Global E-Business Operations Private Limited Vs DCIT (ITAT Bangalore)
ITAT Bangalore held that as per provisions of section 43B(f) of the Income Tax Act deduction on leave encashment is available on actual payment basis and not available on accrual basis.
Facts-
During the course of assessment proceedings, it was noticed that the assessee had entered into several international transactions with its Associate Enterprises (AEs). AO referred the matter to the TPO to determine the Arm’s Length Price (ALP) of the international transactions undertaken by the assessee with its AEs. TPO passed an order u/s 92CA of the I.T.Act on 24.10.2019 suggesting the transfer pricing adjustment of Rs.64,81,44,230 in respect of the international transactions entered by the assessee with its AEs during the previous year. The draft assessment order was passed on 16.12.2019 incorporating the above transfer pricing adjustment suggested by the TPO and also making corporate tax addition to the extent of Rs.7,28,99,000 (disallowance u/s 37 of the I.T.Act).
Aggrieved by the draft assessment order, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP vide order dated 25.02.2021 granted partial relief to the assessee, whereby the transfer pricing adjustment was reduced to Rs.30,29,80,250. The DRP, however, confirmed the A.O.’s view on corporate tax disallowance. Pursuant to the DRP’s directions, the impugned final assessment order was passed on 30.03.2021. Being aggrieved, the present appeal is filed.
Conclusion-
In the light of the decision of the Hon’ble Supreme Court in the case of Exide Industries, the assessee will not be entitled to claim deduction on leave encashment on the basis of the provision. Taking into consideration the circumstances under which the assessee did not claim a sum of Rs.7,59,06,267 being leave encashment actually being paid during the previous year relevant to Assessment Year 2016-2017 we are of the view that the assessee should be allowed leave encashment actually paid as per provisions of section 43B(f) of the Act.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against final assessment order dated 30.03.2021 passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act. The relevant assessment year is 2016-2017.
2. The brief facts of the case are as follows: The assessee is a company engaged in the business of providing IT enabled services. For the assessment year 20162017, the return of income was filed on 30.11.2016 declaring total income of Rs.286,32,76,090. The return of income was selected for scrutiny and notice u/s 143(2) of the I.T.Act was issued on 28.09.2017. During the course of assessment proceedings, it was noticed that the assessee had entered into several international transactions with its Associate Enterprises (AEs). The Assessing Officer (AO) referred the matter to the TPO to determine the Arm’s Length Price (ALP) of the international transactions undertaken by the assessee with its AEs. The Transfer Pricing Officer (TPO) passed an order u/s 92CA of the I.T.Act on 24.10.2019 suggesting the transfer pricing adjustment of Rs.64,81,44,230 in respect of the international transactions entered by the assessee with its AEs during the previous year. The draft assessment order was passed on 16.12.2019 incorporating the above transfer pricing adjustment suggested by the TPO and also making corporate tax addition to the extent of Rs.7,28,99,000 (disallowance u/s 37 of the I.T.Act).
3. Aggrieved by the draft assessment order, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP vide order dated 25.02.2021 granted partial relief to the assessee, whereby the transfer pricing adjustment was reduced to Rs.30,29,80,250. The DRP, however, confirmed the A.O.’s view on corporate tax disallowance. Pursuant to the DRP’s directions, the impugned final assessment order was passed on 30.03.2021 computing the total income as under:-
