2022 (5) TMI 1127 - AT - Income Tax

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

Debasish Chakraborty Versus CIT, Asansol

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 ... Disallowance of sales tax (CGST and SGST) u/s. 43B - Tax audit report u/s. 44AB along with Form 3CD was filed and under column 26 of this report auditor has mentioned that CGST and SGST has not been paid before the due date of filing Income Tax return u/s. 139(1) - Assessee stated that the alleged sum of GST was not claimed as an expenditure in the profit and loss a/c and therefore, disallowance u/s. 43B is not called for - HELD THAT:- The assessee has consistently claimed that the said sum has not been claimed as an expenditure in the profit and loss a/c and the same is mentioned under the current liabilities head of the balance sheet as on 31.03.2018. This fact is verifiable from the audited profit and loss a/c and balance sheet. The assessee has not routed GST through its profit and loss a/c nor it has claimed as an expenditure on any purchases made during the year in its profit and loss a/c nor any expenditure has been claimed towards any excess GST paid during the year. The audited balance sheet shows that the alleged sum was a current liability which the assessee has to pay with the Government treasury in the due course as per the rules and regulations governing GST. This observation of the Ld. CIT(A) that provisions of section 43B is made to ensure that payment to the Government should be paid in time and the appellant 'should not use the money due to Government' is devoid of merit as the issue in hand relates to computation of income earned by the assessee and claim of certain expenditures as enumerated in section 43B of the Act which can be claimed only on actual payment basis. The liability to pay the outstanding GST and the process of recovery of such amount and other penal provisions for late payment of GST are governed by the respective rules and regulations provided under Goods and Services Tax Act. Under the given facts and circumstances of the case and also respectfully following the consistent view taken by this Tribunal in the case of Kankani construction (P) Ltd. [2018 (1) TMI 1684 - ITAT KOLKATA] and M/s. TSG Global Services Pvt. Ltd. [2020 (7) TMI 777 - ITAT KOLKATA] are of the considered view that since the assessee has not claimed the alleged amount as an expenditure in the profit and loss a/c, no disallowance could be made u/s. 43B of the Act. We accordingly reverse the findings of the Ld. CIT(A), delete the disallowance u/s. 43B and allow the grounds of appeal raised by the assessee. 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.