S. 43B (f) was inserted by the Finance Act, 2001 w.e.f. 1.4.2002 to provide that any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee shall be allowed as a deduction only in the year of actual payment.
The said amendment was enacted to supersede the judgement of the Supreme Court in Bharat Earth Movers vs. CIT 245 ITR 428 where it was held that even a provision for leave encashment was deductible on accrual basis.
In Exide Industries Ltd vs. UOI 292 ITR 470, the Calcutta High Courts struck down 43B (f) as being arbitrary, unconscionable and de hors the apex Court decision in the case of BEML on the ground that the objects and reasons were silent as to why the amendment was effected and that the amendment was not consistent with s. 43B which was originally inserted to plug evasion of statutory liability.
The said judgement of the Calcutta High Court has now been stayed by the Supreme Court and it has been clarified that the assessee must pay tax as if s. 43B (f) is on the statute though it is entitled to make a claim in its return.
EXTRACT OF THE JUDGEMENT
Pending hearing and final disposal of the Civil Appeal, Department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as the outstanding interest demand as of date is concerned, it would be open to the Department to recover that amount in case Civil Appeal of the Department is allowed.
We further make it clear that the assessee would, during the pendency of this Civil Appeal, pay tax as if Section 43B(f) is on the Statute Book but at the same time it would be entitled to make a claim in its returns.