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2007] 292 ITR 470 [2007] 164 TAXMAN 9 (CAL.) HIGH COURT OF CALCUTTA Exide Industries Ltd. v. Union of India ASHIM KUMAR BANERJEE AND TAPAS KUMAR GIRI, JJ A.P.O. 301 OF 2005 IN W.P. NO. 2512 OF 2002 JUNE 27, 2007 Section 43B of the Income-tax Act, 1961 - Business disallowance - Certain deductions to be allowed only on actual payment - Whether section 43B(f) is to be struck down being arbitrary, unconscionable and de hors Apex Court decision in case of Bharat Earth Movers v. CIT [2000] 245 ITR 428/ 112 Taxman 61 - Held, yes FACTS The assessee-company filed writ contending that section 43B(f ) was ultra vires the law of the land in view of the fact that the assessee being a body corporate was entitled to maintain its accounts by mercantile system of accounting which is permissible in law. Hence, the amount payable to its employees as leave encashment was to be shown in the balance sheet as a liability for each and every year and the employer was entitled to have deduction not only in the year in which it was actually paid, but also for the years when provision was made. Single Judge dismissed the writ petition. On appeal to the Division Bench : HELD On a perusal of the object and reasons as disclosed by the Finance Act, 1983 for enacting section 43B, it would appear that the Legislature expressed concern about the unreasonable deduction claim on the basis of mercantile accounting method without discharging statutory liabilities. It was observed by the Legislature that there had been a trend to evade statutory liabilities on the one hand, and claim appropriate benefit under the Act, on the other hand. Hence, such enactment was necessary. [Para 12] The said section had undergone several changes from time to time and on each and every occasion, the Legislature came out with the objects and reasons disclosed therefor. In 1990, deduction on account of unpaid loan and public financial institution or a State financial institution was roped in. By a further amendment in 1996, unpaid loan of scheduled bank was also incorporated. On each such occasion, the objects and reasons were disclosed. While inserting clause (f), no special reasons were disclosed. The Single Judge…

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