MERCURY CAR RENTALS LIMITED,KOLKATA vs. D.C.I.T., CIRCLE-4, KOLKATA, KOLKATA

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ITA 2696/KOL/2013Status: DisposedITAT Kolkata31 October 2016AY 2007-20085 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal, following a coordinate bench decision, restored the issue to the Assessing Officer (AO) to await the final decision of the Hon'ble Supreme Court. The assessee is to pay tax as if Section 43B(f) is in effect but is entitled to make the claim in its returns.

What were the facts?

The assessee claimed a deduction for provision for leave encashment. The AO disallowed this claim, relying on the fact that the Hon'ble Supreme Court had stayed the Calcutta High Court's decision on the matter and had directed assessees to pay tax as if Section 43B(f) was on the statute.

What were the issues?

Whether provision for leave encashment is an allowable business expenditure when the Hon'ble Supreme Court has stayed the jurisdictional High Court's decision and issued interim directions.

Which sections of the Income-tax Act were involved?

Section 43B

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This appeal by the Assessee against the order dt: 27-08-2013 passed by the Commissioner of Income Tax-(Appeals), Kolkata U/Sec 250 of the Act for the assessment year 2007-08.

2.

The appellant assessee has raised following grounds:-

1. That on the facts and in the circumstances of the case the learned CIT (Appeals) erred in dismissing the appellant's ground that provision for leave encashment amounting to Rs.14,62,889/- is an allowable business expenditure. M/s. Mercury Car Rentals Limited 1

2. That on the facts and in the circumstances of the case the CIT (Appeals) erred in not appreciating that the provision for leave encashment shall not be added back U/s 43B of the Income Tax Act.

3. That the appellant craves leave to add and / or amend, alter, modify or reserved the grounds hereinabove before or at the time of hearing of the appeal.

3. Ground nos.1 & 2 are relating to disallowance on account of provision of leave encashment amounting to Rs.14,62,889/-.

4.

During the assessment proceedings the AO observed that the assessee made provision for leave encashment and claimed Rs.14,62,889/- as deduction. In explanation, the assessee claimed as allowance by relying on the decision of Hon’ble Calcutta High Court in the case of Exide Industries Limited, reported in 292 ITR 470 (Cal), wherein held that provision for leave encashment does not fall under the purview of section 43B of the I.T Act, 1961. According to AO, the Respondent Revenue has not accepted the decision of Hon’ble Calcutta High Court and a SLP was filed before Hon’ble Supreme Court and since the issue has not reached finality, the claim of the assessee was disallowed and Rs.14,62,889/- added to the income of the assessee.

5.

Before the CIT-A, the Assessee submitted as under:

"3.4 The Hon’ble Supreme Court in the case of CIT vs. M/s. Exide Industries Ltd in SLP (Civil) CC 12060/2008 during hearing on 8.9.2008 gave following order:- “ Upon hearing counsel the court made the following order, Issue notice, In the meantime, there shall be stay of the impugned judgment, until further orders.” 3.5 The Hon’ble Supreme Court during the hearing in the same case further on 8.5.2009 held as under:-

M/s. Mercury Car Rentals Limited 2

“ Upon hearing counsel the court made the following order Delay condoned. Leave granted. 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.” 3.6 Therefore, following the order of the Hon’ble Supreme Court in the case of CIT vs. M/s. Exide Industries Ltd in SLP (Civil) CC 12060/2008 during hearing on 8.9.2008 and 8.5.2009, it is held that the order of the Hon’ble Jurisdictional High Court has been stayed and held that the provisions of section 43B(f) is on the statute and the assessees have been directed to deposit the taxes on the same. 3.7 Therefore, in the facts and circumstances during the pendency of SLP it is held that the judgment of the Hon’ble High Court being stayed is not applicable and the appellant is required to deposit the taxes. Therefore, this ground of appeal is dismissed.

6.

