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PROVISIONS PERTAINING TO SECTION 43B – CERTAIN DEDUCTIONS ONLY ON
ACTUAL PAYMENT-DISCUSSION PAPER
Section 43B reads as under :
“ Notwithstanding anything contained in any other provision of this Act, a
deduction otherwise allowable under this Act in respect of—
[(a) any sum payable by the assessee by way of tax, duty, cess or fee, by
whatever name called, under any law for the time being in force, or]
(b) any sum payable by the assessee as an employer by way of contribution to
any provident fund or superannuation fund or gratuity fund or any other fund
for the welfare of employees, [or]
[(c) any sum referred to in clause (ii) of sub-section (1) of section 36,] [or]
[(d) any sum payable by the assessee as interest on any loan or borrowing from
any public financial institution [or a State financial corporation or a State
industrial investment corporation], in accordance with the terms and conditions
of the agreement governing such loan or borrowing [, or]
[(e) any sum payable by the assessee as interest on any [loan or advances] from
a scheduled bank in accordance with the terms and conditions of the agreement
governing such loan [or advances],] [or]
[(f) any sum payable by the assessee as an employer in lieu of any leave at the
credit of his employee,]
shall be allowed (irrespective of the previous year in which the liability to pay
such sum was incurred by the assessee according to the method of accounting
regularly employed by him) only in computing the income referred to in section
28 of that previous year in which such sum is actually paid by him :
[Provided that nothing contained in this section shall apply in relation to any
sum [* * *] which is actually paid by the assessee on or before the due date
applicable in his case for furnishing the return of income under sub-section (1)
of section 139 in respect of the previous year in which the liability to pay such
sum was incurred as aforesaid and the evidence of such payment is furnished by
the assessee along with such return.
By. CA H.K. Aneja , M 9814000647
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[***]]
Explanation [1].—For the removal of doubts, it is hereby declared that where a
deduction in respect of any sum referred to in clause (a) or clause (b) of this
section is allowed in computing the income referred to in section 28 of the
previous year (being a previous year relevant to the assessment year
commencing on the 1st day of April, 1983, or any earlier assessment year) in
which the liability to pay such sum was incurred by the assessee, the assessee
shall not be entitled to any deduction under this section in respect of such sum in
computing the income of the previous year in which the sum is actually paid by
him.]
[Explanation 2.—For the purposes of clause (a), as in force at all material times,
"any sum payable" means a sum for which the assessee incurred liability in the
previous year even though such sum might not have been payable within that
year under the relevant law.]
[ [Explanation 3].—For the removal of doubts it is hereby declared that where a
deduction in respect of any sum referred to in clause (c) [or clause (d)] of this
section is allowed in computing the income referred to in section 28 of the
previous year (being a previous year relevant to the assessment year
commencing on the 1st day of April, 1988, or any earlier assessment year) in
which the liability to pay such sum was incurred by the assessee, the assessee
shall not be entitled to any deduction under this section in respect of such sum in
computing the income of the previous year in which the sum is actually paid by
him.]
[Explanation 3A.—For the removal of doubts, it is hereby declared that where a
deduction in respect of any sum referred to in clause (e) of this section is allowed
in computing the income referred to in section 28 of the previous year (being a
previous year relevant to the assessment year commencing on the 1st day of
April, 1996, or any earlier assessment year) in which the liability to pay such sum
was incurred by the assessee, the assessee shall not be entitled to any deduction
under this section in respect of such sum in computing the income of the
previous year in which the sum is actually paid by him.]
[Explanation 3B.—For the removal of doubts, it is hereby declared that where a
deduction in respect of any sum referred to in clause (f) of this section is allowed
in computing the income, referred to in section 28, of the previous year (being a
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previous year relevant to the assessment year commencing on the 1st day of
April, 2001, or any earlier assessment year) in which the liability to pay such sum
was incurred by the assessee, the assessee shall not be entitled to any deduction
under this section in respect of such sum in computing the income of the
previous year in which the sum is actually paid by him.]
[Explanation 3C.—For the removal of doubts, it is hereby declared that a
deduction of any sum, being interest payable under clause (d) of this section,
shall be allowed if such interest has been actually paid and any interest referred
to in that clause which has been converted into a loan or borrowing shall not be
deemed to have been actually paid.]
[Explanation 3D.—For the removal of doubts, it is hereby declared that a
deduction of any sum, being interest payable under clause (e) of this section,
shall be allowed if such interest has been actually paid and any interest referred
to in that clause which has been converted into a loan or advance shall not be
deemed to have been actually paid.]
[Explanation 4.—For the purposes of this section,—
(a) "public financial institutions" shall have the meaning assigned to it in section
4A of the Companies Act, 1956 (1 of 1956);
[(aa) "scheduled bank" shall have the meaning assigned to it in the Explanation
to clause (iii) of sub-section (5) of section 11;]
(b) "State financial corporation" means a financial corporation established under
section 3 or section 3A or an institution notified under section 46 of the State
Financial Corporations Act, 1951 (63 of 1951);
(c) "State industrial investment corporation" means a Government company
within the meaning of section 617 of the Companies Act, 1956 (1 of 1956),
engaged in the business of providing long-term finance for industrial projects and
[eligible for deduction under clause (viii) of sub-section (1) of section 36].]”
Before elucidating its provisions, I will like to mention the circumstances under
which this section was brought in statute book by the Finance Act. 1983 w.e.f
01.04.1984, which are given as under:By. CA H.K. Aneja , M 9814000647
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Several cases have come to notice where taxpayers do not discharge their
statutory liability such as in respect of excise duty, employer’s contribution to
provident fund, Employee’s state Insurance Scheme, etc., for long periods of
time, extending sometimes to several years . For the purpose of their income –
tax assessments, they claim the liability as deduction on the ground that they
maintain accounts on mercantile or accrual basis. On the other hand, they
dispute the liability and do not discharge the same. For some reasons or the
other, undisputed liabilities also are not paid.
To curb this practice , the Finance Act, 1983 has inserted a new section 43B to
provide that deduction for any sum payable by the assessee by way of tax, duty
etc. under any law for the time being in force or any sum payable by the assessee
as an employer by way of contribution to any provident fund or superannuation
fund or gratuity fund or any other fund for the welfare of employee shall
irrespective of the previous year in which the liability to pay such sum was
incurred, be allowed only in computing the income of that previous year in
which such sum is actually paid by the assessee. The scope of this section was
widened subsequently by making amendments from time to time.
