Disallowance u/s 43B deleted as GST payable was not debited to Profit & Loss account and was paid before due date for filing return of income.
In a recent judgment, the Hon’ble ITAT has deleted disallowance u/s 43B as GST payable reported in Tax Audit Report was not debited to Profit & Loss account and was paid before due date for filing return of income.
ABCAUS Case Law Citation:
ABCAUS 3909 (2024) (03) ITAT
Important Case Laws relied upon by parties:
SDCA Projects Pvt. Ltd. vs. DCIT
Noble & Hawitt (I)(P) Ltd. 305 (ITR) 324
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the addition made by the CPC of the amount disallowed under section 43B of the Income Tax Act, 1961 (the Act) towards GST liability outstanding.
The assessee filed return of income for the relevant assessment year. The Assessing Officer while making this disallowance made observation that the assessee was liable to get his books of accounts audited u/s. 44AB of the Income Tax, 1961 and the assessee also got his books of accounts audited u/s 44AB of the Income Tax Act, 1961. The Assessing Officer observed that the duties and taxes payable on (GST) as on close of the financial year as per the audited financials of the assessee While filing the audit report u/s. 44AB of the Act an amount was unpaid in respect of GST and hence the auditor had reported the same in the clause 26(i)(B)(b) duties and taxes not paid on or before the date of audit report.
The Assessing Officer assessed the income of the assessee by making an addition of payment of GST outstanding u/s 43B of the Act regarding any sum in the nature of tax, duty, cess, or if under any other law.
Before the Tribunal the assessee contended that per section 43B of the Act, certain payments can be claimed as an expense in the year in which they have paid and not in the year in which the liability to pay such sum was incurred.
It was submitted that if the taxpayer follows the mercantile system of accounting and if all the liability is paid on or before due date of filing the return of income, the same can be claimed as deduction.
It was further submitted that in the case of the assessee, the as on the date of tax audit report there was outstanding payable of GST and hence the auditor disallowed the same in his audit report in clause 26(i)(B)(b) and duties and taxes not paid on or before date of audit report. However, while/before the filing of return of income u/s 139(1) i.e. within due date of filing the return of income, the assessee paid GST between the date of audit report to date of filing of income tax return.
The assessee further contended that the assessee was engaged in the business of providing civil construction services on the contract basis. The assessee had collected the GST from his client on behalf of the Government and the same was paid to the Government exchequer before filing the due date of the return of income. On the collection of such GST, the amount is shown liability in his books of accounts which was subsequently paid to the Government along with interest on delayed payment.
It was thus submitted that the assessee was neither showing any income on account of GST collected from the assessee nor it was claiming any expenditure on account of such GST. As such, the assessee has showing the amount of GST collected from the customers as liability without creating the same in the profit and loss account and similarly it was making the payment of GST amount without debiting the same to the profit and loss account. Moreover, there is no mandate under the Act to route the amount of GST collected and paid through the profit and loss account. Therefore, the provisions of section 43B is not applicable in assessee’s case and hence there is no question of making addition of GST amount to the total income of the assessee in the event if it is not paid within the due date of filing of income tax return as specified u/s 139(1) of the Act.
In support of his contentions, the assessee relied upon the decision of the Co-ordinate Bench of ITAT and also the judgment of the Hon’ble High Court.
The Tribunal observed that the assessee did not debit the amount to the profit and loss account as an expenditure not the assessee claimed any deduction in respect of amount. In fact, the assessee had treated the same as current liabilities and provisions and also given the description under Schedule 7 regarding duties and taxes.
Thus, the Tribunal opined that the contention of the assessee that the provisions of section 43B is not applicable to the assessee as the assessee had paid the GST amount before filing of the return of income is correct.
The Tribunal opined that the decision of Hon’ble Apex Court in case of Chowringhi Sales Bureau Pvt. Ltd. will not be applicable as in the present case, assessee had given the details of the current liabilities and not estimated the same and was not debited the same as an expenditure in profit and loss account and not claimed any deduction to that effect. But since the assessee had paid the said amount prior to filing of the return of income, the decision of Hon’ble High Court will be applicable in case of assessee as the ratio laid down will be squarely applicable.
Thus, the appeal of the assessee is allowed.
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