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2022 (8) TMI 1123 - AT - Income TaxDisallowance u/s 43B - Sales Tax/Works Contracts tax which was outstanding on the date of filing of return - CIT(A) deleted the disallowance accepting the contention of the Assessee that provision of Section 43B of the Act are not applicable as the aforesaid Sales Tax/Work Contract Tax liability was not routed through Profit & Loss account and therefore no deduction was claimed by the Assessee - HELD THAT:- The contention advanced on behalf of the Assessee is that since there was huge input tax credit available as on the date of filing return of income, the outstanding Sales Tax/Works Contract Tax liability can be deemed to have been set off against such available input tax credit and therefore, the question of making disallowance under Section 43B of the Act does not arise. We do not find any merit in the aforesaid contention and are of the view that the authorities below were justified in rejecting the contention of the Assessee. In paragraph 5.2.4 of the order, the CIT(A) has rightly observed that the judgments relied upon by the Assessee do not support the contention that mere availability of unutilized tax credit would be deemed to be payment even in absence of actual set off of the outstanding liability with the available tax credit. In our considered view, the provisions of section 43B would not be attracted in case there is actual payment or actual set off (which would be deemed to be payment). Mere availability of unutilized tax credit cannot be deemed to be payment and/or lead to a conclusion that there existed no outstanding Sales Tax/Works Contract tax liability as on the date of filing return of income. Calculation of quantum of outstanding Sales Tax/Works Contract Tax liability for deduction u/s 43B - Increase in profits on account of inclusion of taxes/duties in closing stock and sales has been set off against the decrease in profits arising on account of increase of cost of opening stock, work-in–progress and purchase material. Thus, in effect, deduction has been claimed by the Assessee in respect of the tax liability incurred during the relevant previous year even though the same has not been routed through the Profit & Loss Account. We note that as per the statement showing details of variation from the method of valuation prescribed under Section 145A of the Act and the effect thereof on the profits of the Assessee prepared by the tax auditor, there is no effect on the profits from business A co-joint reading of Sections 145A and Section 43B of the Act would show that as per Section 145A of the Act the business profits are firstly required to be mandatorily computed by following the 'Inclusive method', by loading the amount of tax or duty etc. on purchase, sale and inventories and thereafter, if some part of tax or duty is unpaid, that should be added back in the computation of income as per Section 43B of the Act to arrive at income chargeable under the head ‘profits and gains of business’. Accordingly, we hold that the provisions of Section 43B of the Act would be attracted in the facts of the present case even though the Assessee has not routed the Sales Tax/Works Contract Tax liability through Profit & Loss Account. In view of the aforesaid, we set aside the order passed by the CIT(A) on this issue, and direct the Assessing Officer to disallow under Section 43B of the Act the quantum of the outstanding Sales Tax/Works Contract Tax liability of INR 3,78,15,218/- to the extent the same is included in the statement showing details of deviations from the method of valuation prescribed under section 145A of the Act by the tax auditor as per Clause 12(b) of tax audit report in Form 3CD. Accordingly, Ground No. 1 and 2 raised by the Revenue in appeal are allowed whereas Cross Objection No.1 of the Assessee is dismissed.
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