No disallowance u/s 43B of Income Tax Act allowable for unpaid GST: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), New Delhi bench has held that no disallowance can be made under Section 43B of the Income Tax Act, 1961 in respect of unpaid Goodsand Services Tax (GST) where the GST liability has neither been claimed as an expenditure nor routed through the profit and loss account.

The assessee filed its return of income on October 31, 2019, declaring business income of ₹35.92 lakhs. The return was processed by the Central Processing Centre (CPC), Bengaluru, which issued an intimation dated May 12, 2020, making an adjustment of ₹45.62 lakhs on account of non-payment of GST and a further adjustment of ₹49,288 towards delayed deposit of provident fund contributions.

Subsequently, the assessee filed a rectification application, challenging the adjustments made by the CPC. However, the CPC, by rectification intimation rejected the assessee’s claim and maintained the assessed income at ₹82.04 lakhs.

Aggrieved by the rectification order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. While the CIT(A) granted relief with respect to the provident fund disallowance for statistical purposes, it upheld the addition of ₹45.62 lakhs made under Section 43B in respect of the GST liability.

Before the Tribunal, the assessee’s authorised representative contended that the disallowance was unsustainable as the GST liability had never been claimed as an expenditure in the profit and loss account. It was submitted that the amount was reflected under the head “Other Current Liabilities” as an electronic cash ledger balance and, therefore, Section 43B had no application.

The Revenue, on the other hand, argued that the assessee had not followed the prescribed accounting treatment for GST and had adopted an alternative accounting method to circumvent the provisions of Section 43B. According to the Department, the GST component ought to have been included in the turnover in accordance with statutory provisions and accounting standards.

Allowing the appeal, the Division Bench comprising Raj Kumar Chauhan, Judicial Member and Brajesh Kumar Singh, Accountant Member ruled that the GST liability had neither been claimed as an expense nor routed through the profit and loss account. Therefore, the conditions necessary for invoking Section 43B of the Income Tax Act were absent.

The Tribunal observed “No legal justification has been shown by the CIT(A) in the impugned order for confirmation of the disallowance made under Section 43B of the Income Tax Act of alleged GST liability notwithstanding that the same has neither been claimed as expenses nor the same has been routed through P&L account.”

The Bench relied upon the decisions in Dalip Singh Rathore and Munjal Auto Industries Ltd. wherein held that unpaid GST cannot be disallowed under Section 43B of the Income TaxAct where it has not been claimed as a deduction in computing taxable income. Accordingly, the Tribunal deleted the disallowance of ₹45.62 lakhs made on account of unpaid GST and allowed the assessee’s appeal on this issue.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates