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Disallowance under section 43b-urgent (Income Tax)

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This query is : Resolved



( Author )
21 August 2012

if an item is not routed through profit and loss account and is shown as liability in the Balance Sheet can it be added back to income under section 43B.


prateek aanchalia

( Expert )
21 August 2012

its not a proper way to say add that item which not routed through profit and loss account and is shown as liability in the Balance Sheet beacause...
secured & unsecured loan also an liability which not routed through P&L i.e. above loan not required to add in income ..so first verify nature of liability than take action.....


Dintakurthi Tirumala

( Expert )
21 August 2012

Those items which are debited to the P&L Account and attracts 43B only are required to added back to the income and the same has been allowed as deduction in the year of actual payment made.

Thus which are not debited to the P&L i.e created liability through balance sheet need not to be added back to the income eventhough 43B attracted. Because Not debited to the P&L account means expenditure with this regard is not claimed then no need or not require of adding back because there is no any previous deduction.

However while in the case of Tax audit in the tax audit report Form 3CD it has to be disclosed non payment of 43B payment as well as answer to the question is these through P&L Account: No.(because not debited to the P&L but created liability through Balance sheet)

Sir, I think you understand this. Other wise write your doubt.

OM SAI SRI SAI JAI JAI SAI


CA Vandana Goyal

( Author )
21 August 2012

in mine case the question is for municipal tax in case of an electricity company..the company has neither credited the amount received from customers and neither debited the amount paid to municipality..it has only shown the municipal tax in B/S as payable on the basis of bills issued..plzzz suggest..


Dintakurthi Tirumala

( Expert )
21 August 2012

As per your reply you are saying credit given to municipal taxes payable and disclosed in liabilities side then for which account the consider debit given and where it is disclosed? please reply

OM SAI SRI SAI JAI JAI SAI


Amol S. Joglekar.

( Expert )
21 August 2012

Please make a detailed note for the transaction. Electricity company giving CREDIT for municipal taxes... a little bit difficult to digest the idea.


CA Vandana Goyal

( Author )
21 August 2012

electricity company billed for municipal taxes say rs 1 lakh and municipal taxes received from customers from the amount of rs 1 lakh say rs 25000. now the company showed in balance sheet m.tax payable to committee of Rs 25000, as the company is liable to pay to the municipal committee only the amount collected from customers (as per a government circular) so is now section 43B attracted if Rs 25000 is paid before 30 September.


Amol S. Joglekar.

( Expert )
21 August 2012

I think we need to focuss more on that Govt circular... If electricity company is in 'TRUSTEE' relationship (like VAT collectible, service tax receivable or income tax deducted and so on) to collect the municipal taxes from its customer and if collected... to be paid to the concerned municipality. If municipality is raising INVOICE/BILL to electricity company, it can not be said to be trustee relationship.


Dintakurthi Tirumala

( Expert )
21 August 2012

Sir you are saying company directly disclosed in the balance sheet only. Is it right then as per the standards it is not possible directly disclosing in the balance if do so then financial statements doesn't tally. I have not idea about the electricity companies accounts so i couldn't under stand the entry in regard this. Please explain the entry process to recognise the liability. For example if the vat tax is payable then the entry to provide vat tax payable provision is as follows.

Vat a/c dr *****
To Vat Payable a/c *****

Here Vat is debited to P&L account as well as Vat Payable is disclosed at liabilities side.
The above entry is related to assume no separate collection of vat is made by the assessee and not separate accounting to VAT.

In case the assessee is charging separately from the customers as well as accounting separately then the accounting entry is.

Vat input account dr *****
To Vat out put account *****

Both are disclosed at the balance sheet Vat Input as Asset and the Vat Out put as Liability.

The difference between the VAT input and Vat out put is payable or receivable as on the date to/from the department.

In the first case it is called the expenditure is routed through P&L and the later case the expenditure doesn't routed through P&L.
In the former case section 43B attracts and in the latter case 43B doesn't attracts.

Based on the above clarification decide whether 43B disallowance attracts or not.

Note: I know about the my explanation but for my clarification and confirmation i again explained you. Please excuse me if any mistake by me.

OM SAI SRI SAI JAI JAI SAI


CA Vandana Goyal

( Author )
21 August 2012

mine is the second case...do you have any legal notification or case law clarifying this..as mine case is pending before the commissioner..


Dintakurthi Tirumala

( Expert )
21 August 2012

Sir i have not any such legal notification or case law at present. However it is clear according to the section 43B.

I herewith producing section 43B: General Rule: CERTAIN EXPENSES ARE DEDUCTIBLE ON PAYMENT BASIS which explains "The following 'expenses'(which are otherwise deductible under the other provisions of the Income-tax Act) are deductible on payment basis.(I here not producing the expenses which are cover under 43B).

As per the above explanation some expenses which are covered under 43B are allowable as deduction in the year of actual payment made(however exception is there) i.e expenditure allowable as payment basis i.e cash basis not on accrual basis. Expenses means the payments which are paid or payable and debited to the P&L is called expenditure. And the expense which are paid or payable credited/debited to the balance sheet item is called asset/liability.

For example expenses made for the salaries is debited to the p&l is called expenditure i.e already incurred and irrecoverable and not payable at all.
In case expenses made for the salaries paid but debited to the balance sheet item i.e Advance salaries paid i.e expenditure not incurred and it would be recoverable or adjustable any other liability in future. As well as advance salary received and credit to the balance sheet item as salary received in Advance i.e no income arises and it would be liable to pay in future or adjustable in any future receivable income or payable asset. In this case if the salary received as advance returned back to employer not means of payment and expenditure it is payment and liability.

In the both the above case examples expenditure incurred but in the first case expenditure claimed as deduction and in the later case expenditure not claimed as deduction.
If any wrong deduction claim made relating to the expenditure made in previous then only adding back of excess deduction claimed is possible other wise no.

IN YOUR CASE PREVIOUSLY NO DEDUCTION CLAIMED BY YOU AGAINEST THE INCOME. I.E YOU WAIVED THE DEDUCTION THEN HOW IT IS POSSIBLE TO ADDING BACK. 43B SPECIFIES ONLY EXPENSES ALLOWABLE ON PAYMENT BASIS. HOWEVER 40A(3) DOESN'T SPECIFY EXPENSES IT SPECIFY PAYMENT(FOR YOUR CLARIFICATION I PRODUCED 40A(3)).

SO BASED ON YOUR EXPLANATION AO WILL SATISFY TRY TO EXPLAIN CLEARLY TO HIM. BUT I COULDN'T PRODUCE ANY REFERENCE TO YOU. YOU CAN TRY IT ANY OTHER WAY.

OM SAI SRI SAI JAI JAI SAI


Amol S. Joglekar.

( Expert )
21 August 2012

The case laws are favouring Income Tax people. You have a very good case but at TRIBUNAL level. It is very hard to get them convinced.


CA Vandana Goyal

( Author )
22 August 2012

but plz suggest me if any thing is possible which can make my case strong


Amol S. Joglekar.

( Expert )
22 August 2012

As rightly suggested by Tirumala, you need to convince the assessing officer, that it is PARADOX, that the items which are not at all DEBITED to profit and loss aaccount, no question of any 'adding back' or 'disallowance' arises. Taking the level of politeness of IRS officer, they are stubborn enough not to listen what a CA says. Make it a point to get you sayings recorded in the work sheet/ give a written say, to help you at appeal level.


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