High Court allows deductions under section 43B of Income-tax Act without book provision

The High Court of Calcutta ruled in favor of the assessee regarding deductions claimed under section 43B of the Income-tax Act for sums paid as purchase tax in a previous accounting year. The court clarified that deductions are permissible even without provision in the books for the sum paid, rejecting the Tribunal's requirement for such provision. The court rectified the confusion in the judgment, ultimately passing the order in favor of the assessee on both issues.

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Issues involved: Admissibility of deductions u/s 43B of the Income-tax Act for sums paid in relation to an earlier accounting year.

Summary:
The High Court of Calcutta addressed the matter of deductions claimed by the assessee for two sums paid as purchase tax in a previous accounting year. The claim was made under section 43B of the Income-tax Act, which specifies conditions for allowing deductions. The court highlighted the importance of Explanation 1 in the proviso of the section, clarifying that deductions are not permissible for sums paid in a previous year if the liability to pay tax was incurred in that year. The court noted that the assessee had succeeded in claiming deduction for one sum but faced challenges regarding the other sum before different authorities.

Regarding the first sum, the Department did not contest the deduction. However, the Tribunal surprisingly ordered a remand for the entire amount paid by the assessee, even though part of the sum was not in dispute. The Tribunal's decision was based on the lack of provision made by the assessee in the relevant accounting year for the second sum of purchase tax. The court disagreed with the Tribunal's approach, stating that section 43B does not require the assessee to prove both actual payment and provision in the books for claiming deductions.

The court emphasized that imposing a dual test for deductions under section 43B would be unwarranted as the section does not mandate such requirements. The Tribunal erred in seeking an inquiry into the provision made in the books by the assessee and in remanding a part of the order that was not challenged after appeal. Ultimately, the court ruled in favor of the assessee, stating that the Tribunal's direction for reconsideration of the entire payment and its interpretation regarding deductions under section 43B were incorrect in law.

In conclusion, the court clarified that both questions regarding the deductions claimed by the assessee were answered in favor of the assessee. The earlier confusion in the judgment was rectified, and the order was passed in favor of the assessee on both issues. All parties were instructed to act based on the signed copy of the order provided.

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