Eveready Industries India Ltd. v. DIT

INCOME TAX ACT, 1961

--Business income--Profits chargeable to tax under section 41(1)Write back of excess provision for leave encashment----Since deduction of actual payment of leave encashment in accordance with section 43B against provision made earlier for its liability had nothing to do with write back off excess provision of leave encashment, the same was not chargeable to tax under section 41(1).--Assessee-company recomputed its provision for leave encahment made earlier on sale of its one of the divisions and claimed deduction of write back of excess provision of leave encashment on actual payment of liability in accordance with section 43B. AO disallowed deduction on the ground that since leave encashment was not actually paid by assessee but liability was written back, excess provision for leave encashment was chargeable to tax under section 41(1). Held: Assessee had not claimed any deduction while determining its profit from business on account of provision for leave encashment but had claimed such deduction only on the basis of actual payment of liability in accordance with section 43B(f), which had nothing to do with write back of excess provision for leave encashment. Therefore, AO was not justified in taxing write back of excess provision for leave encashment as assessee's profit subject to tax under section 41(1).