Section 43B- claim as per proviso is a privilege and option of assesse

[CA DEV KUMAR KOTHARI]

Section 43B is very important provision and is well known to readers. This provision should have been considered in very simple terms to the effect that specified sums shall be allowed in the year of actual payment, except sums relevant to previous year, if actually paid in the subsequent year before due date to file ROI u/s 139(1) when assesse claim deduction by furnishing evidence.

However, due to practice adopted by tax authorities, of disallow if claimed, and allow if not claimed by assesse there has been several amendments and judgments on many issues. The section has generated lot of litigation, without much benefit to revenue. This is because, when business of assesse is normally working and there is no fund crunch, payments are made on time. It is only time factor, the sum is allowable, generally in first year or in second year in respect of payments in relation to last month/ quarter as may be applicable.

 Only in cases of huge losses, fund flow problems, there are delays in payment of certain sums which are specified in section 43B. We find that even PSU have many times delayed payments of specified sums due to fund crisis.

Payments of specified sums are basically concern of assesse and timely collection is concern of concerned authorities who are primarily concerned for collection of such sums. For example PF authorities, indirect tax authorities, banks and FI, and trade unions.

There are also provisions for interest, penal interest, penalty and damages etc. for late payment of specified sums. There can also be prosecution for delayed payments. Therefore, it is not in interest of assesse to delay payment of such sums.

 As per author, it should not have been major concern under the Income-tax
Act, 1961. Rather recovery process by concerned authorities/ persons who need to collect such sums or whose interest is in timely recovery should have been prompted.

Therefore, introduction of S.43B itself was mainly due to bias and prejudices of authorities, though implemented in name and style of legislative intent. However, it has provided lot of scope to tax professional in administering claims u/s 43B and litigation on the provision.

Relevant portion of provision:

Relevant portion from provision, is reproduce below:

Certain deductions to be only on actual payment.

     43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-

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Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.”

Unquote:

Proviso to section 43B  is a privilege:

On reading of the proviso and applicable conditions to make a claim in the year of accrual of specified sums, we find that assesse has to make payment within due date and has to furnish evidence for such payment with the Return of Income. (it can be by way of evidence of payment or certification by Tax Auditors or CA. However, in spite of such certification, the AO can ask for evidences of payment.

Therefore, proviso to section 43B is an option and a privilege. If the assesse want to get a deduction within the previous year he can claim the same by paying within due date for filing of the return and filing evidence of payment with the return or in form of Tax audit Report.

 In case assesse does not want to claim deduction in the computation of previous year but  future, when such sum is actually paid,  he may not claim by not filing evidence of payment with the return. In that case he can claim deduction in next year on the basis of actual payment. In this regard law laid down in respect of privileges as laid down in CIT V  Mahindra Mills  2000 (3) TMI 3 - SUPREME COURT , regarding claim for depreciation by filing claim with prescribed  details is clearly applicable. After that judgment, S.32 was amended by insertion of Explanation 5 in section 32 to provide that depreciation shall be allowed  whether or not assesse has claimed the same. However, in practice we find that depreciation, if not claimed, is not allowed by the AO.

The explanation has lost its significance also because old position of unabsorbed depreciation to become part of current depreciation in subsequent years, without limitation of eight years has been restored in the IT Act.

A privilege should not be made a burden on assesses:

Sometimes a delayed deduction can be to the advantage of assesses. For example, in case assesse has suffered loss, he may prefer to make claim such specified sums in year of actual payment, so that life of loss is increased- the lapsing period will come later. Similar can be situation in cases of certain deductions or exemptions from income, for which last year is approaching, in such situation a claim in year of actual payment can be to the advantage of assesse.

Such privilege available on exercise of option should not be made burden upon assessee  by forcing deduction as per proviso, when assesse had not exercised such option.

Due/ last date to file ROI:

Earlier due date/ last date for filing of ROI and Tax audit report was 31^st December of the assessment year. However, such date has been preponed from time to time to 30^th September of assessment year. This is extended some due to certain reasons. For example presently for assessment year 2018-19 extended due date in case of audits is 31.10.2018.

By preponing the due date, privilege period has also been reduced. Earlier assessee could prefer claims of specified sums if actually paid before due date which was 31^st December, now this period has been reduced.

For this reason also, the due date for filing of ROI and Tax Audit Report should be kept at 31^st December.