Understanding section 43B disallowance with latest case laws: Part – II.

In past we had discuss the concept of disallowance under section 43 . The link of same is given below:

http://taxbymanish.blogspot.com/2012/04/understanding-section-43-with-latest.html

However, found that taxpayer still find difficult before tax-officer in respect of expenses allowed on cash basis and hence given below more latest case laws in respect of 43B.

§  Provision of excise duty payable on payment basis irrespective of method of accounting followed. Refer, CIT v. Simbhaoli Industries P. Ltd, 365 ITR 173.

 

§  Contributions to provident fund and Payment made before due date of filing of return then Deduction allowable. Refer, Dutta Automobiles v. Deputy CIT(Kolkata), VOL 32 PG 336.

§  Amount can be disallowed only if it hits profit & loss account. Refer, TNS India P. Ltd. v. Assistant CIT, VOL 32 PG 44.

§  Assessee deposited employer’s and employees’ contributions to the PF and ESI prior to the filing of the return u/s. 139(1) though beyond due dates. Deductions could not be disallowed u/s. 43B. Refer, CIT .v. Hemla Embroidery Mills (P.) Ltd., 98 DTR 107.

§  Deductions on actual payment-Employees’ PF/ ESI Contribution is not covered by s. 43B & is S.43B:only allowable as a deduction u/s.36(1)(va) if paid by the “due date” prescribed therein. Refer, CIT .v. Gujarat state Road Transport Corp, Gujrat HC.

§  Section 43B is not applicable to interest on Government loans and for DA arrears of employees, assessee's claim was to be allowed. Refer, U.P. Rajya Vidyut Utpadan Nigam Ltd. .v. CIT, 218 Taxman 153.

§  Amendment in section 43B to include 'cess or fee', introduced by Finance Act, 1988 is not applicable retrospectively. Cess collected under Tamil Nadu Panchyats Act, 1958 did not become part of consolidated fund but was included in special fund. Hence, it could not be held that such cess was also  a tax, as an essential feature of tax was non-existent. Therefore, such accrued cess could not be disallowed under section 43B. Refer, Dalmia Cement (Bharat) Ltd. .v. CIT, 218 Taxman 327.

§  Actual payment' means 'actual payment' and not actual receipt and delivery of currency by two parties transacting when they are creditor and debtor both. Therefore, in terms of sec. 43B(d) if interest is paid not by actually receiving amount from loan advancing person or institution but is paid out of fund lying in any another account of assessee with such creditor, then that is 'actual payment'. Where the assessee had credit entry with BSFC and out of that credit entry of subsidy amount, amount of interest payable to BSFC was adjusted, that amounted to actual payment. Refer, CIT .v. Shakti Spring Industries (P.) Ltd, 219 Taxman 124.

§  Amended s. 43A is prospective and effective from 1-4-2003 and cases relating to earlier assessment  years would be governed by unamended s. 43A. In the relevant year in question, an assessee which was following mercantile system of accounting, would be entitled to exchange rate fluctuation in respect of foreign currency. Therefore, the Tribunal was right in allowing deduction u/s 32A in assessment year in question with regard to additional liability incurred towards cost of plant and machinery on account of fluctuation in foreign exchange rate subsequent to year in which plant and machinery had been installed. Refer, CIT .v. Punjab Anand Industries, Mohali, 219 Taxman 121.

§  Deduction u/s.43B cannot be denied, if assessee deposits contribution before due date of filing the return under I.T. Act, and date of payment was after due date under Employees Provident Fund Act. Refer, Patni Telecom Solutions P. Ltd.; ITO, 23 ITR 534.

§  wherein order to clear goods, assessee, a car manufacturer, deposited certain amount on regular basis in Excise Personal Ledger Account in terms of rule 173G of Central Excise Rules, 1944, said amount could not be disallowed under section 43B on ground that it was not paid in respect of manufactured goods. Amount deposited by assessee, a car manufacturer, in Excise Personal Ledger Account in terms of rule 173G of Central Excise Rules, 1944, in order to clear goods, could not be disallowed under section 43B. Refer, Maruti Suzuki India Ltd. v. Dy.CIT, 88 DTR 249.

