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The High Court held that the provision for leave encashment was not an admissible deduction for the relevant assessment year. The insertion of Section 43B(f) of the Income Tax Act, 1961, which requires actual payment for such deductions, applied prospectively and regulated the deduction.
The High Court found that the factual matrix of the case was not adequately discussed by the lower authorities. Therefore, the matter was remanded to the Commissioner of Income Tax for a fresh decision after considering all aspects.