Perusal of provisions of section 43B, as it stands today, reveals that there are six
limbs of this section specified in clauses (a) to (f)
Clause ( a)
This clause pertains to sum payable by the assessee by way of tax, duty, cess or
fee payable to Central Government/State Government and Local Authorities.
At the time of introduction of section, only tax or duty under any law was
mention. Subsequently Finance Act, 1988, inserted the words cess or fee w.e.f.
01.04.1989. This was mainly on account of fact that the words tax and duty
have been the subject matter of judicial interpretation and there is controversy
as to whether they cover statutory levies like cess, fee etc. Some appellate
authorities have held that such cess or fees cannot be covered by the expressions
“tax” or “ duty”. Such interpretation, being against the legislative intent ; by way
of clarification, an amendment has been carried out to provide that cess or fees
by whatever name called, which have been imposed by any statutory
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authority, including a local authority, will be allowed as a deduction only if
these are actually paid. But despite this amendment, there are certain judgments
in which it was held that certain types of fee are still not covered.
Bottling Fee is not covered
a) CIT VS. MCDOWELL AND CO. LTD. (2009) 314 ITR 167 (SC) (ASST. YEAR 198889):- “Business expenditure—Disallowance under s. 43B—Bottling fees under
excise law—Bottling fees for acquiring a right of bottling of IMFL determined
under the Excise Act and rules framed there under payable by assessee as
consideration for grant of approval by the Government is not tax, duty, cess or fee
for the purposes of s. 43B—Expression now used in s. 43B(i)(a) is "tax, duty, cess
or fee, by whatever name called"—By application of rule of ejusdem generis, the
expression ‘by whatever name called’ must fall within the genus ‘taxation’ to
which expressions ‘tax’, ‘duty’, ‘cess’ or ‘fee’ as a group of its specie belong by
way of compulsory exaction in the exercise of State’s power of taxation—Where
levy and collection is duly authorised by law as distinct from amount chargeable
on principle as consideration payable under contract—High Court was justified in
holding that the amount does not fall within the purview of s. 43B.
Affirming the decision of the High Court, Hon’ble Supreme Court observed that
it was the duty of the Revenue authorities to ascertain whether the deduction
which was to be tested on the touchstone of section 43B(a) was an amount
payable be way of tax or duty or fee or cess. The bottling fee for acquiring a
right of bottling IMFL, which was determined under the Rajasthan Excise Act.,
1950, and rule 69 of the Rajasthan Excise Rules, 1962, was payable by the
assessee as consideration for acquiring an exclusive privilege. It was neither fee
nor tax but the consideration for grant of approval by the Government as terms
of contract in exercise of its right to enter into a contract in respect of the
exclusive right to deal in bottling liquor in all its manifestations. The High Courts
was right in holding that the amount did not fall with in the purview of section
43B. “
a) CIT VS. UDAIPUR DISTILLERY CO. LTD. (2009)314 ITR 188 ( SC) (ASST. YEAR
1994-95) :- “The unpaid amount of bottling fee, deduction in respect of
thereof could not be denied under section 43B of the Income Tax, 1961.”
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License Fee
CIT VS. G. SOMAN (2011) 241 CTR 0082 ( KERALA ) (ASST. YEAR 1999-2000):“License fee payable under the Abkari Act for grant of privilege to sell toddy is
not covered by s. 43B(a) because the license fee is consideration payable to the
Government for granting privilege or right to sell liquor.”
Audit Fee is not covered
CIT VS. SHREE WARNA SAHAKARI SAKHAR KARKHANA LTD.(2001) 253 ITR 226
(BOMBAY) (ASST. YEAR 1990-91):- “Business expenditure—Disallowance under
s. 43B—Government audit fees—Concept of ‘fees’ referred to in s. 43B cannot be
equated with audit charges payable for getting the accounts audited—Audit
charges were payable by assessee for services rendered by the Government
auditors by way of professional services—Such payment is beyond the mischief
of s. 43B—Disallowance of outstanding Government audit fees was not justified.”
Further the amendment was made to tone down the vigor of this provision by
permitting the deduction on account of liabilities for tax duty, cess or fee, if it is
paid, though not during the relevant previous year, in which it is incurred; but
on or before the due date of filling of ITR.
There are certain judgments in which the courts have held that even under
the old provisions, if tax or duty etc. have been paid, though not during the
relevant previous year, but paid before the due date specified under the
relevant Act/Rules made there under; still it will be allowable.
Interest on Indirect Taxes - whether also tax .
A) Held as not tax
a) HINDUSTAN MOTORS LTD. vs. COMMISSIONER OF INCOME TAX. (1996) 218 ITR
450 (CALCUTTA) (1985-86) :- “Business expenditure—Disallowance under s.
43B—Interest payable under s. 61(2) of the Customs Act, 1962, is not part and
parcel of customs duty payable under s. 12 of that Act, hence such interest
does not attract s. 43B, IT Act, and is allowable on accrual basis—The taxable
event in case of customs duty under s. 12 of 1962 Act is importation of goods
while that in the case of interest under s. 61(2) of 1962 Act, it is keeping the
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goods in customs warehouse beyond the free period—There cannot be any
question of interest on late payment of customs duty as the same is essentially
payable at the point of release of goods.”
b) C.I.T vs. PADMAVATI RAJE COTTON MILLS LTD. (1999) 239 ITR 355 (Calcutta)
(1984-85):- “Business expenditure—Disallowance under s. 43B—Interest payable
to State Government on arrears of purchase-tax—Interest under s. 59(2) of
Haryana General Sales-tax Act is treated as tax only for the purpose of
collection and recovery of tax—It cannot be said to be a tax under the IT Act—It
cannot be treated as tax for the purpose of s. 43B and is not hit by provisions of
that section”
B) Held as tax
a) SHREE DIGVIJAY CEMENT CO. LTD. VS. COMMISSIONER OF INCOME TAX. (2006)
289 ITR 250 (GUJRAT) (1992-93):- “The amount of interest due on outstanding
amount of sales-tax becomes part of the sales-tax and will be covered in the
word "tax", and thus interest payable on arrears of sales-tax is in reality part and
parcel of liability of the sales-tax, and therefore the same cannot be allowed as
deduction unless it is actually paid as the same is hit by the provisions of s. 43B. “
b) MEWAR MOTORS vs. COMMISSIONER OF INCOME TAX
HIGH COURT OF RAJASTHAN (2003) 260 ITR 0218
Business expenditure—Disallowance under s. 43B—Unpaid interest on sales-tax—
To be treated as tax and disallowed under s. 43B—CIT vs. Udaipur Distillery (1986)
53 CTR (Raj) 244 : (1986) 160 ITR 444 (Raj) followed. The decision was further
affirmed in Shree Pipes vs. DCIT (2007) 289 ITR 0154 (Raj.)
