DCIT., Circle-1(1), Hyderabad V. M/s AP State Seeds Development Corporation Ltd, Hyderabad

ITA 1412/HYD/2014

• Counselvise Citation: 141222514 RSA 2014
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2014
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 30-12-2014
• Assessment Year: 2011-2012
• Appeal Filed On: 25-08-2014
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: A V RAGHURAM
• Section: 28; 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.1412/HYD/2014 ASSESSMENT YEAR 2011-12 DCIT, CIRCLE 1(1) HYDERABAD. VS. M/S. AP STATE SEEDS DEVELOPMENT CORPORATION LTD., HYDERABAD. PAN: AABCA 6530F (APPELLANT) (RESPONDENT) FOR REVENUE SHRI D.SUDHAKAR RAO, CIT FOR ASSESSEE SHRI A.V.RAGHU RAM, AR DATE OF HEARING 30-12-2014 DATE OF PRONOUNCEMENT 31-12-2014 ORDER PER ASHA VIJAYARAGHAVAN , J.M. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DERS OF LD. CIT(A)-II, HYDERABAD DATED 25-06-2014. THE ASSE SSEE IS A STATE GOVERNMENT UNDERTAKING ENGAGED IN THE BUSINES S OF PROCURING AND SUPPLY OF SEEDS TO THE FARMERS. IT F ILED RETURN OF INCOME ON 30-09-2011 ADMITTING INCOME OF RS.6,23,00 ,672/-. THE ASSESSING OFFICER (AO) NOTICED THAT AN AMOUNT O F RS.1,02,32,316/- WAS DEBITED TO PROFIT & LOSS ACCOU NT TOWARDS E.L. ENCASHMENT. ACCORDING TO THE AO AS THIS AMOUN T WAS NOT 2 ITA.NO.1412/HYD/2014 M/S. A.P. STATE SEEDS DEVELOPMENT CORPN. LTD., HYDERABAD . PAID IT WAS TO BE DIS-ALLOWED U/S.43B(F) OF THE INC OME TAX ACT (ACT). 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ITSE LF THE ASSESSEE SUBMITTED TO THE AO THAT THE SAME ISSUE WA S DECIDED IN FAVOUR OF HIM BY THE CIT(A) AS WELL AS THE HON'B LE ITAT FOR THE A.Y.2005-06 & 2006-07. HOWEVER, THE AO WENT AH EAD AND DISALLOWED THE SAID AMOUNT OF RS.1,02,32,316/- U/S. 43B(F) ON THE GROUND THAT THE HON'BLE ITAT HAD ALLOWED ASSESS EES APPEAL BASED ON THE KOLKATA HIGH COURT DECISION IN THE CASE OF EXIDE INDUSTRIES AND ANOTHER VS. UNION OF INDIA & O THERS (292 ITR 470) AND THE DEPARTMENT PREFERRED SLP AGAINST THE KOLKAT A HIGH COURT DECISION. HE ALSO OBNSERVED THAT THE DE PARTMENT DID NOT ACCEPT THE DECISION OF THE ITAT AND HAD PRE FERRED FURTHER APPEAL U/S.260A BEFORE HON'BLE COURT OF AND HRA PRADESH. 3. AGGRIEVED BY THE ABOVE ADDITION, THE ASSESSEE FI LED AN APPEAL BEFORE THE CIT(A). 