Commissioner Of Income Tax Central, Patna v. M/S Madhya Bihar Gramin Bank

IN THE HIGH COURT OF JUDICATURE AT PATNAMiscellaneous Appeal No.197 of 2019 ====================================================== Commissioner of Income Tax Central, Patna. ... ... Appellant/s Versus M/s Madhya Bihar Gramin Bank C/o Nirmal and associates, CharteredAccountant, Nepali Kothi, Opposite Gasoline Petrol Pump, Boring Road,Patna-800001 ====================================================== CORAM: HONOURABLE THE CHIEF JUSTICE and HONOURABLE MR. JUSTICE PARTHA SARTHYORAL JUDGMENT(Per: HONOURABLE THE CHIEF JUSTICE) Date: 28-11-2024 The order of the Tribunal interfering with the orderissued by the Commissioner under Section 263 of the IncomeTax Act, 1961 (for brevity ‘Act’) revolves on a narrow compassand we frame the following question of law:- Whether the learned Tribunal erred in confusingthe addition of a provision for leave encashmentto the computation of total income; with itsallowance for deduction under Section 37 of theAct, while interfering with the order under Section263 and in that circumstance, the order of theTribunal is a perversity? 2. The respondent-assessee had made a provision for leave encashment to the tune of Rs. 8,50,00,000/-, which wasallowed by the Assessing Officer. The Commissioner issued anotice under Section 263 of the Act and passed Annexure-2order. The Commissioner noticed Section 37 of the Act, whichmakes it abundantly clear that any expenditure, not in the natureof a capital expenditure or personal expenses of the assessee laidout or expended wholly and exclusively for the purposes of thebusiness or profession, shall be allowed in computing theincome chargeable under the head ‘Profits and gains of businessor profession’. Hence, a provision made for leave encashment,which is definitely an expenditure laid out for the purposes ofthe business, is allowable under Section 37 and it has to becomputed in the total income offered by the assessee in itsreturns. 3. The Tribunal finding the provision having beencomputed in the total income, interfered with the Section 263order; while the Commissioner had specifically dealt with thecomputation of the income chargeable to tax under the head‘Profits and gains of business or profession’. 4. That the expenditure is allowable under Section 37is undisputed, but only if the provision made is one validlymade. The Commissioner has interfered with the allowance only on the ground that the Assessing Officer has not made anyinquiry with respect to the provision made for leaveencashment. Hence, the interference to the assessment order onthe ground of prejudice caused to Revenue is not for the reasonof the assessee not having reckoned the provision made for thepurpose of computing the total income, but is only against theallowance permitted by the Assessing Officer under Section 37,without verifying as to whether the provision is validly raised. 5. We hence find the question of law framed in favourof the Revenue and against the Assessee. We set aside the orderof the Tribunal and affirm that of the Commissioner. TheAssessing Officer shall make an inquiry as to the provisionmade and if the provision is validly made, for the purpose ofleave encashment of its employees, then necessarily it has to bepermitted allowance under Section 37 of the Act. 6. The appeal stands allowed to the above extent. (K. Vinod Chandran, CJ) ( Partha Sarthy, J)