify such claim, the assessee relied upon the decision of the coordinate Bench and the Hon’ble Jurisdictional High Court in its own case.
5.2 Learned Departmental Representative opposed the admissions of additional ground.
5.3 Having considered rival submissions, we find, the issue raised in the additional ground is a legal issue, concerning the nature of a particular item of receipt, whether Revenue or Capital. The primary facts for deciding such issue are available on record, hence do not require investigation into fresh facts. In view of the aforesaid, we admit the additional ground for adjudication.
5.4 So far as merit of the issue is concerned, undisputedly the assessee has received excise duty subsidy under the new industrial policy issued by the State of Jammu & Kashmir. Under the said scheme, the assessee has received excise duty subsidy, taxability of which is under dispute.
5.5 The moot issue arising for consideration is in relation to nature of such subsidy, whether capital or revenue. It is observed, while deciding identical issue in assessee’s own case in assessment year 2011-12, the coordinate Bench in dated 19.12.2019, while entertaining the additional ground raised by the assessee, has examined the relevant new industrial policy scheme and relying upon various judicial precedents concluded that the excise duty subsidy received by the assessee under the scheme is capital in nature, hence not taxable. The aforesaid decision of the coordinate Bench has been upheld by the Hon’ble Jurisdictional High Court in PCIT Vs. Crystal Crop Protection (P) Ltd. [2022] 143 taxmann.com
61. (Delhi). Facts being identical, respectfully following the decisions
Bench and Hon’ble Jurisdictional High Court, as discussed above, we hold that excise duty subsidy received by the assessee, being capital in nature, is not taxable. Additional ground no. 1 is allowed.
Additional ground no. 2, being a general ground, does not require adjudication.
In the result, appeal is partly allowed.
Order pronounced in open court on 31.05.2024_______________.