2022 (8) TMI 1123 - AT - Income Tax

Disallowance u/s 43B - Sales Tax/Works Contracts tax which was outstanding on the date of filing of return - C IT(A) deleted the disallowance accepting the contention of the Assessee that provision of Section 43B of the Act are not applicable as the aforesaid Sales Tax/Work Contract Tax liability was not routed through Profit Loss account and therefore no deduction was claimed by the Assessee - HELD THAT - The contention advanced on behalf of the Assessee is that since there was huge input tax credit available as on the date of filing return of income, the outstanding Sales Tax/Works Contract Tax liability can be deemed to have been set off against such available input tax credit and therefore, the question of making disallowance under Section 43B of the Act does not arise. We do not find any merit in the aforesaid contention and are of the view that the authorities below were justified in rejecting the contention of the Assessee. In paragraph 5.2.4 of the order, the CIT(A) has rightly observed that the judgments relied upon by the Assessee do not support the contention that mere availability of unutilized tax credit would be deemed to be payment even in absence of actual set off of the outstanding liability with the available tax credit. In our considered view, the provisions of section 43B would not be attracted in case there is actual payment or actual set off (which would be deemed to be payment). Mere availability of unutilized tax credit cannot be deemed to be payment and/or lead to a conclusion that there existed no outstanding Sales Tax/Works Contract tax liability as on the date of filing return of income. Calculation of quantum of outstanding Sales Tax/Works Contract Tax liability for deduction u/s 43B - Increase in profits on account of inclusion of taxes/duties in closing stock and sales has been set off against the decrease in profits arising on account of increase of cost of opening stock, work-in progress and purchase material. Thus, in effect, deduction has been claimed by the Assessee in respect of the tax liability incurred during the relevant previous year even though the same has not been routed through the Profit Loss Account. We note that as per the statement showing details of variation from the method of valuation prescribed under Section 145A of the Act and the effect thereof on the profits of the Assessee prepared by the tax auditor, there is no effect on the profits from business A co-joint reading of Sections 145A and Section 43B of the Act would show that as per Section 145A of the Act the business profits are firstly required to be mandatorily computed by following the 'Inclusive method', by loading the amount of tax or duty etc. on purchase, sale and inventories and thereafter, if some part of tax or duty is unpaid, that should be added back in the computation of income as per Section 43B of the Act to arrive at income chargeable under the head profits and gains of business . Accordingly, we hold that the provisions of Section 43B of the Act would be attracted in the facts of the present case even though the Assessee has not routed the Sales Tax/Works Contract Tax liability through Profit Loss Account. In view of the aforesaid, we set aside the order passed by the CIT(A) on this issue, and direct the Assessing Officer to disallow under Section 43B of the Act the quantum of the outstanding Sales Tax/Works Contract Tax liability of INR 3,78,15,218/- to the extent the same is included in the statement showing details of deviations from the method of valuation prescribed under section 145A of the Act by the tax auditor as per Clause 12(b) of tax audit report in Form 3CD. Accordingly, Ground No. 1 and 2 raised by the Revenue in appeal are allowed whereas Cross Objection No.1 of the Assessee is dismissed.

Issues Involved:

1. Deletion of disallowance under Section 43B of the Income Tax Act.
2. Applicability of the Supreme Court judgment in Chowringhee Sales Bureau Pvt. Ltd. vs. CIT.
3. Treatment of unpaid Sales Tax/Works Contract Tax not routed through the Profit & Loss Account.
4. Consideration of input tax credit for setting off outstanding liabilities.

Detailed Analysis:

Issue 1: Deletion of Disallowance under Section 43B

The Revenue contested the CIT(A)'s decision to delete the disallowance of INR 3,78,15,218/- made by the Assessing Officer (AO) under Section 43B of the Act. The AO had added this amount to the total income of the Assessee, holding it as an outstanding liability for Sales Tax/Works Contract Tax that was not paid by the date of filing the return of income. The CIT(A) deleted this disallowance, accepting the Assessee's argument that since the liability was not routed through the Profit & Loss Account, no deduction was claimed, and hence Section 43B was not applicable. The Tribunal, however, overturned this decision, stating that the provisions of Section 43B are applicable even if the liability is not routed through the Profit & Loss Account, as long as the deduction has been effectively claimed.

Issue 2: Applicability of the Supreme Court Judgment in Chowringhee Sales Bureau Pvt. Ltd. vs. CIT

The Revenue argued that the judgment in Chowringhee Sales Bureau Pvt. Ltd. vs. CIT was applicable to the Assessee's case. The AO had reasoned that even if the Sales Tax/Works Contract Tax was not included in the Profit & Loss Account, it should be deemed to have been claimed as a deduction. The Tribunal noted that the CIT(A) had rejected this argument, but the Tribunal agreed with the AO, stating that the liability should be considered part of the turnover and thus subject to disallowance under Section 43B if unpaid by the filing date.

Issue 3: Treatment of Unpaid Sales Tax/Works Contract Tax Not Routed Through the Profit & Loss Account

The Assessee argued that since the Sales Tax/Works Contract Tax liability was not routed through the Profit & Loss Account, no deduction was claimed, and hence Section 43B should not apply. The Tribunal, however, held that the Assessee did not have the option to follow the exclusion method after the introduction of Section 145A of the Act, which mandates the inclusion method. Therefore, the Tribunal concluded that the provisions of Section 43B would be attracted even if the liability was not routed through the Profit & Loss Account.

Issue 4: Consideration of Input Tax Credit for Setting Off Outstanding Liabilities

The Assessee contended that it had sufficient input tax credit available as on the date of filing the return of income, which should be deemed as payment of the outstanding liability. The Tribunal rejected this argument, stating that mere availability of unutilized tax credit cannot be deemed as payment. The Tribunal emphasized that actual payment or actual set-off is required to avoid disallowance under Section 43B.

Conclusion:

The Tribunal allowed the Revenue's appeal and dismissed the Assessee's cross-objection. It directed the AO to disallow the outstanding Sales Tax/Works Contract Tax liability to the extent it is included in the statement showing deviations from the method of valuation prescribed under Section 145A of the Act. The Tribunal upheld the AO's view that the provisions of Section 43B are applicable even if the liability is not routed through the Profit & Loss Account, provided the deduction has been effectively claimed.

← Previous Next →