1989 (11) TMI 86 - AT - Income Tax

Summary

Issues:
Disallowance under s. 43B of the IT Act, 1961 for non-payment of statutory dues.

Analysis:
The appeal challenged the disallowance under s. 43B of the IT Act, 1961, concerning the non-payment of certain statutory dues by a private limited company engaged in fabrication works. The Income Tax Officer (ITO) disallowed Rs. 13,068, contending that the amounts were payable immediately after the end of the previous year. The CIT(A) upheld the disallowance, stating that s. 43B allowed deductions only on a cash basis, not accrual basis.

Upon further appeal, the assessee argued that the provision should not apply to amounts still within the statutory payment period. Reference was made to a decision of the Andhra Pradesh High Court, emphasizing that liabilities accrued under the mercantile method of accounting should be deductible. The Finance Act, 1983, introduced s. 43B to disallow deductions for unpaid statutory dues. The Tribunal and the Andhra Pradesh High Court held that the provision applied only to amounts statutorily payable in the accounting year.

The Revenue contended that an Explanation inserted by the Finance Act, 1989, from 1st April, 1984, broadened the definition of "any sums payable" to include liabilities incurred in the previous year, even if not immediately payable. The Revenue argued that this Explanation nullified the High Court's judgment and that the proviso to s. 43B applied only from 1st April, 1988.

The Tribunal analyzed the function of an Explanation, citing the Supreme Court's interpretation that it clarifies ambiguities without changing the main enactment. The Tribunal noted that the Explanation should not interfere with statutory rights or hinder the Act's operation. The Tribunal emphasized that the Explanation should not contradict the High Court's decision, which aligned with the intention of the Department to allow deductions for statutory dues with payment timeframes.

The Revenue referenced other tribunal decisions but the Tribunal held that those decisions did not depart from the High Court's ruling. Given pending references in the High Court on similar matters, the Tribunal decided to follow the High Court's decision until reconsidered by the High Court itself. Consequently, the disallowance made by the ITO was deleted, and the appeal was allowed.