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

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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.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied