Section 43B Deduction Denied on Transferred Leave Encashment Liability | ITAT

Section 43B deduction leave encashment

Case Details: Deputy Commissioner of Income-tax vs. Corteva Agriscience Services India (P.) Ltd. – [2026] 183 taxmann.com 134 (Hyderabad-Trib.)

Judiciary and Counsel Details

  • Vijay Pal Rao, Vice President & Manjunatha G., Accountant Member
  • Dr Sachin Kumar, Sr. AR for the Appellant.
  • Rohit Mittal & Sandeep Bansal, CAs for the Respondent.

Facts of the Case

The assessee-company, engaged in providing administrative support services to ”Corteva Group”, pursuant to its business transfer agreement, transferred one of its business undertakings along with certain employees on a slump sale basis to ”P” and filed its return of income claiming deduction towards leave encashment and bonus payment under section 43B on the ground that the liability arising out of provisions made for the financial year 2018-19 had been paid on 1-4-2019, which was on or before the due date for filing the return of income under section 139(1).

The Assessing Officer (AO) disallowed the claim because the assessee had not proved the actual payment of said liabilities on or before the due date prescribed under section 139(1). The CIT(A) deleted the additions made by the AO towards the disallowance of liabilities under Section 43B. Aggrieved by the order, the AO filed an appeal before the Tribunal.

ITAT Held

The Tribunal held that there is no concept of deemed payment of liability referred to under section 43B for claiming a deduction towards said liability while computing the income from business or profession. A person cannot, by contract, transfer or shift his statutory obligations to another and claim a deduction under section 43B. In order to claim a deduction under Section 43B, there should be actual payment of liability as stipulated thereon, and such payment, if made on or before the due date for filing the return of income under Section 139(1) in terms of the proviso to Section 43B, is allowable as a deduction.

In the present case, the assessee transferred the liability related to leave encashment, bonus payment of employees to the transferee undertaking and claimed that, upon transfer of said liability, the liability payable to the employees has been discharged by invoking a deeming fiction even though there is no provision under the Act, including section 43B of the Act, for deeming payment.

Whether the transferee entity has paid the employees and claimed deduction towards the said liability while computing income from business or profession is not relevant to decide whether the assessee can claim deduction for the said liability under Section 43B of the Act. The assessee cannot claim a deduction towards the said liability under section 43B of the Act while computing income from business and profession.

List of Cases Reviewed

List of Cases Referred to

The post Section 43B Deduction Denied on Transferred Leave Encashment Liability | ITAT appeared first on Taxmann Blog.

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