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Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1998-99 Provision for leave encashment of employees is deductible [In favour of assessee] The Commissioner, acting under section 263, while enhancing the assessment, had directed the Assessing Officer to modify the assessment by disallowing and adding back the provision for leave encashment in computing the book profits for the purpose of section 115JA. The Tribunal, by following the decision of the Supreme Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428, allowed the claim for deduction of provision for leave encashment. Held that, the Tribunal was correct in following the of Supreme Court and there was no error or illegality in the order of the Tribunal warranting interference. CASE REFERRED TO Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC) (Paras 1, 2, 3, 5) K. Subramaniam for the Appellant JUDGMENT P.P.S. Janarthana Raja, J. - The above tax case appeal is filed by the Revenue against the order of the Income-tax Appellate Tribunal, Chennai "B" Bench dated June 27, 2008, made in I.T.A. No. 525(Mds.)/2008 by raising the following question of law : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the provision for encashment of leave of Rs. 1.19 lakhs claimed by the assessee was allowable on the basis of the Supreme Court's decision in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428 since in the assessee's case the liability was only a contingent liability as clearly mentioned in the tax audit report and not an ascertained liability which was capable of being quantified with reasonable certainty ?" 2. The assessee is engaged in manufacture and sale of electric rice cookers and mixies. The relevant assessment year is 1998-99 and the corresponding accounting year ended on March 31, 1998. The assessee had filed its return of income on November 27, 1998, returning a total income of Rs. "nil" and the same was processed by the Assessing Officer under section 143(1) of the Income-tax Act, 1961. Thereafter, the Assessing Officer noticed from the return that the…

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