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Facts
The assessee reversed a provision for leave encashment of INR 8,11,41,878 during FY 2018-19, which had been disallowed in earlier years under Section 43B. The assessee claimed exclusion of this amount from total income, arguing that the provision was already disallowed. However, the tax auditor's report in Form 3CD did not clearly disclose this reversal, leading to the addition of this amount to the total income by the CPC.
Held
The Tribunal held that the assessee failed to furnish necessary documents in support of their claim before the NFAC. Therefore, the issue was remitted back to the NFAC to decide the same after calling for corroborative documents. The assessee was directed to cooperate with the NFAC by furnishing necessary details.
Key Issues
Whether the reversal of leave encashment provision, previously disallowed under Section 43B, should be excluded from total income, and whether deduction under Section 10AA is admissible.
Sections Cited
43B, 10AA, 115JAA, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SHRI SOUNDARARAJAN K.
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal by assessee is directed against order of NFAC for the assessment year 2019-20 dated 27.5.2024. The assessee has raised following revised grounds of appeal vide letter dated 13.6.2024, which are considered for adjudication:
1. That the order dated 27 March 2024 issued under section 250 of the Income-tax Act, 1961 ("the Act ") is contrary to the facts, provisions of the Act and is therefore, liable to be quashed.
2. That the Ld. Addl./ Jt. CIT(A) grossly erred in disregarding the application(s)/ submission(s) made by the Appellant during the relevant proceedings and issuing the order in haste. Hence, the Ld. Addl./ Jt. CIT (A) violated the principles of natural justice which ought to have been followed during the proceedings. Societe Generale Global Solutions Centre Pvt. Ltd., Bangalore Page 2 of 4
3. That the Ld. Addl./ Jt. CIT(A) was not justified in not allowing an opportunity to the Appellant of being heard during the proceedings even when the Appellant had specifically requested for the same. Hence, the Ld. Addl./ Jt. CIT(A) violated the principles of natural justice which ought to have been followed during the proceedings.
4. That the Ld. Addl./ Jt. CIT(A) was not justified in not allowing additional time to the Appellant to make further submissions against the latest notice issued during the relevant proceedings without providing any cogent reasons. Hence, the Ld. Addl./ Jt. CIT(A) violated the principles of natural justice which ought to have keen followed during the proceedings.
5. That the Ld. Addl./ Jt. CIT(A) and Ld. DCIT grossly erred in disallowing a deduction in respect of 'leave encashment' amounting to INR 8,11,41,878 written-back/ reversed during the financial year relevant to the AY under consideration under section 43B of the Act despite the fact that an equivalent amount of provision was already disallowed and therefore, offered to income-tax in preceding AYs. (Tax effect: INR 2,83,54,219)
6. That the Ld. Addl./ Jt. CIT(A) and Ld. DCIT failed to consider the supporting documents enclosed with the e-filed tax audit report in Form no. 3CA-3CD while deciding the treatment in respect of the amount of 'leave encashment' written-back/ reversed.
7. That the Ld. Addl./ Jt. CIT(A) grossly erred by holding that, since the Appellant had urged to allow a deduction under section IOAA of the Act corresponding to the amount of 'leave encashment' disallowed as a deduction under section 43B of the Act, the Appellant had ineffect accepted the disallowance under section 43B of the Act.
8. That the Ld. Addl./ Jt. CIT(A) and Ld. DCIT grossly erred in not allowing a deduction under section IOAA of the Act corresponding to the amount of 'leave encashment' disallowed as a deduction under section 43B of the Act.
9. That the L . DCIT failed to correctly determine the amount of credit to be carried forward by the Appellant under section 115JAA of the Act.
Facts of the issue are that there was a disallowance of Rs.8,11,41,878/- by invoking the provisions of section 43B of the Act in intimation passed u/s 143(1) of the Act. 2.1 The ld. A.R. submitted that the Company had disallowed provision for leave encashment under section 43B of the Act while Societe Generale Global Solutions Centre Pvt. Ltd., Bangalore Page 3 of 4 computing the taxable income in the earlier years. During FY 2018- 19, the Company had reversed provision for leave encashment of INR 8,11,41,878 which is forming part of 'Employee benefit expense' in the profit and loss account. Consequently, the Appellant has claimed exclusion of the same frum the total income on the basis that the provision was disallowed in earlier years under section 43B of the Act. In Form ITR-6, the reversal of provision for leave encashment was disclosed as an item of allowance under serial no. 10(f) of Part A 01-0ther Information, i.e., "Any amount disallowed under section 43B in any preceding previous year but allowable during the previous year". Separately, in the e-filed Form 3CD, the tax auditor has not disclosed the reversal of leave encashment of INR 8,11,41,878 in clause 26. However, in the manual audit report filed along with the e-Form 3CD, the tax auditor has disclosed the reversal of provision for leave encashment of INR 8,11,41,878 under clause 26(1)(A) of manual Form 3CD. The CPC has proceeded to add the above- mentioned reversal of provision for leave encashment to the total income without appreciating the fact that the provision for leave encashment was disallowed under section 43B of the Act in earlier years and has also failed to take cognizance of the submission of the assessee in response dated 1 February 2021 to the communication issued by CPC dated 5 January 2021. He submitted that the exclusion from total income was done on the basis that the same income cannot be taxed twice i.e. once on recognition of expenditure with a corresponding adjustment under section 43B of the Act and again on reversal of expenditure with a consequent increase in profits before tax.
The ld. D.R. submitted that assessee has not furnished any details before the NFAC. Hence, the issue was decided against the assessee and the same may be confirmed.