Bank Guarantee not considered as payment
a) CIT VS. UDAIPUR DISTILLERY CO. LTD. (2009)314 ITR 188 ( SC) (ASST. YEAR
1994-95) :- “The unpaid amount of bottling fee, on furnishing bank guarantee,
could not be treated as actual payment.”
b) CIT VS. RAJASTHAN PATRIKA LTD. ( 2002) 258 ITR 300 ( RAJASTHAN) (
ASST. YEAR 1984-85, 1985-86, 1986-87, 1987-88):- “Business expenditure—
Disallowance under s. 43B—Disputed customs duty liability vis-a-vis bank
guarantee—By no stretch of imagination it can be said that furnishing of bank
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guarantee is actual payment of tax or duty in cash as required under s. 43B—
Bank guarantee is only a guarantee for payment on some happening—Tribunal
committed error in allowing deduction of customs duty liability on the basis of
bank guarantee furnished by the assessee.”
Excise duty paid in advance is allowable even though the liability to pay has
not been incurred as provided in explanation 2 to section 43B
a) BURGER PAINTS INDIA LTD. VS. CIT (2004) 266 ITR 99 (SC) (ASST. YEAR 198485, 1986-87, 1987-88):- “Business expenditure—Disallowance under s. 43B—
Customs and excise duty included in valuation of closing stock—Entire amount of
excise duty/customs duty paid by the assessee in the accounting year was an
allowable deduction in respect of that year irrespective of the amount of excise
duty/customs duty which was included in the valuation of the assessee’s closing
stock at the end of the accounting year.”
b) CHEMICALS & PLASTICS INDIA LTD. Vs. COMMISSIONER OF INCOME TAX.(2003)
260 ITR 193(Mad.) (Asst. Year 1984-85) :- “Business expenditure—Disallowance
under s. 43B—Customs and excise duty—Duty paid not charged to P&L a/c—
Would not disentitle the assessee from claiming deduction—Assessee entitled
to claim deduction of customs and excise duty actually paid in respect of raw
materials and finished goods which remained with the assessee at the end of the
year and shown as current assets in the balance sheet.”
c) CIT VS. MARUTI SUZUKI LTD. (2013) 255 CTR 0140 (DELHI) (ASST. YEAR: 199495, 1995-96 & 1996-97):- “Business Income—Deduction u/s. 43B—
Disallowance—Validity thereof—AO disallowed duties collected in form of a
regular payment into Excise Personal Ledger Account (PLA) by assessee—Held, as
per mandate of Rule 173G, assessee had no option, but to keep account in
respect of each excisable product and assessee cannot remove goods
manufactured by it unless sufficient amounts are kept in credit—In CIT Vs. Shri
Ram Honda Power Equipment Corporation (2013) 352 ITR 0481 (SC), The apex
court has upheld the view which allows assessee’s claim to credits, such as
Modvat, etc, falling within description of liability paid, to escape mischief of
Section 43-B—Issue answered in favour of assessee”
Assessee had no option, but to keep the account, in respect of each excisable
product (evident from the mandate in Rule 173G that it "shall keep an account
current"). The latter part of the main rule makes it clear beyond any doubt that
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the assessee has no choice in the obligation, and cannot remove the goods
manufactured by it, unless sufficient amounts are kept in credit. The revenue’s
contention that the amounts in credit also relate to goods not manufactured
and therefore not relatable to any "liability incurred" is, in the opinion of this
Court, without any basis. The arrangement prescribed by the rule is both a
collection mechanism - dictated by convenience, as well as mandatory. The Rule
makers pragmatically directed that "sufficient" amounts ought to be maintained
in the account, to cover the removals. The point to be underlined is that there is
no choice, and the amounts relate to the assessee’s duty liability, falling within
the description under Section 43-B.
d) COMMISSIONER OF INCOME TAX VS.RAJ AND SAN DEEPS LTD. (2007) 293 ITR
0012 (P&H)( ASST. YEAR 1989-90) :- “Once it is found as a fact by the Tribunal
that duty as per the statutory provisions became payable, the moment goods
were manufactured then the assessee was under obligation to deposit that much
amount in the "account-current" and the amount so deposited in the "accountcurrent" being non-refundable, there was no reason for the Revenue to deny
the benefit of deduction in the year in question when the goods were
manufactured and the amount was deposited in the "account-current". The
expense would certainly relate to the year in which the goods were manufactured
and the amount was deposited, which cannot possibly be treated as an advance.”
In the following judgment, deduction has not been given for sale tax paid in
advance.
CIT VS. KERALA SOLVENT EXTRACTIONS LTD.(2008) 306 ITR 54 (KERALA)( ASST.
YEAR 1994-95) :- “Business expenditure—Year of allowability—Advance sales-tax
payment—Assessee following mercantile system of accounting, admitting in the
return and statement of accounts that amount of Rs. 23 Lac paid is sales-tax
liability of April, 1994, which obviously showed that the liability pertained to next
financial year, was not entitled to deduction in asst. yr. 1994-95—Sec. 43B in
itself is not a provision providing for deduction of any item of expenditure
which is otherwise not allowable under any of the provisions of the Act—It is
an exception to s. 145 inasmuch as even if the claim is an allowable deduction
of the assessee, based on system of accounting followed by the assessee, it will
still be inadmissible under s. 43B if it is not paid on or before the end of the
relevant previous year or at least before date of filing of the return—
Explanation 2 to s. 43B relied on by the assessee will not justify the assessee to
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claim deduction because under the said provision only liability incurred by the
assessee during previous year is allowable on payment basis—Since the
assessee has no case that the remittance was towards sales-tax due for the
previous year or payable in that year, the assessee is not entitled to claim
deduction”
It does not matter whether assessee has maintained separate account of Sale
Tax collected shown under liability or Sale Tax collected included in Turnover.
a) CHOWRINGHEE SALES BUREAU (P) LTD. Vs. COMMISSIONER OF INCOME TAX
(1973) 87 ITR 542 (SC.) (Asst. Year 1960-61) :- “Business income—Trading
receipt—Sales-tax—As the amount of sales-tax was received by the appellant in
its character as an auctioneer, the amount should be held to form part of its
trading or business receipt—Appellant would, of course, be entitled to claim
deduction of the amount as and when it pays it to the State Government—Fact
that the appellant credited the amount received as sales-tax under "sales-tax
collection account" would not make any material difference—It is true nature
and the quality of the receipt and not the head under which it is entered in the
account books as would prove decisive—If a receipt is a trading receipt, the fact
that it is not so shown in the account books of the assessee would not prevent the
assessing authority from treating it as trading receipt.”
