Case Law Details
Provision for leave encashment on the basis of actuarial valuation report cannot be said an unascertained liability
In this ground, the assessee has contested the action of the Ld. CIT(A) in confirming the action of the Assessing Officer in making an addition of Rs.38,33,170 on account of provision for leave encashment while computing book profit u/s 115JB of the Act.
It is noted that it is an admitted fact that provision for leave encashment has been made on the basis of actuarial valuation report. Relevant notes in this regard have also been given by the assessee in its annual financial statements. These facts have not been disputed by the lower authorities. Under these circumstances, it cannot be said that provision for leave encashment is an unascertained liability. We find force in the submissions of the assessee made before the Ld. CIT(A) wherein relying upon the judgement of Hon’ble Supreme Court in the case of Bharat Earth Movers (supra) as well as the decision of the Tribunal in the case of ACIT vs Piramal Holdings Ltd in ITA No.3224/Mum/2007, it was argued that while computing the book profits, the provision for leave encashment (if calculated on scientific basis as per the actuarial valuation) is not required to be added back as it cannot be said to be an unascertained liability. Further, it is not the case of the lower authorities that Profit & Loss Account of the assessee company has not been prepared in accordance with provisions of Parts II & III of Schedule VI of the Companies Act, 1956. Under these circumstances, the Assessing Officer is not permitted to make any adjustment in view of well settled position of law as has been clarified by Hon’ble Supreme Court in the case of Apollo Tyres Ltd 255 ITR 273 (SC). It is noted that reliance by the lower authorities upon the provisions of section 43B is misplaced here. Thus, the lower authorities have misunderstood and misapplied the provisions of law on the facts of the case before us. In our view, provision for leave encashment debited by the assessee in its P&L Account cannot be added while computing book profits u/s 115JB in the given facts of the case and, therefore, the same is directed to be deleted. The Assessing Officer is directed to re-compute the income u/s 115JB after excluding the aforesaid amount. This ground is allowed.
Section 147: If the AO takes the view that the income referred to in the reasons has not escaped assessment, he loses jurisdiction to assess other escaped income that comes to his notice during reassessment
Relevant Extract of the Judgment related to above
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