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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: Shri M. Balaganesh
Date of Pronouncement: 4 -12-2015 ORDER SHRI M.BALAGANESH, AM :
This appeal of the assessee arises out of the order passed by the Learned CIT(A), VIII, Kolkata in Appeal No. 230/CIT(A)-VIII/Kol/11-12 for the Asst Year 2009-10 dated 19-12-2012 against the order of assessment passed by the Learned AO u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
The only issue to be decided in this appeal is as to whether in the facts and in the circumstances of the case the provision made for leave encashment amounting to Rs. 25,38,600/- could be allowed as a deduction pending final disposal of the appeal in the case of Exide Industries Ltd by the Hon’ble Apex Court.
The brief facts of this issue is that the assessee is a domestic company inter alia engaged in the processing / manufacturing and sale of milk and milk products. During the course of assessment proceedings, the Learned AO observed that the assessee made provision for leave encashment aggregating to Rs. 25,38,600/- and claimed the M/s. Metro Dairy Ltd 1 same as deduction. This provision was admittedly made on the basis of an actuarial valuation ofn projected unit redit method made at the end of the relevant financial year. The said liability is required to be discharged by the assessee as leave encashment at the time of retirement of the concerned empoyees. The assessee claimed the same as deduction by placing reliance on the decision of the Hon’ble Apex Court in the case of Bharat Earth Movers Ltd reported in 245 ITR 428 (SC). The Learned AO disallowed the same in terms of section 43B(f) of the Act as the same is allowable as deduction only on payment. On first appeal, the Learned CITA upheld the action of the Learned AO.
When the case was called for, none appeared for the assessee. We have heard the Learned DR. We find that the issue under appeal is considered in the decision of the Jurisdictional High Court in the case of Exide Industries Ltd vs Union of India reported in 292 ITR 470 (Cal). We find that it is relevant to get into the operative portion of the said decision of the Calcutta High Court, wherein it was held that:-
“11. In this regard the observation of the apex Court in the case of Bharat Earth Movers (supra) is quoted below: The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain.... Applying the above said settled principles to the facts of the case at hand we are satisfied that the provision made by the appellant company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability. The High Court was not right in taking the view to the contrary.
M/s. Metro Dairy Ltd 2
*** *** *** *** *** 13. The appeal succeeds and is allowed. Section 43B(f) is struck down being arbitrary, unconscionable and de hors the apex Court decision in the case of Bharat Earth Movers (supra)”.
It is observed that the revenue had preferred Special Leave Petition (SLP) before the Hon’ble Supreme Court against the judgement of Hon’ble Calcutta High Court. The Hon’ble Apex Court in SLP proceedings in CC 12060 / 2008 dated 8.9.2008 had held as under:-
“The petition was called on for hearing today. Upon hearing counsel the court made the following Order. Issue Notice. In the meantime, there shall be stay of the impugned judgement, until further orders.”
Later the Hon’ble Supreme Court in CC 22889 / 2008 dated 8.5.2009 had held as under:-
“The petition was called on for hearing today. 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.”
Respectfully following the aforesaid judicial precedent relied upon, we deem it fit and appropriate , in the interest of justice and fair play, to set aside this issue to the file of the Learned AO to pass orders based on the outcome of the main appeal on merits by M/s. Metro Dairy Ltd 3 the Hon’ble Supreme Court as stated supra. Accordingly, the grounds raised by the assessee are allowed for statistical purposes.
In the result, the appeal of the assessee is part allowed for statistical purposes
ORDER PRONOUNCED ON 4.12.2015