b) SINCLAIR MURRAY & CO. P. LTD. Vs. COMMISSIONER OF INCOME TAX (1974)
97 ITR 0615 (SC) (Asst. Year 1953-54):- “ It is the nature and quality of the
receipt that would prove decisive. The fact that the assessee credited the salestax received in a separate account did not make any material difference. If a
receipt is a proving receipt, the fact that it is not so shown in the account books
of the assessee would not prevent the assessing authority from treating it as a
trading receipt. The assessee did not separately earmark the amount realized on
sales-tax or put in a different account. The assessee also did not deposit the
amount with the Government as and when realized nor did the assessee refund
it to the purchases from whom the amount had been received. The assessee
mixed up the amount of sales-tax with its own sums and treated the same as its
own money. Therefore, sales-tax collected was liable to be included in the total
income of the assessee. When the assessee pays the sum or any part thereof
either to the State Govt. or to the purchasers, the assessee would be entitled to
claim deduction of the sum so paid.”
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Extra money received on account of Sales Tax / C.S.T. pending receipt of
declaration form is not covered
CIT VS. ELLENBARRIE INDUSTRIAL GASES LTD. (1994) 208 ITR 0067 (CALCUTTA)
(ASST. YEAR 1984-85, 1985-86): “ Business Expenditure—Sales-tax—Collection of
sales-tax being differential sales-tax collectible from a registered dealer
furnishing declaration forms and sales-tax payable by purchaser as an
unregistered dealer treated as deposit—Sec. 43B has no application”
“Sales Tax Deferral Scheme – Sales tax which is permitted to be paid in a later
year under sales tax deferral Scheme or it is waived after the levy of sales tax the
year in which it is deferred by sales Government are treated as paid should be
allowable as deduction even as conceded by the Board on condition that either
the law of the respective State Government should treat it as paid. The
Departmental Circulars (Circulars No. 496 Dated 25/09/1987, 674 dated
29/12/199) on the subject may be seen, though there had been some disputes
because of lack of clarity because of the different practices adopted by different
States, the matter has now been resolved by the states, which have taken
necessary steps to meet the requirements for deduction under section 43B in the
light of Board Circulars. “
As per circular No. 496, the Ministry of Law has opined that if the State
Government make an amendment in for Sale Tax Act to the effect that the Sale
Tax deferred under the scheme shall be treated as actually paid, such a
deeming provision will meet the requirement of sec. 43B. Further as per
circular No. 674, where Sale Tax Deferral Scheme has been modified through
Govt. orders, instead of amending the Act, under which Sale Tax is deemed to
have been actually collected and disbursed as loan; such scheme too, if its
contents are according to the spirit of circular No. 496; will meet the
requirement of the Sec. 43B. Deduction will be allowed in the year in which
such conversion has been permitted.
Service tax payable on unrealized payment not covered.
ASSISTANT COMMISSIONER OF INCOME TAX vs. REAL IMAGE MEDIA
TECHNOLOGIES (P) LTD. (2008) 114 ITD 0573 (2002-03):- Business expenditure—
Disallowance under s. 43B—Service-tax billed but not received—As per s. 68 of
the Finance Act, 1994, r/w r. 6 of the Service-tax Rules, 1994, service-tax becomes
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payable to the credit of the Central Government only on receipt from the client—
Service-tax though billed but not received not having become payable to the
credit of the Central Government by virtue of s. 68 of the Finance Act, 1994, r/w r.
6 of the Service-tax Rules, 1994, same could not be disallowed under s. 43B.
Clause (b)
This clause pertains to contribution to any P.F. or Superannuation Fund or
gratuity fund or any other fund for the welfare of employees. This clause too was
brought in Statute Book by Finance Act, 1983 w.e.f 01.04.1984. Finance Act, 2003
has too amended this clause w.e.f. 01.04.04 whereby payments on account of
this contribution too was allowed if these were made on or before the furnishing
of ITR under sec. 139(1) of Income Tax Act/ rules made there under. But even
after this amendment, controversy, though largely settled, still remain regarding
payment of employee’s contribution on the pretext that amendment only apply
to employer’s contribution, since certain courts have held that employee’s
contribution will be available only for deduction if it is deposited on or before
due date mentioned in the P.F. Act/ E.S.I Act or Rules made there under
[pursuant to explanation under 36(1) (va) read with section 2(24)(x)]. There are
number of decided cases in which the courts have held that there is no
distinction between employee’s contribution & employer’s contribution since
once the deduction has been made from salary of employee on account of
P.F/E.S.I; it becomes the liability of employer to deposit.
A)
Case laws where Employee’s contribution held as allowable
a) COMMISSIONER OF INCOME TAX vs. HEMLA EMBROIDERY MILLS P. LTD. 265
CTR 0057 (2003-04) (P & H)
“ Business Income–Deductions–Allowability–Challenge thereto–Assessee filed
return declaring nil income after setting off losses–Assessment was completed
vide order by AO at a total income of Rs 24,11,200– Feeling aggrieved, assessee
filed an appeal before CIT(A)–CIT(A) vide order partly allowed appeal–Tribunal
thereafter dismissed Revenue’s appeal against CIT(A)’s order–Held, issue raised
herein stands settled by Apex Court judgment in Commissioner of Income Tax
v. Alom Extrusions Ltd. and this Court in Income Tax Appeal No. 663 of 2005,
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wherein it has been held that Second Proviso to s 43B, omitted by Finance Act,
2003 with effect from 1.4.2004, was clarificatory in nature and was to operate
retrospectively–Accordingly, respondent-assessee was entitled to deduction in
respect of employer and employee's contribution to ESI and Provident Fund as
same had been deposited prior to filing of return u/s 139 (1).”
b) COMMISSIONER OF INCOME TAX vs. MARK AUTO INDUSTRIES LTD.(2013)
0358 ITR 0043 (P&H)
“ Income—Late payment of PF—Addition—Validity—Whether ITAT was right in
law in upholding order of CIT(A) in deleting addition on account of late payment
of PF made by AO u/s 2(24)(x) r.w.s 36(1)(va)— Held, issue stands settled by Apex
Court judgment in Commissioner of Income Tax v. Alom Extrusions Ltd. (2009)
319 ITR 306 (SC) and this Court in Income Tax Appeal No. 663 of 2005
(Commissioner of Income Tax, Patiala v. M/s Rai Agro Industries Ltd. Sangrur),
wherein it has been held that, Second Proviso to Section 43B omitted by Finance
Act, 2003 with effect from 1.4.2004 was clarificatory in nature and was to operate
retrospectively—Assessee was entitled to deduction in respect of employer and
employee's contribution to ESI and Provident Fund as same had been deposited
prior to filing of return u/s 139(1)”
c) CIT vs. JAIPUR VIDYUT VITRAN NIGAM LTD. (2014) 265 CTR 0062 (Raj)( Asst.