Aggrieved by such order of the CIT-A, now the assessee is in second appeal before us by raising the above mentioned grounds of appeal.

7.

The Ld.AR at the time of hearing before us submitted that the similar issues have been decided by this Tribunal, wherein the Tribunal remanded such issues to the file of AO to decide the issue in pursuance of final order by Hon’ble Supreme Court.

8.

Heard rival submissions and perused the material on record. We find that the Co-ordinate Benches have decided the same issue by observing as under:-

25.

The issue raised in Ground No. 8 relates to the disallowance of 1.51 crores made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of provision made by the assessee for leave encashment.

26.

The assessee-Company during the year under consideration had made a provision of Rs.1.51 crores for leave encashment on the basis of an ITA No. 2696/Kol/2013

M/s. Mercury Car Rentals Limited 3 acturial valuation and the same was claimed as deduction by relying on the decision of the Hon’ble Calcutta High Court in assesese’s own case reported in 292 ITR 470 and the decision of the Hon’ble Supreme Court in the case of Bharat Earth Movers reported in 245 ITR 428. The Assessing Officer, however, disallowed the claim of the assessee for provision of leave encashment relying on the Clause (f) inserted in Section 43B by the Finance Act, 2001 w.e.f. 1st April, 2002. The ld. CIT(Appeals) confirmed the said disallowance. The assessee challenged the constitutional validity of Clause (f) inserted in Section 43B before the Hon’ble Calcutta High Court by way of a Writ Petition and although the same was initially dismissed by the Single Bench, it was admitted and ruled in favour of the assessee by the Division Bench of the Hon’ble Calcutta High Court by holding that the introduction of Clause (f) to Section 43B is ultra virus of the Act in the absence of disclosure of the objects and being inconsistent with the basic intent of Section 43B. Thereafter the Department filed the 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.

27.

At the time of hearing before us, the ld. Counsel for the assessee has contended that even though the decision of the Hon’ble Calcutta High Court holding Clause (f) of Section 43D as ultra virus is stayed by the Hon’ble Supreme Court while admitting the SLP filed by the Revenue, the same has not been reversed and this Tribunal, therefore, is bound to follow the same being a binding precedent. He has also contended that the decision of the Hon’ble Calcutta High Court was stayed by the Hon’ble Apex Court vide its judgment dated 08.09.2008 until further orders and there being another Interim Order passed by the Hon’ble Supreme Court on 08.05.2009, the stay granted earlier stands automatically vacated. A copy of the said interim order dated 08.05.2009 is placed on record before us, the contents of which are extracted below:- “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”.

28.

We have carefully perused the Interim Order dated 8t h May, 2009 passed by the Hon’ble Supreme Court in the matter. It is observed that the Hon’ble Apex Court in the said order has made it clear that the ITA No. 2696/Kol/2013

M/s. Mercury Car Rentals Limited 4 assessee, during the pendency of the Civil Appeal, would pay tax as if Section 43B(f) is on the Statute Book, but at the same time, it would be entitled to make claim in its return. Keeping in view all these developments, the Coordinate Bench of this Tribunal in the case of Dy. CIT –vs.- BLA Industries Pvt. Ltd. (ITA No. 1434/KOL/2012 dated 16.01.2015) has restored the similar issue to the file of the Assessing Officer with a direction to await till the final decision of the Hon’ble Supreme Court on the issue and then to decide the issue accordingly. Following the said decision of the Coordinate Bench, we restore this issue to the file of the Assessing Officer with the similar direction. Ground No. 8 is accordingly treated as allowed for statistical purposes.

9.

Taking into consideration the order supra, we remand the issue to the file of AO to decide the same in accordance with the Judgment of the Hon’ble Supreme Court that may be passed in Civil Appeal filed by the Revenue. Ground nos. 1 & 2 are allowed for statistical purposes.

10.

In the result, the appeal filed by the assessee is allowed for statistical purpose as stated above.

Order pronounced in the open Court on 31st October, 2016.

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