M/S.carborundum Universal Ltdparry Houseno v. The Assistant Commissioner Of Incometax,Large Tax Payer Unit

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 13.10.2020 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN T.C.A.No.189 of 2018 M/s.Carborundum Universal LtdParry HouseNo.43, Moore Street,Chennai – 600 001PAN:AAACC2474P.. Appellant/Respondent Versus The Assistant Commissioner of Incometax,Large Tax Payer Unit-11775, Jawaharlal Nehru Inner Ring Road,Anna Nagar Western Extension,Chennai – 600 101.. Respondent/Appellant Prayer:- Tax Case Appeal filed under Section 260-A of the IncomeTax Act, 1961, against the order of the Income Tax AppellateTribunal, Madras 'D' Bench, dated 19.05.2016 made inI.T.A.No.1742/Mds/2014 relating to the Assessment Year 2004-05. Appeal against the Order dated 20/03/2014 on the file ofthe Commissioner of Income Tax (Appeal) Large Tax Payer Unit,Chennai made in ITA No. 57/09-10 LTU (A)/ PAN No. ,Assessment Year 2004-05. Appeal against the Order dated 17/12/2009 on the file ofthe Additional commissioner of Income Tax LTU, Chennai, abovesaid and PAN No. for the Assessment Year 2004-05. JUDGMENT [Order of the Court was made by T.S.SIVAGNANAM, J.] https://hcservices.ecourts.gov.in/hcservices/ This appeal has been filed by the assessee under Section260 A of the Income Tax Act, 1961 ('the Act' for brevity),challenging the order dated 19.05.2016 passed by the Income TaxAppellate Tribunal, Madras, 'D' Bench ('the Tribunal' forbrevity) in I.T.A.No.1736/Mds/2014 for the Assessment Year 2004-05. The appeal has been filed, raising the following SubstantialQuestions of Law: “1. Whether, on the facts and in thecircumstances of the case, The Tribunal was right inlaw in holding that the assessee was not eligible toclaim the provision for a loss which it had incurredduring the course of business and which is allowableunder Section 28(i) read with Section 29? 2. Whether, on the facts and in thecircumstances of the case, The Tribunal was right inlaw in holding that explanation to Sec.37(1) of the ITAct has application to the facts of the assessee'scase.3. Whether, on the facts and in thecircumstances of the case, The Tribunal was right inlaw in holding that the Assessee was not eligible toclaim the provision for leave encashment which hasbeen determined scientifically and accurately based onactuarial valuation, and the incurring of expenditureis certain and has arisen in the previous year endedin 31[st] March 2004. 4. Whether, on the facts and in thecircumstances of the case, The Tribunal was right inlaw in not following the decision in Exide IndustriesLtd and another Vs. Union of India & Others 292 ITR470.” 2. We have heard Mr.Venkatanarayanan, learned counsel forthe appellant/assessee and Mr.T.Ravikumar, learned SeniorStanding counsel for the respondent/Revenue. 3. It is not disputed by the learned counsel appearingfor the assessee that the above mentioned Substantial Questionsof Law have been answered against the assessee by the Hon'bleSupreme Court of India in the case of Union of India and othersVs. Exide Industries Ltd and another, [(2020) 107 CCH 0427ISCC], wherein the Hon'ble Supreme Court of India held asfollows: “19. The leave encashment scheme envisages thepayment of a certain amount to the employees in lieu oftheir unused paid leaves in a year. The nature of thispayment is beneficial and pro- employee. However, it isnot in the form of a bounty and forms a part of theconditions of service of the employee. An employerseeking deduction from tax liability in advance, in the https://hcservices.ecourts.gov.in/hcservices/ 3. It is not disputed by the learned counsel appearingfor the assessee that the above mentioned Substantial Questionsof Law have been answered against the assessee by the Hon'bleSupreme Court of India in the case of Union of India and othersVs. Exide Industries Ltd and another, [(2020) 107 CCH 0427ISCC], wherein the Hon'ble Supreme Court of India held asfollows: “19. The leave encashment scheme envisages thepayment of a certain amount to the employees in lieu oftheir unused paid leaves in a year. The nature of thispayment is beneficial and pro- employee. However, it isnot in the form of a bounty and forms a part of theconditions of service of the employee. An employerseeking deduction from tax liability in advance, in the https://hcservices.ecourts.gov.in/hcservices/ name of discharging the liability of leave encashment,without actually extending such payment to the employeeas and when the time for payment arises may lead toabhorrent consequences. When time for such paymentarises upon retirement (or otherwise) of the employee,an employer may simply refuse to pay. Consequently, theinnocent employee will be entangled in litigation in theevening of his/her life for claiming a hard-earned rightwithout any fault on his part. Concomitantly, it wouldentail in double benefit to the employer - advancededuction from tax liability without any burden ofactual payment and refusal to pay as and when occasionarises. It is this mischief clause (f) seeks tosubjugate.” 4. Further, the Hon'ble Supreme Court of India, onidentical issue, dismissed the Special Leave Petition (SLP) inthe case of Dhanalakshmi Bank Ltd. Vs. Commissioner of Income-tax, [2019] 109 taxmann.com 89 (SC), approving the decision ofthe High Court, ruling that disallowance of provision for leaveEncashment under Section 43B(f) is allowed only on actualpayment. 5. The High Court of Kerala in the case of South IndianBank Ltd Vs. Commissioner of Income-tax, [2014] 49 taxmann.com100 (Kerala), also held that deduction for leave encashment isallowable only on actual payment. 6. In the light of the above decision, the SubstantialQuestions of Law framed for consideration has to be necessarilyanswered against the appellant / assessee. In the result, theTax Case Appeal is dismissed and the Substantial Questions ofLaw are answered against the assessee. No costs. Sd/-Assistant Registrar //True Copy// Sub Assistant Registrar Kak To 1.The Income Tax Appellate Tribunal, 'D' Bench, Chennai. 'D' Bench, Chennai. 2.The Commissioner of Income Tax (Appeals), Large Tax Payer Units, Chennai. Large Tax Payer Units, Chennai. 3.The Additional Commissioner of Income Tax LTU, Chennai. Chennai. +1cc to Mr.Subbaraya Aiyar, Advocate, S.R.No. 33994 +1cc to Mr.T.Ravikumar, Advocate, S.R.No. 34005 T.C.A.No.189 of 2018PP(CO)GN(22/12/2020)