Year 2006-07):“ Business Expenditure—Deduction for Sum Credited to Employee’s Accounts in
Certain Funds—Employees’ Contribution—Time limit to deposit—Assessee made
payment towards assessee employees’ GPF, CPF and ESI contribution and
claimed deduction u/s 36(1)(va) r.w.s. 43B—AO held that amount towards
employee contribution was not paid on or before due date under the respective
Acts and was not allowable—Tribunal reversed findings of AO—Held, if amount
towards employee contribution is deposited on or before due date of filing the
return u/s 139, no disallowance can be made u/s 43B or u/s 36(1)(va)—In
instant case employee contribution was deposited by assessee on or before due
date of filing of returns u/s 139—Disallowance u/s 43B or s 36(1)(va) was not
warranted—Revenues’ appeal dismissed”
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d) ESSAE TERAOKA (P) LTD. VS.DEPUTY COMMISSIONER OF INCOME TAX (KAR.)
(2014) 0266 CTR 0246
“ Business expenditure—Deduction for sum credited to the employees' accounts
in certain funds—AO disallowed sum of Rs. X on ground that claim of deductions
of employees contribution to PF/ESI was not made by assessee in accordance
with provisions 36(1)(va)—Held, section 43-B of IT Act states that
notwithstanding anything contained in any other provision contained
deduction otherwise allowable in respect of any sum payable by assessee as an
employer by way of contribution to any fund such as provident fund shall be
allowed if it is paid on or before due date as contemplated under Section
139(1) of IT Act—Said provision has nothing to do with consequences, provided
for under PF Act/PF Scheme/ESI Act, for not depositing "contribution" on or
before due dates therein—In present case, though employer did not deposit
contribution, within stipulated time, as contemplated by paragraph-30 of PF
Scheme or before due date under provisions of PF scheme/Act, he deposited
contribution to PF/ESI fund before due date contemplated u/s 139(1) of IT Act—
Assessees appeal allowed”
d) CIT VS. SPECTRUM CONSULTANTS INDIA (P) LTD( 2014) 266 CTR 0241 (KAR):“ Business income—Certain deductions to be only on actual payment—
Employees’ contribution of provident fund—Assessee private limited company
was engaged in business of placement services and outsourcing contractors—
Proceedings were initiated u/s 143(3) against assessee in respect of delayed
remittances of ESI/PF contributions deducted from various employees and
remitted late to respective authorities and disallowance of Rs. X was made on
ground of delayed remittance—CIT(A) disallowed same—Single Judge allowed
assesses appeal—Held, Section 2(24)(x) makes it clear that employee’s
contribution which employer deducts from his salary before it is paid into fund,
is treated as income of employer, and employer by contributing can get
deduction—That payment must be made within due date i.e. due date
prescribed under Section 139(1)—Subsequent amendment was carried out to
mitigate difficulties caused to employer u/s 43 B—Though such contributions are
not paid within time prescribed under relevant act, if those contributions are
paid before due date prescribed u/s 139(1) employer shall be entitled to
deductions as provided u/s 36(1)”
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e) CIT VS. NIPSO POLYFABRIKS LTD.(HIMACHAL PARDESH ) (2013) 350 ITR 0327
(ASSESSMENT YEAR: 2001-02):“ Deduction u/s 43B—Allowability—Employees contribution for welfare funds—
Deduction to Employer—On actual payment or due basis—AO disallowed
employees & employer’s contribution holding that assessee was not entitled to
deduction of said amounts, since amounts had not been deposited by dates
prescribed under the ESI and Provident Fund Acts—Held, amendment with
respect to deletion of second provision to sec 43B was curative in nature and
hence would apply with retrospective effect from April 1, 1988—Law was
enacted to ensure that payment of contributions towards provident funds, ESI
funds or other such welfare schemes must be made before furnishing return of
income u/s 139(1)—Amount was not deposited by due date under Welfare Acts,
it was definitely deposited before furnishing returns—It was held that once
contribution is there, whether by employee or by employer, it is a contribution
to a welfare fund held in trust by employer, who is bound to deposit the
same—Thus, assessee is entitled to benefit of deduction u/s. 44B of such
contributions, if same are paid before furnishing of return—Revenue’s appeal
dismissed”
B) Case law where Employee’s contribution held as unallowable
CIT VS. GUJARAT STATE ROAD TRANSPORT CORPORATION (GUJ.) (2014) 265
CTR 0064 :“ Business Expenditure—Deduction for Contribution to Provident Fund
Account—Shortfall in remittance of employees’ contribution to PF Account—
Disallowance of Claim of Deduction—Validity of—Assessee Corporation filed
their return of income declaring total loss—AO made disallowance u/s 43B on
grounds that there was shortfall in remittance of provident fund collected from
employees which was required to be treated as income of assessee as per
provisions contained in s 2(24)(x) read with s 36(1)(va)—AO made addition
accordingly—CIT(A) and ITAT deleted disallowance and addition thereof—Held,
as per s 36(1)(va) read with sub-cl (x) of cl 24 of s 2, assessee was entitled for
deduction with respect to sum received by assessee from any of his employees
to which provisions of s 2(24)(x) applies, only when Provident Fund and/or ESI
Fund was credited by assessee to employees account in relevant fund or funds
on or before due date—During relevant A/Y, if employer had not deposited
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entire amount towards employees’ contribution with Department on or before
relevant Due date under Provident Fund Act/ESI Act, to extent there was a
shortfall in deposit of employees’ contribution/ESI contribution, assessee shall
not be entitled to deduction—Also, mere deletion of second proviso to s 43B
vide amendment pursuant to Finance Act, 2003 cannot be made applicable
with respect to s 36(1)(va)—Since Provident Fund and/or ESI Fund were not
credited by respective assessee to employees’ accounts on or before due date as
per explanation to s 36(1)(va), assessee was not entitled for deduction with
respect to same—Disallowance made by AO is restored—Order of ITAT in
deleting disallowances is set aside—Revenue’s appeal is allowed”
Further the courts have held that amendment pertaining to payment of PF,
E.S.I, on or before due date of filing of ITR, being clarificatory in nature, will be
retrospectively effective from 01/04/1988. The decided cases on this issue
are:a) CIT VS. ALOM EXTRUSIONS LTD.(2009) 319 ITR 306 (SC) :- “ Business
expenditure—Disallowance under s. 43B—Contribution towards provident fund
vis-a-vis omission of second proviso to s. 43B—Relaxation allowed by first proviso
to s. 43B was restricted only to tax, duty, cess and fee, and did not apply to
contributions to labour welfare funds—Since the second proviso resulted in
implementation problems, it was deleted by Finance Act, 2003, thereby equating
tax, duty, cess and fee with contributions to welfare funds—Thus, omission of
second proviso and the corresponding amendment of first proviso by Finance
Act, 2003, are curative in nature and are effective retrospectively w.e.f. 1st April,
1988, i.e., the date of insertion of first proviso—If the contention of the
Department that the amendments are effective prospectively is accepted, it
would cause hardship and indivious discrimination among the assessees.”
