2022 (4) TMI 540 - AT - Income Tax

Disallowance of sales tax liability - Prior-period item - claim under the provisions of Section 43B - HELD THAT - As per Section 43B of the Act such sum as mentioned in Clause- a of Section 43B of the Act shall be allowed as a deduction only during the previous year in which such sum is actually paid. Irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed. Only exception to this is the payments which have not been paid during a particular financial year but paid before the due date of furnishing the return of income u/s 139(1) of the Act and in such cases the amount paid can be claimed as expenditure in the income tax return. Now, going through the facts of the case, we find that the year under appeal is AY 2013-14. The alleged amount pertains to AY 2005-06 and AY 2010-11 and such liability did not exist at that point of time and, therefore, there was no possibility to make the payment during the relevant assessment year or before the due date of filing of return of income for such assessment year. The fact is that the liability of sales tax payment crystallized during the AY 2013-14 post sales tax assessment completion/sales tax proceedings. The assessee made the payment during the year which is not in dispute. Therefore, in our considered view provisions of Section 43B of the Act are squarely applicable on the alleged sum and the assessee as rightly claimed it as deduction against income for AY 2013-14. CIT(A) erred in sustaining the disallowance made by the AO, as the alleged sum of ₹ 12,32,290/- is eligible as a deduction against the income for AY 2013-14 as per provisions of Section 43B of the Act. The addition so made by the AO stands deleted and ground nos. 1 to 4 raised by the assessee in the instant appeal are allowed.

Summary

Issues:
Appeal against disallowance of sales tax liability of ?12,32,290 for Assessment Year 2013-14 under Section 154 of the Income Tax Act.

Detailed Analysis:

1. The appeal pertains to the disallowance of sales tax liability claimed by the assessee for the Assessment Year 2013-14. The assessee contended that the disallowance was based on a change of opinion by the Assessing Officer, while citing case laws supporting the legitimacy of the claim. The Assessing Officer disallowed the claimed expenditure of ?12,32,290, leading to the appeal before the Tribunal.

2. The key contention revolved around the application of Section 43B of the Income Tax Act, which deals with deductions allowable on actual payments. The section specifies that certain payments, including tax liabilities, should be claimed as expenses only in the year in which they are actually paid, irrespective of when the liability was incurred. The assessee had paid the sales tax liability during the relevant year, and thus, claimed it as a deduction under Section 43B.

3. The Tribunal observed that the sales tax liability of ?12,32,290 arose during the Assessment Year 2013-14, post the completion of sales tax assessment proceedings for previous years. The assessee had made the payment during the year under appeal, which was not disputed. Therefore, the Tribunal held that the provisions of Section 43B were squarely applicable to the claimed sum, allowing it as a deduction against the income for the Assessment Year 2013-14.

4. Consequently, the Tribunal found that the disallowance made by the Assessing Officer was incorrect, and the addition of ?12,32,290 to the total income was not justified. As per the provisions of Section 43B, the claimed amount was eligible as a deduction for the relevant assessment year. Therefore, the Tribunal allowed the appeal, deleting the addition made by the Assessing Officer and allowing the grounds raised by the assessee.

5. The Tribunal dismissed general grounds 6 & 7, which did not require adjudication, and partly allowed the appeal filed by the assessee against the disallowance of the sales tax liability for the Assessment Year 2013-14.

6. The judgment, delivered by the Appellate Tribunal ITAT Kolkata, provided a detailed analysis of the application of Section 43B of the Income Tax Act in allowing deductions for actual payments, emphasizing the importance of timely payment of liabilities for claiming deductions. The decision highlighted the specific circumstances of the case where the sales tax liability crystallized during the relevant assessment year, justifying the deduction claimed by the assessee.