2011 (2) TMI 303 - HC - Income Tax

Disallowance u/s 43B - Where time for filing return is extended in terms of proviso to Section 139 (1) it automatically means extension of the due date for the purpose of Section 43B of the Income Tax Act - The return was filed belatedly for which the assessee suffered necessary penalties - Held that once neither penalty can be imposed nor any other such negative consequences follow to the assessee by reason of filing his returns late so long as there is an extended period of time granted or deemed to be granted by the AO all acts done within the extended period must thus be deemed to have been done within the prescribed period of time as originally stipulated - This is so as the mischief which was sought to be cured by introduction of Section 43B will not arise in the present case as the deduction is permissible only if the amount is actually paid and that too within the extended period of time which was of three months - The payment in the present case would actually have flowed before the date of filing of the return the only consequence being that such date is extended by three months as a consequence of the order passed by the assessing authority on the application of the assessee filed within time - Decided in the favour of assessee

Summary

Issues Involved:
1. Whether the Tribunal was justified in holding that an extension of time for filing a return under Section 139(1) of the Income Tax Act automatically extends the due date for the purpose of Section 43B of the Income Tax Act.

Detailed Analysis:

Issue 1: Tribunal's Justification on Extension of Due Date
Facts and Circumstances:
- The respondent/assessee was required to file returns for the year ending 31.3.1988 by 31.7.1988. The assessee filed an application on 29.7.1988 for an extension up to 30.9.1988, which was accepted by the Assessing Officer (AO) on 11.8.1988. The return was ultimately filed on 6.11.1990.
- During assessment, the AO noticed that the sales tax was not paid within the original due date. The assessee argued that the sales tax paid on 11.8.1988 and 8.9.1988 should be considered as paid within the extended time allowed for filing the return and thus should not be disallowed under Section 43B of the Income Tax Act.
- The AO disallowed the amount, and this was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] on 5.3.1992.

Tribunal's Findings:
- The ITAT found in favor of the assessee, stating that if the sales tax was paid within the extended period granted by the AO, it should not be disallowed. The ITAT directed the AO to verify the payment and not to make the addition if the payment was within the extended period.

Legal Provisions:
- Section 43B: Deductions are only allowed on actual payment, and the proviso allows deductions if payments are made before the due date for filing the return under Section 139(1).
- Section 139(1): Allows for the extension of the due date for filing returns by the AO.
- Section 80: Relates to the submission of returns for losses and allows for extensions granted by the AO.

Appellant/Department's Argument:
- The department argued that the non-obstante clause in Section 43B means deductions are only permissible in the year the payment is made. The due date for filing the return was 31.7.1988, and since the sales tax was paid after this date, it should not be deductible.
- The AO's extension of the filing date does not change the original due date under Section 139(1), and interest is still chargeable under Section 139(8).

Respondent/Assessee's Argument:
- The assessee argued that once an extension is granted, the due date for all purposes, including Section 43B, becomes the extended date. Therefore, sales tax paid within the extended period should be deductible.

Judicial Precedents:
- Allied Motors (Private) Limited Vs. CIT: Explained that the proviso to Section 43B was remedial and retrospective to eliminate unintended consequences.
- Mehsana Ice & Cold Storage P. Ltd. Vs. CIT: The extension of time by the AO is deemed granted if not explicitly rejected, allowing the return filed within the extended period to be considered timely.
- Amin Chand Payarelal Vs. Inspecting Assistant Commissioner of Income Tax: Held that the extension granted by the AO is as effective as the statutory period, and acts done within this period are deemed timely.

Court's Analysis and Conclusion:
- The court considered the object of Section 43B and its proviso, which aimed to curb the practice of claiming deductions without actual payment and to remedy unintended hardships.
- The court held that the extended date granted by the AO under Section 139(1) effectively becomes the new due date for all purposes, including Section 43B. Therefore, sales tax paid within this extended period should be deductible.
- The court agreed with the ITAT's view and concluded that the assessee should benefit from the extended due date for the purpose of Section 43B, dismissing the appeal.

Final Judgment:
- The question of law was answered in favor of the assessee, confirming that the extension of time for filing a return under Section 139(1) automatically extends the due date for the purpose of Section 43B of the Income Tax Act. The appeal was dismissed.

This comprehensive analysis ensures that all relevant details and legal interpretations are preserved, providing a clear understanding of the judgment.