b) CIT VS. AVERY CYCLE INDUSTRIES P. LTD. (2006)292 ITR 198 (P&H) (ASST.
YEAR 1987-88) :- “ Business expenditure—Disallowance under s. 43B—Sales-tax
and PF—First proviso to s. 43B has retrospective application—Therefore, no
disallowance can be made if the payment is made before the due date
prescribed under s. 139(1).”
c) CIT vs. VINAY CEMENT LTD.(SC) (2007) 213 CTR 0268:-“Business
expenditure—Disallowance under s. 43B—Contribution to provident fund—
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Contribution made to provident fund before filing of the return could not be
disallowed under s. 43B as it stood prior to the amendment w.e.f. 1st April,
2004.”
Under the earlier provisions, in certain cases, deduction have not been allowed
for E.S.I . P.F , tax, duty on the pretext that evidence of payment has not been
furnished with the return of income . But in such cases too, if the assessee
furnishes evidence of payment at the appellate stage, relief was given to the
assessee. Moreover furnishing of evidence has been dispensed now with the
filling of ITR without enclosures / E-filling. Of course, In the ITRs involving Tax
Audit Reports, information of payment made us. 43B is required to be given.
Provision of pension not covered
CIT vs. RANNBAXY LEBORTERIES (2011) 243 CTR 242(DEL ) :- “ Business
expenditure—Disallowance under s. 43B—Provision for pension—Intention of
the legislature behind enacting s. 43B(b) was to disallow the statutory liabilities—
CIT(A) was right in holding that the legislature never intended to disallow a claim
for ascertained liability which is computed scientifically in respect of the retiral
benefits of assessee’s employees and which is not to be contributed to a fund—
Pension scheme provides that pension would be paid by the assessee to its
employee on attaining the retirement age or resigning after having rendered
services for specified years—Thus, where the liability on this account accrues
from year to year, the same is payable on retirement/resignation of the eligible
employees—Sec. 43B(b) was not therefore attracted and deduction was
allowable”
Provision For Gratuity Payable to Employees retired- Payment Not Necessary
GEORGE WILLIAMSON (ASSAM) LTD. vs. COMMISSIONER OF INCOME TAX
(1997) 228 ITR 0343 (GAUHATI):Business expenditure—Disallowance under s. 43B—Provision for gratuity payable
to employees retired during the previous year—Not necessary that actual
payment has to be made—Deduction has to be allowed.
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Provision for payment by way of contribution to approved Gratuity Fund not
covered u/s. 43B.
CIT vs. COMMONWEALTH TRUST (I) LTD.(2004) 269 ITR 0290 (Kerala)
Business expenditure—Disallowance under s. 43B—Provision towards
contribution to an approved gratuity fund—Is allowable under s. 40A(7)(b)(i) and
is not hit by s. 43B(b)—There is no patent inconsistency between ss. 43B and
40A(7)—Effect of both these provisions is that in order to claim deduction in
respect of payment to a gratuity fund there must be actual payment and that
deduction cannot be allowed on the basis of any provision—Only exception is
with regard to the provision for payment to an approved gratuity fund for which
s. 40A(7)(b) is special provision—The provisions of s. 43B do not abrogate the
special provision made for payment to an approved gratuity fund contained in s.
40A(7)(b)(i)
Clauses c [(Sec. 43B (c) r.w.s. 36(1)(ii)]
This clause pertains to any sum paid to an employee as bonus or commission for
services rendered where such sum would not have been payable to him as
profits or dividend if it had not been paid as bonus or commission.
This clause was inserted by The Direct Tax Laws (Amendment) Act, 1987 w.e.f.
01/04/1989 . Accordingly the bonus to the employee has been allowed without
any restriction of amount, of course, subject to its payment on or before due
date of filing of ITR. Indeed, if unreasonable excessive payments are made to
relatives & connected persons, the same can be disallowed under section 40A
(2).
It will be relevant to add here that if profit bonus given to the employee, it
strictly does not take character of salary & wages, being appropriation of profit.
This clause is applicable only where Bonus or Commission is paid by the
Employer to the Employee. In other words, where commission is paid to a
person as an agent, this clause is not applicable.
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Clauses (d) & (e)
Clause d was inserted by Finance Act 1988 w.e.f. 01/04/1989, whereby interest
on any loan or borrowing from any public financial institution was allowed on
payment basis if it was not in accordance with the terms & conditions of the
agreement governing such loan or borrowing. Further interest payable to State
Financial Corporation & State Industrial Investment Corporation was too covered
by Finance Act, 1990 w.e.f. 01/04/1991 . The scope was further enlarged by
insertion of clause (e) by Finance (No. 2) Act. 1996 w.e.f. 01/04/1997, whereby
any sum payable by the assessee as interest on any term Loan from a scheduled
bank was also covered. Scope of this clause was further widened by Finance Act
2003 w.e.f 01/04/2004 whereby the phrase “term loan” was replaced with
phrase with “ loan or advances “ with the result that interest payable on any
type of loan ( Term loan, C/C , O/D ) taken from a scheduled bank was covered .
Under these clauses, interest was allowable only, if it is paid on or before the due
date of filing of ITR .
Certain assessees were claiming deduction under sec. 43B on account of
conversion of interest payable into a fresh loan on the ground that such
conversion, being with the consent of the financial institution / bank, was a
constructive discharge of interest liability, so actual payment.
VINIR ENGINEERING (P) LTD. vs. DCIT( KAR) (2010) 231 CTR 0090 (ASST. YEAR
1997-98) :
“ Assessment—Prima facie adjustment under s. 143(1)(a)—Disallowance under s.
