Ecotech IT Solutions Private Limited Vs DCIT (ITAT Pune)
Assessee challenged two disallowances—₹88,00,000 provision for Exgratia/Long-Term Service Award & ₹1,20,565 provision for leave encashment.
Tribunal noted that although Assessee relied on Bharat Earth Movers to treat the exgratia provision as an ascertained liability, the employee-wise computation for FY 2021-22 was not on record, as confirmed during hearing. Since details for only later year (FY 2023-24) were furnished, Tribunal held that the claim can be allowed only after Assessee demonstrates proper quantification & ascertained liability before AO; issue remanded for fresh verification. On leave encashment, Tribunal found from the computation that Assessee had already suo motu added back ₹1,20,565 u/s 43B, & therefore CIT(A)’s confirmation resulted in double disallowance, which was unwarranted. Accordingly, that addition was deleted outright, while the exgratia provision was restored to AO for de novo examination.
Result: Appeal partly allowed; exgratia issue remanded; leave-encashment disallowance deleted.
FULL TEXT OF THE ORDER OF ITAT PUNE
The captioned appeal at the instance of assessee pertaining to A.Y. 2022-23 is directed against the order dated 25.02.2025 framed by National Faceless Appeal Centre, Delhi arising out of Assessment Order dated 07.03.2024 passed u/s.143(3) r.w.s.144B of the Income Tax Act, 1961.
2. Assessee has raised following grounds of appeal :
“The following grounds are taken without prejudice to each other – Issue 1-Provision for Long-Term Service Award
1. That the learned CIT(A) erred in law and on facts in upholding the disallowance of ₹88,00,000 made on account of provision for long-term service award, without appreciating that the said provision was ascertained, based on a reasonable estimation, and actually paid in subsequent years.
2. That the CIT(A) failed to appreciate the supporting evidence including employee-wise working and post-year-end payments, and erred in treating the same as an unascertained liability.
3. That the disallowance is against the principles laid down by the Hon’ble Supreme Court in Bharat Earth Movers Ltd. v. CIT ((2000) 245 ITR 428 (SC)).
Issue 2-Provision for Leave Encashment (₹1,20,565)
4. That the learned CIT(A) erred in confirming the disallowance of ₹1,20,565 on account of provision for leave encashment, without appreciating that the said sum had already been disallowed suo motu by the appellant in the computation of income filed with the return.
5. That the confirmation of the said disallowance has resulted in double disallowance, which is factually incorrect and unjustified.
6. That the lower authorities failed to consider the computation of income and tax audit report, leading to an erroneous enhancement of total income.
General
7. That the orders passed by the authorities below are arbitrary and contrary to law and facts, and hence liable to be set aside.
8. The appellant craves leave to add to, alter, amend, or withdraw any of the above grounds at the time of hearing.”
3. The first issue for our consideration is regarding disallowance of provision for Exgratia/Long Term Service Award at ₹00 lakh.
