Scope of provisions of section 43B in respect of Deduction of an expenditure on actual payment basis

Whether section 43B of the Income Tax Act, 1961 is overriding section and allows all the payments of taxes made during the relevant previous year irrespective of the fact that the same has been incurred  or not?

In the present case as reported in (2008 -TMI - 31388 - KERALA HIGH COURT) the facts in brief were as under:

1.  Assessee was following mercantile system of accounting.

2.  During the previous year 1993-94 assessee made advance payment of sales tax (Rs. 23 lakhas) for the period April 2004 and claimed as deduction under section 43B during the assessment year 1994-95 (previous year 1993-94)

3.  AO disallowed the claim of Rs. 23 lakhs as not accrued, hence not allowable.

4.  Commissioner (Appeals) and ITAT has allowed deduction of 23 lakhs under section 43B.

5.  Department filed an appeal before Honorable Kerala High Court.

Decisions:

Kerala HC has allowed the appeal of the revenue and uphold the order of the AO on the ground that section 43B is allows the deduction if an expenditure is otherwise allowable under section 37(1) read with section 145.

Where the assessee is maintaining its accounts on mercantile system of accounting, the amount paid in advance in respect of sales tax for the next year can not be allowed as deduction under section 37(1) read with section 145 and therefore not eligible for deduction under section 43B on the basis of actual payment.

(For full text of judgment - visit 2008 -TMI - 31388 - KERALA HIGH COURT)