43B—Interest relating to earlier years on the loans was not claimed as deduction
in earlier assessment years—Conversion of outstanding interest into a fresh
loan during the relevant assessment year must be treated as deemed payment
of interest—Further, the question as to whether the funding of outstanding
interest by a fresh loan would or would not amount to payment of interest is a
debatable issue and, therefore, disallowance under s. 43B could not be made by
way of prima facie adjustment by applying proviso to s. 143(1)(a)—Said exercise
of power by the AO under s. 143(1)(a) was not just and proper.”
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To curb this practice, Finance Act, 2006 inserted explanation 3C with
retrospective effect from 01.04.1989 and explanation 3D with retrospective
effect from 01.04.1997, whereby it was stated that interest should be allowed
only if it was actually paid. In other words, if it was converted in to borrowing,
it shall not be deemed to be actual payment.
Subsequently Circular no. 7 dated 17.07.2006 was issued whereby clarifications
were given by visualizing different type of cases of conversion of interest into
loan. In this circular, it was made amply clear that where ever interest has been
converted in to so called loan or advance, it will be eligible for deduction only if
actually paid. In other words, nomenclature of the sum of converted interest
will make no difference as the sum of converted interest whenever is actually
paid will not represent repayable of the principal.
This circular is of great importance especially in the present context when
number of loan/ Advance cases have been restructured by banks / financial
institutions in view of enormous rise in N.P.A Level. Following illustrations will
help us in understanding the implication:Illustration no.1 :- a) Loan amount Rs. 36.00 Lac
b) Unpaid interest Rs. 12.00 Lac,
In the restructuring arrangement unpaid interest has been converted into a
Funded Interest Term Loan (F.I.T.L.) which is repayable in 12 installments.
Deduction will be available only in the relevant A.Y. when installment is actually
paid. Indeed interest on principal amount of loan will be independently
allowable of course subject to payment.
Interest paid, if any, on F.I.T.L. will also be allowed.
Illustration No.2 :- a) Loan amount (C/C) Rs. 36.00 Lac
b) Unpaid interest Rs. 12.00 Lac,
On restructuring, amount of principal C/C limit is converted into running C/C limit
of Rs. 20.00 Lac & Working Capital Term Loan of Rs. 16.00 Lac each carrying 12%
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interest. Out of the unpaid interest of Rs.12.00 Lac, Rs. 2.00 Lac is waived &
balance Rs. 10.00 Lac is converted into F.I.T.L not carrying any interest & payable
in 5 installments of Rs. 2.00 Lac each .
The amount to the extent actually paid towards installment F.I.T.L will be
available for deduction in the relevant Assessment Year. The interest paid on
running Cash Credit A/C & Working Capital Term Loan A/C will also be available
in relevant A.Y..
No deduction will be allowed for waiver of interest amount of Rs. 2.00 since it is
not payable at all.
Illustration No.3 :- a) Loan amount Rs. 36.00 Lac
b) Unpaid interest Rs. 12.00 Lac,
Under the restructuring arrangement, unpaid interest was converted into F.I.T.L.
carrying interest of 12%. Here, payment of installment of F.I.T.L. as well interest
of F.I.T.L will be allowed as deduction u/s 43B. Of course, interest paid on
principal amount will too be eligible for deduction u/s 43B.
Illustration No.4 :- a) Loan amount Rs. 36.00 Lac
b) Unpaid interest Rs. 12.00 Lac,
Under restructuring arrangement, unpaid interest has been merged into
principal amount. whereby total Rs. 48.00 Lac is payable in 12 monthly
installments of Rs. 4.00 Lac + interest.
Under this arrangement, in the absence of any specific stipulation, each
installment has two components i.e. principal amount of Rs. 3.00 Lac & unpaid
interest 1.00 Lac. So on payment of installments, deduction will be allowable
only of interest component i.e 25%. Further interest on Loan will also be
allowable, of course subject to its payment.
Illustration No.5 :- a) Loan amount Rs. 36.00 Lac
b) Unpaid interest Rs. 12.00 Lac,
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Under restructuring arrangement both converted into single loan of Rs. 48.00
Lac, payable in 12 installments with the stipulation that unpaid interest will be
adjusted first & principal amount in remaining nine installments.
Deduction will be allowed for full amount on payment of first three installments
being interest component only.
Illustration No.6 :- :- a) Loan amount Rs. 36.00 Lac
b) Unpaid interest Rs. 12.00 Lac,
Under restructuring arrangement, both converted into single loan of Rs. 48.00
Lac, payable in 12 installments with the stipulation that first principal amount
will be adjusted in 9 installments & interest component will be adjusted on
payment of last 3 installment. Under this arrangement, deduction will only be
available for interest when last three installments are paid.
According to banks and financial institutions, there may be innumerable
variations in repayment arrangements / schedules entered into between the
lenders and borrowers. It may, therefore, not be possible to visualize all kinds
of arrangements which may be entered into between the borrowers and the
lenders in this regard. The fundamental principle, however, remains that once
an amount has been determined as interest payable to the banks or financial
institutions, any subsequent change of nomenclature of interest will not affect its
allowability and deduction in terms of section 43B will have to be allowed on its
actual payment. The Assessing Officers would, therefore, be justified in seeking
a certificate from the assessee to be obtained by the assessees from the lender
bank or financial institution, etc. as evidence of actual payment of interest to
banks or financial institutions.
In the following cases, it was held that conversion of interest into loan is not
payment
a) COMMISSIONER OF INCOME TAX vs. LOTUS ROOFINGS (P) LTD. ( MADRAS)
(2012) 247 CTR 0458,( ASST. YEAR 1995-96)
“ Business expenditure—Disallowance under s. 43B—Provision for interest to
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financial institutions—There has to be actual payment for deduction under s.
43B—Claim was only by way of a provision in the P&L a/c and no actual payment
was made by the assessee in respect of the interest payable—Conversion of
overdue interest into funded interest by the financial institutions would not
constitute actual payment of interest under s. 43B and therefore deduction was
not allowable.”
b) b) EICHER MOTORS LTD. vs. COMMISSIONER OF INCOME TAX (2006) 206 CTR
0075 : (2009) 315 ITR 0312 (M.P.) (ASST. YEAR 1989-90).
