Statutory liability accrues on issuance of demand notice-ITAT deleted disallowance u/s 43B and allowed payment of Local Body Tax in the year of payment
ABCAUS Case Law Citation:
ABCAUS 2726 (2019) (01) ITAT
The Assessee hand challenged the order passed by the CIT(A) in confirming the disallowance made by the Assessing Officer (AO) u/s 43B of the Income-tax Act, 1961 (the Act)
The assessee was a retail dealer engaged in the trading of IMFL and country liquor. During the course of assessment proceedings, it was observed that the assessee had paid Local Body Tax (LBT) which included the tax pertaining to earlier year which was recovered by the authorities during the year under consideration.
The assessee submitted that said payment was made because of the demand raised by the competent authorities in the instant year only and hence, the same should be allowed.
Not convinced, the AO made addition, which came to be confirmed in the first appeal.
The Tribunal observed that the assessee, in the preceding year had paid LBT at a rate lower than the correctly applicable rate. It was only in the course of assessment by the competent authority that the demand for the remaining percentile was raised and deposited by the assessee.
The Tribunal noted that the lower tax authorities canvassed a view that since such an amount was a prior period expense, the same could not be allowed as deduction on payment made in the instant year.
The Tribunal opined that the view taken by the lower tax authorities was not in accordance with the settled legal position as the Hon’ble Supreme Court had held that a statutory liability accrues on issuance of demand notice.
The Tribunal observed that their Lordships laid down that Excise department having issued demand notice asking assessee to pay basic excise duty and special excise duty for past years during the previous year in question, liability accrued at that stage and assessee is entitled to deduction thereof irrespective of the fact that assessee had challenged the demand by way of writ petition.
The Tribunal, in view of the ratio laid down by the Hon’ble Supreme Court opined that the liability to pay additional LBT arose in the extant year, when the demand was raised and once it was held that the liability was incurred in the instant year, the case of the Revenue authorities fall.
The Tribunal held that since the amount in question was paid by the assessee during the year under consideration, the same is not disallowable u/s 43B of the Act.