VAT Liability Not Disallowable u/s 43B If Not Claimed As Deduction In Profit & Loss Account: ITAT [Read Order]

In a significant ruling, the Raipur Bench of the Income Tax Appellate Tribunal (ITAT) has held that unpaid VAT liability cannot be disallowed under Section 43B of the Income Tax Act, 1961 if it has not been claimed as a deduction in the profit and loss account. The decision was rendered in the appeal filed by the Dy. Commissioner of Income Tax-1(1), Raipur against Grand Motors, Raipur, for the Assessment Year 2017-18.

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The appeal stemmed from the disallowance made by the Assessing Officer through intimation under Section 143(1) of the Act, wherein a sum of Rs. 3,05,92,653 towards unpaid VAT was added back to the assessee’s income under Section 43B. The assessee, Grand Motors, contended that the VAT liability had not been debited to the profit and loss account and thus no deduction was claimed, arguing that disallowance under Section 43B was not warranted. The CIT(A) accepted the contention, relying on the judgment of the Chhattisgarh High Court in ACIT vs. Ganpati Motors, and deleted the addition.

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On appeal by the revenue, the Tribunal noted that the assessee maintained a separate account for VAT and had not charged it to the profit and loss account. The Tribunal observed that disallowance u/s 43B arises only when the liability is claimed as a deduction, and if no such claim has been made, the question of disallowance does not arise. The Tribunal also referred to the judgment of the Chhattisgarh High Court in Grand Motors, Bilaspur vs. ITO where a similar issue was decided in favour of the assessee, affirming that unpaid VAT not claimed as expenditure cannot be disallowed merely because it remained unpaid as of the due date under Section 139(1).

The ITAT Bench comprising Ravish Sood ( Judicial Member ) and Arun Khodpia (Accountant Member) found no infirmity in the order of the CIT(A) and dismissed the revenue’s appeal. Consequently, the cross-objection filed by the assessee also became infructuous and was dismissed accordingly.

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To Read the full text of the Order CLICK HERE

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