|CORAM:||Pradip Kumar Kedia (AM), Sushma Chowla (JM)|
|CATCH WORDS:||actual payment, business expenditure, disallowance|
|DATE:||October 30, 2015 (Date of pronouncement)|
|DATE:||November 27, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 43B/ 145A: Taxes collected by the assessee, which remain unpaid, have to be added to the income even if the same are not debited to the P&L A/c and claimed as a deduction|
The assessee collected VAT but did not pay it over to the Government. The assessee claimed that a disallowance u/s 43B cannot be made as the amount of VAT was not routed through the Profit & Loss Account and no deduction had been claimed. The assessee also claimed that under the Maharashtra Value Added Tax Act, 2002, the sale price shall not include the tax paid or payable to a seller in respect of such sale and hence, there was no requirement for the assessee to recognize the VAT account in its Profit & Loss Account. The assessee also relied on
Circular No.372 issued on 08.12.1983 and submitted that the intention of introduction of section 43B of the Act was to curb the practice of claiming deduction on account of statutory liabilities on the ground that they were maintaining the accounts on mercantile or accrual basis. Reference was also made to Circular No.772 dated 23.12.1998 issued by CBDT explaining the provisions of section 145A of the Act. HELD by the Tribunal dismissing the appeal:
(i) In respect of first aspect of the issue that whether the assessee is correct in not recognizing the VAT relatable to its sales as part of the sale consideration in view of the Maharashtra Value Added Tax Act, 2002, we are of the view that the Centre by way of Finance (No.2) Act, 1998 had proposed the introduction of a new section 145A of the Act. Under the said provision, it is provided that valuation of purchase, sale and inventory shall be made in accordance with method of accounting regularly employed by the assessee and such valuation shall further be increased to include the amount of any tax, duties, cess or fees, by whatever name called, actually paid or incurred by the assessee, in the valuation of the goods. In view of the provisions of the Act i.e. section 145A of the Act, we find no merit in the plea of the assessee in not recognizing the VAT attributable to its sales as part of the sale consideration of the goods while computing its Profit & Loss Account. The mandatory provisions of Central Act i.e. section 145A of the Act supersedes the provisions of any State Act i.e. Maharashtra Value Added Tax Act, 2002. Once the assessee recognized the VAT amount as part of the sale consideration, it tantamount to the said entry being routed through the Profit & Loss Account, especially in the cases where the assessee is following mercantile system of accounting. Admittedly, in the facts of the present case, the assessee was following mercantile system of accounting.
(ii) Now, coming to second aspect of the issue that, where the assessee had not recognized the amount of VAT payable / paid in its Profit & Loss Account and had only made entries in the Balance Sheet, are the provisions of section 43B of the Act attracted in the case? The said section was introduced in order to provide the deduction on account of statutory liabilities to be allowed only on payment basis, irrespective of the year to which it relates. The said section starts with a non-obstacle clause that notwithstanding anything contained in the Act, where the deduction which is otherwise allowable under the Act in respect of any amount payable by an assessee, by way of tax, duties, cess or fees, by whatever name called, under any law for the time being in force, shall be allowed as a deduction in the year of payment, irrespective of previous year to which said liability relates and this is also irrespective of method of accounting regularly employed by the assessee. In view of the cumulative provisions of sections 145A and 43B of the Act, the assessee is entitled to claim the deduction on account of such tax, duties, cess or fees, by whatever name called and the same is to be allowed only on payments and once the payment has not been made in the year to which said liability relates, then said amount is to be added back as income of the assessee for the relevant year.