§  The circular issued by the Central Board of Direct Taxes permits and allows sales tax liability, which is converted into a loan to be set off in the year in which the liability is so converted and the Government order is issued. The Honorable High Court held that the assessee converted the sales tax liability into a loan on March 24, 2003, a date which fell within the assessment year 2003-04. Thus, the assessee could not be denied the benefit and the expenditure/deduction was allowed under section 43B. Refer, CIT v. Minda Wirelinks Pvt. Ltd, 357 ITR 668 (Delhi)(HC).

§  Unpaid interest disallowed now waived under settlement, now require to be allowed. Refer, KLN Agrotechs P. Ltd. v. ITO, VOL 27 PG 648.

§  The Tribunal held that the disallowance under section 43B is not required when the amounts are paid within the grace period allowed ; this is so not only on legal principles but also on the fact that the entire amount was paid before the closure of the financial year or within the due date for filing the return as provided. Refer, ACIT v. UPS Jetair Express P. Ltd, 21 ITR 82 (Mum.)(Trib.).

§  Interest payable to SMM Co-operative Bank Ltd could not be disallowed under section 43B as they are not scheduled bank. Refer, CIT v. UpendraT.Kapadia, 81 DTR 279/ 256 CTR 201 (Bom.)(High Court).

§  Book adjustment of payable against receivables would tantamount to actual payment for the purpose of section 43B of the act. Refer, CIT v Shakti Spring Industries Limited, TA no 6 of 2001 JHKH HC.

§  Assessee-company claimed deduction in respect of interest paid to bank by way of converting interest due into equity shares of assessee-company. The Tribunal held that such payment will not amount to actual payment, hence, disallowance of such payment under section 43B was justified.  Refer, ITO v. Glittek Granites Ltd, 53 SOT 575 ( Kol.)(Trib.).

§  Deduction of PF, ESI, etc. paid subsequent to close of accounting period but before return was filed are to be allowed. Refer, CIT v. Solar Exports, 210 Taxman 520 (Karn.)(High Court).

§  The Supreme Court in CIT vs. Alom Extrusions Ltd (2009) 319 ITR 306 (SC) has laid down that amendments to section 43B by the Finance Act, 2003, which were made applicable with effect from April 1, 2004, were curative in nature and, hence, would apply retrospectively with effect from April 1, 1988. The provident fund and employees State Insurance contributions to the extent of Rs.12,36,139 were paid by the assessee before filing of the return and proof of payment was submitted before the A.O. The A.O. disallowed the claim holding that the payments were not made by the due date. It was held that the amounts were deductible. Refer, CIT v. Manoj Kumar Singh, 349 ITR 230.

§  Electricity dues not fees & hence cannot be disallowed. Refer, CIT v. Andhra Ferro Alloys P. Ltd, 349 ITR 255.

§  The AO had acted on the basis of the tax audit report and the documents which were enclosed with the return to make the disallowance in accordance with law. Therefore, the adjustment made by the AO was appropriate and in accordance with the then applicable existing provisions. That in respect of entry tax, welfare cess, employers contribution to provident fund and interest paid to public financial institutions, there was failure on the part of the assessee to file the requisite documents as required under sec. 43B. Refer, Abhishek Cement Ltd. v. UOI, 349 ITR 1.

§  During relevant assessment year assessee availed certain benefits under sales tax amnesty scheme in order to discharge unpaid sales tax dues of earlier financial years. Assessee claimed deduction of amount paid under amnesty scheme on payment basis under section 43B. It was held that unless in earlier years unpaid amount of sales tax at year-end was added to income, unpaid sales tax paid under amnesty scheme is current year could not be allowed. Refer, Deepak Nitrite Ltd. v. Dy.CIT, 139 ITD 213 (Ahd.)(Trib.).

In case you have any further clarification, feel free to contact me at taxbymanish@yahoo.com or else you can view more articles & news related to Indian tax & finance at http://taxbymanish.blogspot.in/.