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Sec 43B of IT Act.

RAJU (LEARNER) (1089 Points)

08 July 2009

Dear Members,

I would like to know whether statutory dues (VAT, Luxury Tax) not paid before the due date for filing the return of income needs to be added back for computing the Total Income even when the taxes are not debited to Profit & Loss Account

Thanks & Regards,

G. Dharmaraju

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21 Replies

RITESH KOTHARI (B.COM, FCA, DISA(ICAI)) (778 Points)
Replied 08 July 2009

RAJU (LEARNER) (1089 Points)
Replied 08 July 2009

Dear Sir,

In the case of CIT Vs. Associated Pigments Limited (1994) 71 Taxmann 244 (Cal.) it was held that crediting sales tax collection and debiting sales tax payment to a separate sales tax account would not render Section 43B inapplicable.

Regards,

Dharmaraju

RAJU (LEARNER) (1089 Points)
Replied 08 July 2009

Would like to know whether the above is a good law now and please quote any case law, if any to support your stand.

RAMANJU (here to updating the knowledge) (485 Points)
Replied 08 July 2009

As long as these charges are not routed through profit and loss a/c, there is no question of disallowance u/s 43B of IT Act, 1961.

CA Nitin Wadhwani (Chartered Accountant) (4469 Points)
Replied 09 July 2009

Yes.

They will be disallowed.

Mere routing it through a different a/c would not render the section inoperative.

The Section has to be looked in its spirit.

Citation - CIT v/s Kohinoor Infrastructure Ltd.

RAJU (LEARNER) (1089 Points)
Replied 09 July 2009

Hi Nitin,

Thanks for the reply.

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

Regards,

Dharmaraju

RAJU (LEARNER) (1089 Points)
Replied 09 July 2009

Continued,

In view of above, when it is not claimed as deduction itself, how can it be subjected to Income-tax. I want to know the logic behind the decisions of various Courts of subjecting to tax when these are not claimed as deduction at all.

Max Payne (employed) (2569 Points)
Replied 09 July 2009

i dont know the case law, but it has been held that such deductions are deemed to be allowed even if they are not shown as expense by the assessee.

RAMANJU (here to updating the knowledge) (485 Points)
Replied 09 July 2009

According to my understanding, if the assesse has incurred the above said liabilities for which sec. 43B is applicable then those charges obviously be debited to Profit and Loss a/c or any other revenue account like directly debiting to Reserves and surplus a/c.

RAJU (LEARNER) (1089 Points)
Replied 09 July 2009

I was referring to situations where VAT,Service Tax collected are credited to separate account and shown under Current Liabilities in Balance Sheet. If such amounts (which are not debited to P & L) are not paid within the due date, whether will be added back. I agree that it is illogical to add back such dues since they are claimed. However, several courts have held (referred earlier) that even if they are not debited to P & L will be added back.

CA Nitin Wadhwani (Chartered Accountant) (4469 Points)
Replied 09 July 2009

The reason they are added back is to keep the spirit of the section i.e to prevent the late payment of taxes.

CA Shailesh +91 9393926464 (Chartered Accountant) (2088 Points)
Replied 09 July 2009

The term added back comes into operative if and only if something might have taken as deduction from the profit.

When there is no deduction taken from the Gross Income itself, how come the point arises for its adding back. Strange to see so much discussion on this topic!!