Disallowance of expenses where liability crystallized in the year but payment due later is not maintainable

Brief of the Case

ITAT Kolkata held In the case of ICI India Ltd. vs. DCIT that it is clear that liability towards leave encashment is a definite liability which has accrued and arisen during the year. However, payment of the same does not fall during the relevant previous year but under the mercantile system of accounting this expenditure requires recognition in the books of accounts. Also in case of VRS expenses, we find that during the year 735 employees had opted for VRS as per the scheme of the assessee. Accordingly the expense to be made towards VRS to those staff has become definite expense. Although the payment of VRS was due in future date. Hence no disallowance is justifiable.

Facts of the Case

 ITA No. 850/Kol/2007 (Assessee’s apepal)

 Disallowance of provision of leave encashment

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