In a significant ruling, the Income Tax Appellate Tribunal ( ITAT ), Mumbai Bench, has set aside an adjustment made by the Central Processing Centre ( CPC ) against Pfizer Limited under Section 43B of the Income Tax Act, 1961. The Tribunal’s order, pronounced on December 31, 2024, granted Pfizer’s claim for a deduction of INR 5.3 crore in respect of indirect taxes paid by the company, a decision that came after the company’s appeal against the adjustments made by the CPC in its assessment for the financial year 2022-23.
The dispute in this case revolved around Pfizer’s claim for deductions related to taxes paid under protest and the settlement of tax disputes under various state government amnesty schemes. Pfizer had filed its return of income for the assessment year 2022-2023, claiming a deduction of INR 5.3 crore under Section 43B of the Act, which allows for the deduction of certain taxes on a payment basis. The amount in question represented taxes such as Central Sales Tax ( CST ), Entry Tax ( ET ), and Value Added Tax ( VAT ) that Pfizer had settled through amnesty schemes or had made payments under protest in earlier years.
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However, the CPC rejected Pfizer’s claim during the processing of its return, leading to a disallowance of the claimed deduction. Pfizer contended that the payments made under protest had been rightly included in the tax deduction claim, supported by the certification of its tax auditor. Despite the submission of these documents, the CIT(A) upheld the CPC’s decision, citing insufficient supporting documentation.
Upon appeal, the ITAT considered the facts and found merit in Pfizer’s arguments. The Tribunal ruled that the deduction was valid under Section 43B, as the payments were made in the relevant assessment year after the disputes were settled through the amnesty schemes. Furthermore, the Tribunal noted that the CPC had failed to provide Pfizer with adequate notice in accordance with the proviso(s) to Section 143(1)(a) before making the disallowance, which was a procedural lapse.
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Two Member Bench comprised of Rahul Chaudhary ( Judicial Member ) and Amarjit Singh ( Accountant Member ) observed that the rejection of Pfizer’s claim for deduction of INR 5.3 crore under Section 43B was not in line with the provisions of the Income Tax Act. The CPC had not provided Pfizer with an opportunity to explain or submit any additional evidence before making the disallowance, as mandated by the law. As a result, the ITAT concluded that the disallowance was invalid and ordered its deletion.
In addition to this, the ITAT also addressed Pfizer’s concern regarding a double taxation issue related to the re-measurement of its defined benefit plan. Pfizer had already offered the amount of INR 9.57 crore related to this re-measurement to tax in its return. The Tribunal ruled that the addition made by the CPC was wrong, as it resulted in double taxation, and accordingly, the addition was deleted.
Other grounds raised by Pfizer regarding the incorrect calculation of tax payable and the levy of interest under Section 234B were either dismissed as infructuous or treated as consequential in nature.
This ruling by the ITAT provides clarity on the application of Section 43B and emphasizes the need for the tax authorities to comply with procedural requirements while processing returns under Section 143(1). The Tribunal’s decision is a significant win for Pfizer and underscores the importance of ensuring that taxpayers are given a fair opportunity to present their claims before any adjustments are made to their returns.
In conclusion, the ITAT’s ruling has allowed Pfizer’s claim for deductions under Section 43B and set aside the CPC’s adjustments, ensuring that the company’s tax liability is re-evaluated in accordance with the law. The case highlights the importance of following due process in tax assessments and offers a precedent for similar cases in the future.
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