4. THE CIT(A) HELD THAT: '3. AS ON DATE THE SLP (CL NO. 22889/2008 FILED BY THE GOVERNMENT OF INDIA AGAINST THE KOLKATA HIGH COURT DECISION IN THE CASE OF EXIDE INDUSTRIES AND ANOTHER VS. UNION OF INDIA & OTHERS WAS ADMITTED BY ORDER DATED 08.05.2009 AND IS PENDING. THE HON'BLE ITAT, HYDERABAD HAD DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT FOR THE A.Y. 2007-08 VIDE ORDER IN ITA NO.1530/HYD/012 DATED 22.0L.2013 AND FOR THE A.Y. 2008-09 IN ITA NO. 1624/HYD/2011 DATED 19.11.2012 AND FOR A.Y.2009-10 VIDE ITA NO.1459/HYD/2013 DATED 04.03.2014 BY HOLDING AS UNDER: 3 ITA.NO.1412/HYD/2014 M/S. A.P. STATE SEEDS DEVELOPMENT CORPN. LTD., HYDERABAD . '5. WE HAVE GONE THROUGH ABOVE JUDGMENT AND IT WAS OBSERVED IN THIS JUDGEMENT THAT THE ORIGINAL SECTI ON 43B IN IT ACT 1961, THE INTENTION OF WHICH WAS TO CURB UNREASONABLE DEDUCTION ON THE BASIS OF MERCANTILE SYSTEM OF ACCOUNT WITHOUT DISCHARGING STATUTORY LIABILITY . IT WAS OBSERVED BY THE LEGISLATURE, THAT SUCH ENACTMENT W AS NECESSARY AS THERE HAD BEEN TREND TO EVADE STATUTO RY LIABILITY ON ONE HAND AND CLAIM APPROPRIATE BENEFI T UNDER THE ACT ON THE OTHER. UNDER CLAUSE (F) OF 43B, ANY SUM PAYABLE BY THE EMPLOYER TO HIS EMPLOYEES AS LEAVE ENCASHMENT SHALL BE DEDUCTIBLE ONLY IN COMPUTING T HE INCOME REFERRED TO IN S. 28 OF THAT PREVIOUS YEAR IN WHICH SUM IS ACTUALLY PAID BY THE EMPLOYER TO ITS EMPLOY EES. WHILE INSERTING CLAUSE (F] NO SPECIAL REASONS WERE DISCLOSED. ALTHOUGH SUCH DISCLOSURE WAS NOT MANDAT ORY YET THE SUBJECT AMENDMENT WIDEN THE SCOPE OF THE O RIGINAL SECTION. LEAVE ENCASHMENT IS NEITHER A STATUTORY L IABILITY NOR A CONTINGENT LIABILITY. IT IS PROVISION TO BE MADE FOR THE ENTITLEMENT OF AN EMPLOYEE ACHIEVED IN A PARTICULA R FINANCIAL YEAR. AN EMPLOYEE EARNS CERTAIN AMOUNT B Y NOT TAKING LEAVE WHICH HE OR SHE IS OTHERWISE ENTITLED DURING THE PARTICULAR YEAR. HENCE, THE EMPLOYER IS OBLIGE D TO MAKE APPROPRIATE PROVISION FOR THE SAID AMOUNT. ON CE THE EMPLOYEE RETIRES HE/SHE HAS TO BE PAID SUCH SUM ON CUMULATIVE BASIS WITH THE EMPLOYEE EARNS THROUGHOUT HIS/HER SERVICE CAREER UNLESS HE/SHE AVAILS OF THE LEAVE EARNED BY HIM OR HER. THAT DOES NOT HAVE ANY NEXUS WITH THE ORIGINAL ENACTMENT. AN EMPLOYER IS ENTITLED FOR DEDUCTION FOR THE EXPENDITURE HE INCURS F OR RUNNING HIS BUSINESS WHICH INCLUDES PAYMENT OF SALARY AND OTHER PERQUISITES TO HIS EMPLOYEES. HENCE, IT IS TRADING LIABILITY. AS SUCH HE IS OTHERWISE ENTITLED TO DEDUCTION OF SUCH AMOUNT BY SHOWING IT AS A PROVISIONAL EXPENDITURE IN HIS ACCOUNT. THE LEGISLATURE BY WAY OF AMENDMENT RESTRICT SUCH DEDUCTION IN THE CASE OF L EAVE ENCASHMENT UNLESS IT IS ACTUALLY PAID IN THAT P ARTICULAR FINANCIAL YEAR. THE LEGISLATURE IS FREE TO DO SO ALTER IT DISCLOSES REASONS THERE FOR AND SUCH REASONS ORE NOT INCONSI STENT WITH THE MAIN OBJECT OF THE ENACTMENT. WITHOUT SUCH REASON THE ENACTMENT IS INCONSISTENT WITH THE ORIGINAL PROVISION. THE LEGISLATURE MUST DISCLOSE REASONS WHICH WOULD BE CONSISTENT FOR THE PROVISION OF THE CONSTITUTION AND THE LAWS OF THE LAND AND NOT FOR THE SOLE OBJECT OF NULLIFYING THE JUDG MENT IN THE CASE OF BHARAT EARTH MOVERS VS. CLT (245 ITR 428) (SC). 