INCOME TAX ACT, 1961

Section 43B

Business disallowance under section 43B - Deduction on actual payment basis - Provision for employees post-retirement benefits -

Assessee company set aside provision in its annual accounts for payment of post retirement benefits to employees employed at its various tea estates, being medical reimbursements, leave encashment, staff pension and foreign pension, in conformity with the Accounting Standard--15 ('AS-15'). In the assessment order passed under section 143(3), the AO disallowed the deduction in respect of provision for retirement benefits holding that there was no provision in the Income Tax Act, 1961 which specifically permitted its deduction. He further held that such provision was made based on actuarial valuation reports, which, in turn, were based on assumptions and therefore, the provision so created was contingent in nature. CIT(A) deleted the disallowance. Held: Only the provision for employee's benefits being in the nature of gratuity, superannuation, provident fund and leave encashment are subject to section 43B(b) and 43B(f) and therefore, allowable only on actual payment basis. Since the employee's benefits in form of medical reimbursements, foreign pension and staff pension do not find mention in any of the specific clauses of section 43B the same was held to be allowable under section 37 on mercantile basis. The assessee had already added back the provision for leave encashment in the computation of income for assessment year 2008-09 under section 43B(f). There was no infirmity in the order of the CIT(A) deleting the disallowance of provision for leave encashment made by the AO in light of AS-15 since it had already been added back separately under section 43B(f).

Followed:Bharat Earth Movers Ltd. v. CIT (2000) 245 ITR 428 (SC) : 2000 TaxPub(DT) 1505 (SC), Rotork Control (I) Ltd. (2010) 189 Taxman 422 (AAR) : 2010 TaxPub(DT) 1673 (AAR), RashtriyaIspath Nigam Ltd. (ITA No. 13/Vizag/2013), dt. 22-11-2017, Eveready Industries India Ltd. for assessment year 1997-98 in ITA No. 959/Kol/2002 and Judgment of Calcutta High Court (2018) 258 Taxman 313 (Ca) : 2018 TaxPub(DT) 5868 (Cal-HC). Applied:Radhasoami Satsang (1992) 193 ITR 321 (SC) : 1882 TaxPub(DT) 858 (SC).

REFERRED :

FAVOUR : In assessee's favour. (Partly)

A.Y. : 2008-09 & 2009-10

INCOME TAX ACT, 1961

Section 43(5) Section 28(i) Section 37(1)

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