T vs. INFOTECH LIMITED,CHENNAIVS.ACIT CORPORATE CIRCLE 3(1), CHENNAI

PER BENCH: The assessee filed these appeals against the orders of the Commissioner of Income Tax (Appeals)-9,Chennai, in 647(2013-14) and 296(2016-17) /CIT(A)- 11 dated 29.09.2017 for the AYs 2008-09, 2010-11 & 2014-15, respectively.

to 3167/Chny/2017 :- 2 -:

“1. The order of the Commissioner of Income Tax (Appeals) is contrary to Law, facts and circumstances of the case.

2. The Commissioner of Income Tax (Appeals) erred in confirming the disallowance of provision of Rs.5,25,000/- made towards Leave encashment for the year ended 31st March 2008. 2.1 The Commissioner of Income Tax (Appeals) ought to have appreciated that the provision of leave encashment of Rs.5,25,000/- was created based on actuarial valuation as per report obtained from consulting Actuary and that provision of Leave encashment was created in the books in line with AS-15 of employees benefits prescribed by ICAI. 2.2 The Commissioner of Income Tax (Appeals) ought to have followed the decision of the Chennai Tribunal in the case of Indian Overseas bank Vs. DCIT in and 1815/Mds/2011 dated 02.04.2013 (n para 6 at Page 11)

to 3167/Chny/2017 :- 3 -:

7.2.3 I have carefully considered the observation of the AO and the submissions of the appellant. The decision of ITAT, Chennai in the case of Indian Overseas Bank, cited supra, is not applicable because in that case the Tribunal followed the Kolkata High Court decision in the case of Exide Industries Ltd, 292 ITR 470, whereas the Supreme Court stayed the order of the Calcutta High Court in Exide Industries Ltd., cited supra, vide petitions(s) for special leave to Appeal (Civil) No(s).22889/2008 dated 08.05.2009, which is reproduced as under: “Pending hearing and final disposal of the Civil Appeal, Department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as the outstanding interest demand as of date is concerned, it would be open to the Department to recover that amount in case Civil Appeal of the Department is allowed. We further make it clear that the assessee would, during the pendency of this Civil Appeal, pay tax as if Section 43B(f) is on the Statute Book but at the same time it would be entitled to make a claim in its returns.” 7.2.4 The Supreme Court though restrained the department from the recovery of the interest and the penalty but had made it clear that the assessee would during the pendency of this Civil Appeal, pay tax as if Section 43B(f) is on the Statute Book. Subsequently, the Kerala High Court in the case of Smith Indian Bank Ltd., 45 taxmunn.com 428 held that the said payment must be allowed on actual payment basis and the relevant portion is reproduced as under: “6. Then coming to the second issue, it pertains to the provision made for leave encashment and the disallowance claimed was under Section 43B(f). As already stated above, the opinion of the CIT (Appeals) was set aside by the Tribunal in the light of the stay order of the judgment of the High Court of Calcutta in Excide Industries case (supra) and the SLP stated above is still pending. Therefore, the opinion of the Tribunal so far as disallowance claimed in respect of leave encashment under Section 43B(f) of the Act, as on today, the provision seems to be in force in the light of the stay order granted by the Apex court in the SLP. Therefore, as long as Section 43B(f) is on Statute, the said disallowance is justified.” 7.2.5 Since the Honourable Chennai Tribunal in the case of Indian Overseas Bank followed the decision of Calcutta High Court in the case of Exide Industries Ltd., which decision was stayed by the Hon’ble Supreme Court, the provisions of Section 43B(f) is in Statute and as held by the Kerala High Court in the case of South Indian Bank Ltd., cited supra, the sums have to be allowed only on actual payment basis and no provision which was not paid cannot be allowed, The decision of Bharat Earth Movers, 112 taxman 61, dated 09,08.2000 is also not applicable because the clause (f) of Section 43B was inserted subsequent to the said Supreme Court judgment. Therefore, disallowance of provision for leave encashment of Rs.9,41,721/- is hereby confirmed.” and submitted that since the final disposal of the Civil Appeal in the case of M/s.Exide Industries Ltd. & Anr. Vs. Union of India & Ors. is pending before the Hon’ble Apex Court, this issue may be remitted back to the AO with the to 3167/Chny/2017 :- 4 -: same condition imposed by the Hon’ble Supreme Court in the case of M/s.Exide Industries Ltd. & Anr. Vs. Union of India & Ors. and when the decision on the question of law in that case becomes final, it shall be applied to the assessee’s case.

Order pronounced in the Open Court on May 30, 2018, at Chennai.

(जॉज� माथन) (एस. जयरामन) (GEORGE MATHAN) (S. JAYARAMAN) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER to 3167/Chny/2017 :- 5 -: