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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
Phoenix Conveyor Belt India (P)Ltd. -vs.- D.C.I.T., Circle-11, Kolkata Kolkata [PAN : AABCP 5595 P] (Respondent) (Appellant) For the Appellant : None For the Respondent : Shri Arindam Bhattacharjee, Addl. CIT Date of Hearing : 27.02.2018. Date of Pronouncement : 01.03.2018. ORDER Per N.V.Vasudevan, JM
These are appeals by the Assessee against two orders both dated 25.11..2016 of C.I.T.(A)-18, Kolkata relating to A.Y.2009-10 & 2010-11.
The common issue involved in both these appeal is as to whether the revenue authorities were justified in disallowing the claim of the assessee for deduction on account of provision of leave encashment. The disputed addition for A.Y.2009-10 is a sum of Rs.1,01,85,975/- and in A.Y.2010-11 is a sum of Rs.13,44,964/-.
The AO disallowed the claim of the Assessee for deduction while computing income from business of a sum of provision for leave encashment u/s 43B(f) of the Income Tax Act, 1961. Clause (f) to sec 43B provides that any sum payable by an employer in lieu of leave at the credit of his employee shall be allowed only on actual payment and not on mere provision. This clause was inserted by the Finance Act, 2001, w.e.f 1/4/2002, i.e., A.Y. 2002-03.
2 & 137/Kol/2017 Phoenix Conveyor Belt India Private Limited A.Yr.2009-10 & 2010-11 4. In the case of Exide Industries Ltd v. UOI (2007) 292 ITR 470 (Cal), the Hon’ble Calcutta High Court held that the provision for leave encashment cannot been disallowed under sec 43B(f) of the Act. The Calcutta High Court after referring to the decision of Bharat Earth Movers v. CIT (2000) 245 ITR 428 (SC) held that amendment to sec 43B(f) was not constitutionally valid. The Calcutta High Court held the provision to be arbitrary and vulnerable, because there was no disclosure of reasons for the amendment. The High Court ruled that, while the Legislature was free to make such amendments, reasons therefore should be inferable and such reasons should be consistent with the provisions of the Constitution and the laws of the land. When legitimate business expenditure is denied without reason, when reason was available for other disallowances under sec 43B, clause (f) of sec 43B is arbitrary and unconscionable as the amendment is to nullify the Supreme Court decision in the case of Bharat Earth Movers v. CIT (supra).The Calcutta High Court further held that leave encashment is neither a statutory liability nor a contingent liability and it is a provision to be made for the entitlement of an employee achieved in a particular financial year. Testing clause (f) with the objects sought to be achieved by the introduction of sec 43B, it was held that the same could not have any nexus with the object sought to be achieved by the original enactment. Sec 43B was originally inserted to plug evasion of statutory liabilities and the introduction of clause (f) was found to be inconsistent with the said object. The Judges held that the amendment brought in could not have nullified the dictum laid down in Bharat Earth Movers case (supra).
The Department filed SLP against the decision of the Hon’ble Calcutta High Court and while admitting the same, the Hon’ble Supreme Court vide its judgment dated 08.09.2008 stayed the judgment of the Hon’ble Calcutta High Court until further orders. By another Interim Order passed by the Hon’ble Supreme Court on 08.05.2009, which is as follows:
3 & 137/Kol/2017 Phoenix Conveyor Belt India Private Limited A.Yr.2009-10 & 2010-11 “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 the 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”.
The assessing officer added back the provision for leave encashment by invoking provisions of Sec.43B(f) of the Act. On appeal by the Assessee, the CIT(A) upheld the order of the AO. Aggrieved by the orders of the CIT(A), the Assessee has filed the present appeal before the Tribunal.
None appeared for the Assessee. However we notice that identical issue was considered by this Tribunal in the case of Birla Corporation Ltd. in 942/Kol/2013, 298 & 329/Kol/2013 for A.Y.2008-08 and 2009-10 dated 25.8.2017. This Tribunal on the identical issue held it could be inferred that the Hon’ble Supreme Court had not stayed the judgment of the Calcutta High Court during Leave proceedings. But the Hon’ble Supreme Court had only passed an interim order on the impugned issue. Hence the Tribunal thought it fit and appropriate, in the interest of justice and fair play, to remand this issue to the file of the ld AO to pass orders based on the outcome of the main appeal on merits by the Hon’ble Supreme Court as stated supra.
Respectfully following the decision of the Tribunal, we set aside the order of CIT(A) and remand the issue to the AO to pass order based on the outcome in the proceedings pending before the Hon’ble Supreme Court in the case of Exide Industries Ltd. (supra). Thus the appeals of the Assessee are allowed for statistical purpose.
Order pronounced in the Court on 01.03.2018.