“ Business expenditure—Disallowance under s. 43B—Funding of outstanding
interest by converting it into loan—Explanation 3C appended to s. 43B w.e.f. 1st
April, 1989, clearly provides that such conversion of interest amount into loan
shall not be deemed to be "actually paid" within the meaning of s. 43B—In view
of said Expln. 3C which has been brought on the statute book retrospectively and
is applicable to the relevant assessment year, assessee is not entitled to
deduction of funded interest.”
c) VINIR ENGINEERING (P) LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX
ITAT, BANGALORE 'A’ BENCH (2004) 85 TTJ 0063 (ASST. YEAR 1997-98)
“ Assessment—Prima facie adjustment under s. 143(1)(a)—Disallowance under s.
43B—Disallowance under s. 43B of interest payable outstanding at the end of
previous year—Justified—In view of clear provisions of s. 43B, there can be no
debate or discussion—Contention that funding of loan resulted in constructive
discharge of liability cannot be accepted and CBDT Circular No. 674 dt. 29th
Dec., 1993, in no way helps the assessee.”
Interest payable to Non Scheduled bank is not covered u/s 43B.
COMMISSIONER OF INCOME TAX vs. UPENDRA T. KAPADIA ( BOMBAY) (2013)
256 CTR 0201 (ASST. YEAR 2004-05):
“ Business income—Certain deductions to be only on actual payment—
Disallowance of interest—Non-Scheduled bank—Deletion thereof—Validity—
Assessee filed his return for A.Y. 2004-05, declaring loss of Rs. 61.38 lacs and
claimed deduction/expense on account of interest of Rs. 52.85 lacs payable by
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him to Bank on loan taken—During assessment proceedings AO noticed that said
interest had not been actually paid even up to date of filing of return of
income—Consequently, AO disallowed deduction/expenses claimed by assessee
on account of interest of Rs.52.85 lacs u/s 43B and added it back to income of
assessee—CIT(A) confirmed order of AO—Tribunal held that Co-operative Bank is
not covered within definition of scheduled bank u/s 43B—Hence, it reversed
order of CIT(A) & AO—Held, scheduled bank as defined in Explanation 4 to
section 43B would have same meaning as contained in Explanation to section
11(5) (iii)—Shree Mahalaxmi Co. op. Bank Ltd. is not mentioned in second
schedule to Reserve Bank of India Act, 1934 nor covered by any other Banks
mentioned to Explanation to section 11(5)(iii)—Therefore, non-payment of
amount of interest to co-operative bank would not attract provisions of section
43B—Appeal dismissed.”
Discounting Charges of bills is not interest .
The Hon’ble Supreme Court in CIT ( Del.) vs. Cargil Global Trading Pvt. Ltd.(SLP
2012) has held that discounting charges on getting the export bills discounted
cannot be treated as interest, so disallowance of expenditure u/s sec. 40A (ia)
could not be made for non deduction of tax at source.
This is also covered by circular no. 65 dated 02/09/1971 which clearly states that
no tax at source is required to be deducted on discounting charges paid on bills.
Though this judgment/ circular is concerning provisions of T.D.S, but in my
opinion, these are equally applicable in the subject matter discussion.
Clause f
This clause pertains to sum payable by the assessee as an employer to the
employee on account of leave to his credit & was inserted by Finance Act, 2001
w.e.f. 01/04/2002 to nullify the effect of decision of Supreme Court in Bharat
Earth Movers Ltd. vs. CIT 245 ITR 428 in which it was held that provision for
leave in credit is deductible rejecting the argument of revenue that this is not a
accrued liability but contingent liability
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Indeed, this clause has been held as unconstitutional by Calcutta H.C. in following
case and appeal against this judgment is pending in Hon’ble Supreme court .
EXIDE INDUSTRIES LIMITED & ANR. vs. UNION OF INDIA & ORS. (2007) 292 ITR
0470 (CALCUTTA)
Business expenditure—Constitutional validity of s. 43B(f)—Object of s. 43B vis-avis disclosure of reasons for amendment—Original s. 43B was incorporated to
plug deductions claimed by assessee without discharging statutory liabilities—
Leave encashment is neither a statutory liability nor a contingent liability—It is a
provision for entitlement of an employee in a particular financial year—It has no
nexus with the original enactment—An employer is otherwise entitled to
deduction of such amount by showing the same as a provisional expenditure in its
accounts—Legislature is free to restrict such deduction only after disclosing
reasons therefor but no reasons having been disclosed and the enactment being
not consistent with the original provision of s. 43B, same is struck down being
arbitrary and unconscionable and de hors the apex Court decision
It should be noted that the Hon’ble Supreme court in CIT v. Exide Industries Ltd
(2009) [CC 12060 / 2008] has only granted interim stay and the issue as regards
the correctness of the decision of Exide Industries Ltd v. UOI (supra) is subjudiced
before the Apex Court but at the same time the taxpayer would be entitled to
make a claim in his return of income. Further, even in CIT v. Universal Medicare
Pvt Ltd (2010) 324 ITR 263, 265 (Bom) the Bombay High Court has not given any
decision on this issue. The Bombay High Court admitted the Revenue’s appeal as
question of law with the observation that “the issue as regards the correctness of
the judgment of the Calcutta High Court in Exide Industries Ltd.’s case (supra) is
pending in appeal before the Supreme Court and interim orders have been
passed.”Thus, it can be argued that till today the decision of Exide Industries Ltd v
UOI (supra) is a good law and accordingly, the provision for leave encashment
should be claimed as deductible business expenditure in the return of income but
the disallowance under sec 43B(f) has to be litigated till the Supreme Court settles
the controversy in one way or other.
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26
Note: Case laws covered up to CTR 276 part 1 dated 17/04/2015
Relevant Sections, Circulars etc. :a) Section 11(5) (iii) - Scheduled bank
b) Section 2(24) (x) r.w.s. 36(1) (va) – Due date of ESI, P.F. etc.
c)
Section 36(1)(ii) – Bonus
d) Section 40A(7)- Provision for Gratuity
e) Circulars No:- 496 Dated 25/09/1987and 674 dated 29/12/1993 - Sales tax
deferral scheme.
f)
Circulars No. 07 Dated 17/07/2006 and 14 dated 23/12/2006- Conversion
of Unpaid interest into loan.
g) Circulars No. 528 dated 16/12/1988- Tax, duty, cess or fee
h) Section 4A of Companies Act. 1956 (Section 2 (72) of Companies Act, 2013)
- Public Finance Institution.
i)
Prudential norms on income recognition issued by R.B.I
j)
Guidelines issued by concerned bank for income recognition.
Disclaimer:- Views expressed in the Discussion Paper are the personal views of Author and
readers are suggested to go through the relevant provisions/ case laws before relying.
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