Disallowance of provision for leave encashment unwarranted as liability was inherited due to restructuring

DCIT Vs Gujarat State Electricity Co. Ltd. (ITAT Ahmedabad)

ITAT Ahmedabad held that disallowance of provision for leave encashment unwarranted as provision was not debited to the profit & loss account of the assessee but was inherited by the assessee on account of restructuring exercise of GEB.

Facts- The sole issue raised by the Revenue vide the present appeal relates to the provision of leave encashment amounting to Rs.67,41,08,000/- disallowed by the AO in an order passed under section 147 of the Act, finding the same to be unpaid and invoking the provisions of section 43B of the Act, which in turn was allowed by the ld.CIT(A).

Conclusion- Held that we see no reason to interfere in the order of the ld.CIT(A), who we have noted, has deleted the disallowance/addition made by the AO of provision for leave encashment amounting to Rs.5874.34 lakhs, after verifying all the facts that this provision was not debited to the profit & loss account of the assessee, and that, it did not pertain to the impugned year also, but was inherited by the assessee on account of restructuring exercise of the GEB, by virtue of which, huge number of employees had been onboarded by the assessee-company, and whose leave encashment liability, accordingly, was inherited by it of preceding year.