Tribunal overturns decision disallowing sales tax under Income Tax Act, citing GST Act provisions

The Tribunal allowed the appeal, ruling in favor of the assessee by reversing the CIT(A)'s decision to disallow sales tax under section 43B of the Income Tax Act. The Tribunal emphasized that since the sales tax amount was not claimed as an expenditure in the profit and loss account but was listed as a current liability in the balance sheet, no disallowance could be made under section 43B. It highlighted that the liability for outstanding GST and related penalties is governed by the Goods and Services Tax Act, ultimately leading to the deletion of the disallowance under section 43B.

---

---

Issues:
Disallowed sales tax under section 43B of the Income Tax Act.

Analysis:
The appeal pertains to the disallowance of sales tax (CGST and SGST) at Rs. 19,36,970 under section 43B of the Income Tax Act for the Assessment Year 2018-19. The dispute arose from the observation in the tax audit report that the sales tax had not been paid before the due date of filing the income tax return. The Centralized Processing Centre added this amount to the income of the assessee based on the auditor's observation.

The assessee contended that the sales tax amount was not claimed as an expenditure in the profit and loss account, therefore, disallowance under section 43B was unwarranted. However, the CIT(A) upheld the disallowance citing the purpose of section 43B to ensure timely payment to the government.

The Tribunal analyzed the provisions of section 43B, which require deductions to be made only on actual payment basis. It noted that the primary condition for invoking section 43B is that the assessee should have claimed certain deductions against the revenue while computing the total income. The Tribunal observed that the sales tax amount in question was not claimed as an expenditure in the profit and loss account but was listed as a current liability in the balance sheet.

The Tribunal held that since the assessee did not claim the sales tax amount as an expenditure in the profit and loss account, no disallowance could be made under section 43B. It emphasized that the liability to pay outstanding GST and related penalties are governed by the rules and regulations of the Goods and Services Tax Act. Relying on previous tribunal decisions, the Tribunal allowed the appeal, reversed the CIT(A)'s findings, deleted the disallowance under section 43B, and ruled in favor of the assessee.

In conclusion, the Tribunal allowed the appeal of the assessee, highlighting that the disallowance under section 43B was not justified as the sales tax amount was not claimed as an expenditure in the profit and loss account, and the liability was subject to the provisions of the Goods and Services Tax Act.

---