2025 (1) TMI 1290 - AT - Income Tax

Addition of unpaid VAT liability u/s 43B - HELD THAT - Admittedly the issue in present case qua the admissibility of unpaid VAT liability which was not paid on or before the due date for furnishing the return u/s 139 of the Act if the same is not charged to P L Account the same cannot be disallowed being not claimed as deduction in the books of accounts. We may herein note that on this issue the revenue through its Ld. Standing Counsel had accepted that the said amount was not claimed as an expenditure in P L Account and the case is covered by the decision rendered in the case of M/s Ganapati Motors 2017 (4) TMI 1613 - CHHATTISGARH HIGH COURT under such admission by the revenue the contentions raised before us are found to be bereft of any substance. Decided against revenue.

1. ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment are:

Whether the Commissioner of Income Tax (Appeals) was justified in deleting the addition made by the Assessing Officer regarding the unpaid VAT liability of Rs. 3,05,92,653/- under Section 43B of the Income Tax Act, 1961.
Whether the disallowance under Section 40(a)(ia) of the Income Tax Act, 1961, for non-deduction of TDS on rent, should be restricted to 30% of the amount, as determined by the Commissioner of Income Tax (Appeals).

2. ISSUE-WISE DETAILED ANALYSIS

Unpaid VAT Liability under Section 43B

Relevant Legal Framework and Precedents: Section 43B of the Income Tax Act mandates that certain deductions are only allowed on actual payment. The section is applicable to sums payable by way of tax, duty, cess, or fee. The Tribunal referenced the decision in the case of M/s Ganapati Motors and the Supreme Court decision in Chowringhee Sales Bureau (P.) Ltd. v. CIT.
Court's Interpretation and Reasoning: The Tribunal noted that the assessee did not claim the unpaid VAT as an expenditure in its Profit and Loss account. Therefore, the VAT liability was not disallowed as it was not claimed as a deduction in the books of accounts. The Tribunal relied on the Chhattisgarh High Court's decision in M/s Ganapati Motors, which held that if VAT is not charged to the Profit and Loss account, it cannot be disallowed under Section 43B.
Key Evidence and Findings: The VAT liability was shown in the balance sheet but was not claimed in the Profit and Loss account. The Tribunal found that the CIT(A) correctly applied the law by deleting the addition made by the Assessing Officer.
Application of Law to Facts: The Tribunal applied the principles from the relevant case laws and Section 43B, concluding that since the VAT was not claimed as a deduction, the addition made by the Assessing Officer was unwarranted.
Treatment of Competing Arguments: The Revenue argued for sustaining the addition based on the Tax Audit Report. However, the Tribunal found the assessee's reliance on the Chhattisgarh High Court's judgment persuasive and noted that the Revenue's arguments lacked substance.
Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the addition of unpaid VAT liability, as it was not claimed as an expenditure in the Profit and Loss account.

Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on Rent

Relevant Legal Framework and Precedents: Section 40(a)(ia) of the Income Tax Act provides for disallowance of 30% of any sum payable to a resident on which tax is deductible at source but not deducted.
Court's Interpretation and Reasoning: The Tribunal agreed with the CIT(A) that the disallowance should be restricted to 30% of the rent amount, as per the statutory provision.
Key Evidence and Findings: The Tribunal found that the Assessing Officer had disallowed the entire rent amount, contrary to the statutory provision, which allows for disallowance of only 30%.
Application of Law to Facts: The Tribunal applied Section 40(a)(ia) to restrict the disallowance to 30% of the rent amount, aligning with the CIT(A)'s decision.
Treatment of Competing Arguments: The Tribunal found no substantial arguments from the Revenue to counter the CIT(A)'s decision to restrict the disallowance to 30%.
Conclusions: The Tribunal upheld the CIT(A)'s restriction of the disallowance to 30% of the rent amount.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "Unpaid VAT could have been disallowed had it been passed charged to Profit and loss account."
Core Principles Established: The Tribunal established that unpaid VAT not claimed in the Profit and Loss account cannot be disallowed under Section 43B. Additionally, disallowance under Section 40(a)(ia) should be restricted to 30% of the amount if TDS is not deducted.
Final Determinations on Each Issue: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the unpaid VAT liability addition and restricting the disallowance under Section 40(a)(ia) to 30% of the rent amount.

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