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Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2025 (7) TMI AT This

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2025 (7) TMI 823 - AT - Income Tax


The core legal questions considered by the Appellate Tribunal (AT) in this appeal are:

1. Whether the disallowance of Rs. 11,14,348/- under Section 43B of the Income Tax Act, 1961, made by the CPC during processing of the return under Section 143(1), was justified.

2. Whether the CIT(A) erred in confirming the disallowance based on the tax auditor's report without adequately appreciating the submissions and documentary evidence filed by the assessee during appellate proceedings.

3. Whether the GST liability purportedly disallowed under Section 43B had actually been paid or adjusted before the due date, thereby negating the applicability of Section 43B disallowance.

4. Whether the treatment of GST amounts that were not routed through the profit and loss account affects the applicability of Section 43B disallowance.

Issue-wise Detailed Analysis

Issue 1: Justification of Disallowance under Section 43B

Legal Framework and Precedents: Section 43B mandates that certain specified expenses or liabilities, including statutory dues, are allowable as deduction only if paid on or before the due date of filing the return. The provision intends to ensure timely payment of statutory dues. Precedents such as CIT vs. Noble and Hewitt (I) P. Ltd. (Delhi HC) and ATS Real Estate Builders (P) Ltd. (Delhi Tribunal) have clarified that where the amount is not debited to profit and loss account or routed through it, Section 43B disallowance may not apply.

Court's Interpretation and Reasoning: The Tribunal carefully examined the facts and documents, including the GST cash and credit ledgers, GST receivables, and liabilities as on 31.03.2020. It was found that the assessee had closing GST credits and receivables amounting to Rs. 27,09,738/-, which exceeded the GST payable of Rs. 11,50,351/-. The GST payable was adjusted against these credits before the due date for filing the return.

Key Evidence and Findings: The balance sheet and GST ledgers showed that the GST liability was paid by adjustment with input tax credit before the due date. The tax auditor's report had incorrectly stated that the statutory dues were unpaid, which was factually incorrect.

Application of Law to Facts: Since the GST liability was discharged before the due date, the conditions for disallowance under Section 43B were not met. The Tribunal relied on the principle that disallowance under Section 43B applies only when payment is not made timely.

Treatment of Competing Arguments: The Department relied on the tax auditor's report and the orders of authorities below to justify the disallowance. The assessee argued that the GST liability was paid via adjustment and was not routed through profit and loss account, hence disallowance was not warranted. The Tribunal favored the assessee's submissions and documents over the auditor's erroneous report.

Conclusion: The disallowance under Section 43B was not sustainable as the GST liability was paid before the due date, and the auditor's report was factually incorrect.

Issue 2: Confirmation of Disallowance by CIT(A) without Appreciating Submissions

Legal Framework and Precedents: Appellate authorities are duty-bound to consider all relevant evidence and submissions before confirming disallowances. Failure to do so can vitiate the order.

Court's Interpretation and Reasoning: The Tribunal noted that despite the assessee placing the balance sheet, profit and loss account, and GST ledgers before the CIT(A), the appellate authority failed to appreciate these facts and relied solely on the auditor's report. The CIT(A) observed that the assessee admitted the unpaid liability as per the auditor's report, which was incorrect.

Key Evidence and Findings: The Tribunal emphasized that the auditor's report was erroneous and that the CIT(A) did not properly consider the documentary evidence proving payment of GST liability.

Application of Law to Facts: The failure of the CIT(A) to appreciate the evidence led to an erroneous confirmation of disallowance.

Treatment of Competing Arguments: The Department defended the CIT(A)'s order, but the Tribunal found the reasoning flawed due to non-appreciation of key evidence.

Conclusion: The CIT(A)'s confirmation of disallowance was not justified due to inadequate consideration of the assessee's submissions.

Issue 3: Applicability of Section 43B to GST Amounts Not Routed Through Profit and Loss Account

Legal Framework and Precedents: The principle established in CIT vs. Noble and Hewitt (I) P. Ltd. and ATS Real Estate Builders (P) Ltd. is that if the statutory dues are not debited to profit and loss account, Section 43B disallowance provisions do not apply.

Court's Interpretation and Reasoning: The Tribunal observed that the GST amounts in question were not routed through the profit and loss account, as also admitted in the tax audit report. This fact negates the applicability of Section 43B disallowance.

Key Evidence and Findings: The balance sheet and profit and loss account confirmed the GST was not charged as an expense in the profit and loss account.

Application of Law to Facts: The Tribunal applied the legal principle that disallowance under Section 43B is triggered only when the expense/liability is charged to profit and loss account but remains unpaid.

Treatment of Competing Arguments: The Department's reliance on the auditor's report was countered by the assessee's evidence and relevant judicial precedents.

Conclusion: The disallowance under Section 43B was not applicable to the GST amounts not routed through profit and loss account.

Issue 4: Rectification Application under Section 154 and its Disposal

Legal Framework and Precedents: Section 154 allows rectification of mistakes apparent from record. The rectification application was disposed of confirming the disallowance, which was challenged in the present appeal.

Court's Interpretation and Reasoning: The Tribunal found that the rectification disposal did not consider the factual errors in the auditor's report and the documentary evidence proving payment of GST liability.

Key Evidence and Findings: The rectification order merely upheld the original disallowance without re-examining the material facts.

Application of Law to Facts: The Tribunal held that the rectification order was not sustainable in light of the evidence and legal principles.

Conclusion: The rectification order confirming disallowance was set aside by the Tribunal.

Significant Holdings

"Having regard to the entire aspect of the matter particularly the reporting by the tax auditor in para 26(1)(B)(b) that the amount of Rs. 11,14,348/- has not been paid before the due date is factually wrong, the impugned addition made by the Ld. CIT(A) to the tune of Rs. 11,50,351/- is found to be not sustainable in the eyes of law and thus, deleted."

The Tribunal established the core principle that disallowance under Section 43B is contingent upon non-payment of statutory dues on or before the due date of filing return, and if such dues are adjusted or paid timely, no disallowance is warranted.

It was further held that where statutory liabilities such as GST are not routed through the profit and loss account, Section 43B disallowance does not apply.

The Tribunal conclusively determined that the disallowance of Rs. 11,14,348/- under Section 43B was incorrect and deleted the addition, allowing the appeal.

 

 

 

 

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