4 ITA.NO.1412/HYD/2014 M/S. A.P. STATE SEEDS DEVELOPMENT CORPN. LTD., HYDERABAD . 6. AS DISCUSSED ABOVE, SECTION 43B(F) ALREADY STRUC K DOWN BY THE CALCUTTA HIGH COURT IN THE JUDGEMENT CITED SUP RA AND AS PER JUDGMENT OF THE SUPREME COURT IN THE CASE OF B HARAT EARTH MOVERS LTD. (SUPRA), THE PROVISIONS MADE ON ACCOUNT OF LEAVE ENCASHMENT SHOULD BE ALLOWED ALTHOUGH THE LIABILIT Y MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE'. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE T HE TRIBUNAL ON THE FOLLOWING GROUNDS: 1. LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 2. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED TH E ADDITION OF THE AO WITH REGARD TO DIS-ALLOWANCE OF EL ENCASHMEN T OF RS.1,02,32,316/-. U/S.43B(F) OF THE I.T.ACT, 1961. 3. THE LD.CIT(A) OUGHT TO HAVE NOTICED THAT THE HO N'BLE SUPREME COURT OF INDIA ADMITTED SLP FILED AGAINST KOLKATA H IGH COURT DECISION IN THE CASE OF EXIDE INDUSTRIES AND ANOTHER 292 ITR 470 AND HENCE SHOULD HAVE UPHELD THE DIS-ALLOWANCE U/S.43B(F) OF THE I.T.ACT 1961. 4. THE LD.CIT(A) OUGHT TO HAVE NOTICED THAT THE MA TTER HAS NOT REACHED FINALITY AND HENCE SHOULD HAVE KEPT THE ISS UE PENDING. 5. ANY OTHER GROUND WHICH MAY BE URGED AT THE TIME OF HEARING. 6. WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT TH E ISSUE IS COVERED BY THE EARLIER ORDERS PASSED BY THE CO-O RDINATE BENCH OF THE TRIBUNAL. 7. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'B LE ITAT, HYDERABAD IN THE APPELLANTS OWN CASE FOR THE A.Y. 2007-08 VIDE ORDER IN ITA NO.1530/HYD/012 DATED 22.0L.2013 AND FOR THE A.Y. 2008-09 IN ITA NO. 1624/ HYD /2011 5 ITA.NO.1412/HYD/2014 M/S. A.P. STATE SEEDS DEVELOPMENT CORPN. LTD., HYDERABAD . DATED 19.11.2012 AND FOR A.Y.2009-10 VIDE ITA NO.1459/HYD/2013 DATED 04.03.2014, THE APPEAL OF TH E REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DECEMBER, 2014. S D / - S D / - (P.M. JAGTAP) ( ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD DATED 31 ST DECEMBER, 2014. TNMM COPY TO: 1. D Y. COMMISSIONER OF I NCOME T AX , CIRCLE 1 ( 1 ), 4 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 2. M/S. A.P.STATE SEEDS DEVELOPMENT CORPORATION LTD ., 2 ND FLOOR, HACA BHAVAN, OPP. TO PUBLIC GARDENS, HYDERA BAD- 500 004 3. CIT(A) - II, HYDERABAD. 4. CIT - I, HYDERABAD 5. D.R. ITAT, HYDERABAD. BY ORDER