Provision for leave encashment is an ascertained liability, not to be added back for MAT computation

IT: Since provision made towards leave encashment of employees was in respect of ascertained and definite liability, same would not be added while computing book profit for purpose of levy of MAT under section 115JB

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[2013] 35 taxmann.com 450 (Himachal Pradesh)

HIGH COURT OF HIMACHAL PRADESH

Commissioner of Income-tax

v.

H.P. Tourism development Corpn. Ltd.*

A.M. KHANWILKAR, CJ. 
AND R.B. MISRA, J.

IT APPEAL NOS. 28 & 29 OF 2012-B

MAY  16, 2013 

Section 115JB of the Income-tax Act, 1961 - Minimum alternate tax [Leave encashment provision] - Assessing Officer treated provision made by assessee towards leave encashment of employees as in respect of unascertained liability and added same in book profit for purpose of levy of MAT - Tribunal deleted addition and held that provision made was in respect of ascertained and definite liability - Whether since issue was already stand answered by decision of Apex Court in Bharat Earth Movers v. CIT [2000] 112 Taxman 61, appeal filed by revenue was to be dismissed - Held, yes [Para 3] [In favour of assessee]

FACTS

■		The assessee made provision towards leave encashment of employees. The Assessing Officer added the same by treating it as unascertained liability for ascertaining book profit.
■		On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer.
■		On second appeal, the Tribunal held that the provision made was in respect of 'ascertained and definite liability' of the assessee towards leave allowance to be paid to the employees.
■		The Tribunal relying upon the decision of the Apex Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428 deleted the order of the Assessing Officer.
■		On revenue's appeal to the High Court:

HELD

■		It is not open for this Court to over turn the finding of fact so recorded by the appellate Tribunal and, more so, when the issue is already covered by the decision of the Apex Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428/112 Taxman 61. [Para 2]
■		The argument of the appellant that the finding recorded by the Tribunal is in appropriate, cannot be the basis to admit these appeals and, more so, when the substantial question, formulated by the department, already stands answered by the decision of the Apex Court in Bharat Earth Movers(supra). Hence, dismissed. [Para 3]

CASE REVIEW

Bharat Earth Movers v. CIT [2000] 245 ITR 428/112 Taxman 61 (SC) (para 3) followed.

CASES REFERRED TO

CIT v. Bharat General & Textile Industries Ltd. [1986] 157 ITR 158 (Cal.) (para 2) and Bharat Earth Movers v. CIT [2000] 245 ITR 428/112 Taxman 61 (SC) (para 2).

Vinay Kuthiala and Mrs. Vandana Kuthiala for the Appellant. Vishal Mohan and Rattan Thakur for the Respondent.

ORDER

A.M. Khanwilkar, CJ. - Heard counsel for the parties.

2. These appeals have been filed by the Department on the assertion that it raises substantial question of law as follows:-

"Whether the provision made by the assessee for leave encashment is not an ascertained liability and is thus liable to be added to the "book profit" under Explanation 1 to Section 115 JB of the Income-tax Act, 1961?"

In both these appeals, the Assessing Officer, relying on the decision of the Calcutta High Court, in the case of CIT v. Bharat General & Textile Industries Ltd. [1986] 157 ITR 158 held that the provision made by the respondent in the books of account towards leave encashment of employees for the relevant period was unascertained liability and, therefore, was required to be disallowed. The Appellate Tribunal, however, over turned that finding recorded by the Assessing Officer. The Appellate Tribunal accepted the plea of the respondent that the provision made by the respondent in the concerned accounting year was in respect of "ascertained and definite liability" of the respondent towards leave allowance to be paid to the employees. Consistent with that finding, the Appellate Tribunal, relying on the decision of the Apex Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428/112 Taxman 61 allowed the appeal and was pleased to set aside the assessment order to the extent disallowing the amount towards leave allowance to be paid to the employees. The Appellate Tribunal allowed the claim of the respondent assessee. It is not open for this Court to over turn the finding of fact so recorded by the Appellate Tribunal and, more so, when the issue is already covered by the decision of the Apex Court in the case ofBharat Earth Movers case (supra). It will be apposite to advert to the exposition of the Apex Court in the said decision, which reads thus:-

"The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain." (Emphasis supplied)

3. The argument of the appellant that the finding recorded by the Tribunal is inappropriate, cannot be the basis to admit these appeals and, more so, when the substantial question, formulated by the Department, already stands answered by the decision of the Apex Court in Bharat Earth Movers (supra). Hence, dismissed.