S.43B Disallowance not Applicable When No Deduction Claimed and Liability Reported as Current Liability: ITAT [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal(ITAT)held that disallowance under Section 43B of the Income-tax Act, 1961, is not applicable when no deduction is claimed and the liability is reported as a current liability.

Dushyantsinh Yadvendrasinh Chudasama,appellant-assessee,was engaged in trading petrol, diesel, and oil through his proprietorship M/s Rudra Petroleum and was also a partner in M/s Rudra Minerals and M/s Rudra Construction. The assessments for both years were completed under Section 143(3) of the Income-tax Act, 1961.

The AO found that the assessee had an outstanding VAT liability of Rs. 17,30,384/- at the end of the financial year, with Rs. 69,709/- unpaid after the due date for filing the return. According to Section 43B of the Act, unpaid statutory liabilities are disallowed unless paid before the return filing due date, so the AO disallowed the unpaid amount.

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The assessee argued that the VAT was paid in the next financial year and was not claimed as an expense, so it shouldn't be disallowed. The AO rejected this, stating the amount was still unpaid by the return filing due date, so the disallowance was valid. The CIT(A) agreed with the AO, saying Section 43B applies to all statutory dues, regardless of whether they were claimed in the profit and loss account.

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The assessee counsel argued that the VAT was shown as a current liability, not included in the profit and loss account. The AR referred to the SDCE Projects Pvt. Ltd. case, which stated that no disallowance under Section 43B should be made if no deduction was claimed in the profit and loss account. The counsel also mentioned that the VAT was reversed the next year after finding an excess provision during a review.

The two member bench comprising Siddhartha Nautiyal(Judicial Member) and Makarand V.Mahadeokar(Accountant Member) noted that the VAT was not in the profit and loss account but was a current liability. It also noted that the VAT was reversed the following year due to the excess provision. The tribunal referred to the SDCE Projects case, which ruled that Section 43B did not apply when no deduction was claimed and the liability was shown as a current liability.

The ITAT after considering the submissions and the decision in the case of SDCE Projects Pvt. Ltd. (supra), decided to send the issue back to the AO for further verification. The AO was asked to check whether the VAT liability was reversed in the following year and if it had been claimed as a deduction in the profit and loss account.

The AO was also directed to confirm to which account the VAT liability was reversed and if it affected the taxable income. The AO was to make a decision based on the SDCE Projects Pvt. Ltd. case and the Noble & Hewitt case. If it was found that the VAT liability was carried forward without being claimed as an expense, the disallowance under Section 43B would be removed.

In short, the appeal was allowed for statistical purposes.

To Read the full text of the Order CLICK HERE

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