VAT disallowance under section 43B upheld for non-payment before filing date despite accounting method claims

ITAT Raipur upheld CIT(A)'s decision confirming VAT disallowance under section 43B for non-payment before prescribed filing date. The tribunal distinguished the case from Ganapati Motors HC precedent, noting that unlike that case, CIT(A) here specifically rejected the assessee's exclusive accounting method and found infirmities in the accounting system. The tribunal found no error in CIT(A)'s approach, following Knight Frank precedent. However, ITAT approved CIT(A)'s partial deletion of disallowance relating to opening balance amounts from earlier years, as expenditure from different assessment years cannot be disallowed in the relevant year. Revenue's appeal dismissed.

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Issues Involved:
1. Disallowance of VAT under Section 43B.
2. Disallowance of Entry Tax under Section 43B.
3. Disallowance of CST under Section 43B.
4. Power of CIT(A) to issue directions to reopen earlier years' cases.

Detailed Analysis:

1. Disallowance of VAT under Section 43B:

The primary contention revolves around the disallowance of Rs. 2,42,29,739/- towards VAT liabilities under Section 43B of the Income Tax Act. The appellant argued that the VAT liability includes an opening balance and the current year's credit balance, asserting that only the current year's payable amount should be subject to disallowance. The appellant claimed that VAT was not routed through the profit and loss account, citing an exclusive accounting method and various case laws.

However, the CIT(A) noted that the VAT payable of Rs. 62,32,362/- was not paid within the prescribed time limit as per Section 43B, and the appellant's assertion of not debiting this amount in the profit and loss account was deemed untenable. The CIT(A) emphasized that VAT is integral to sales and turnover, requiring proper accounting treatment. The implementation of Income Computation and Disclosure Standards (ICDS) and Section 145 of the Income Tax Act mandates the inclusion of VAT in total turnover, rendering the appellant's exclusive method inconsistent with statutory requirements.

The CIT(A) confirmed the adjustment of VAT payable for the current year but deleted the disallowance for the opening balance of Rs. 1,79,97,376/-, directing the AO to verify and disallow the same in earlier years if not paid before filing the return of income.

2. Disallowance of Entry Tax under Section 43B:

The appellant admitted routing the entry tax payable of Rs. 2,95,902/- through the profit and loss account. As proof of payment for this entry tax before filing the income tax return was not provided, it falls under the purview of Section 43B. Therefore, the adjustments made by the AO(CPC) to the extent of Rs. 2,95,902/- were confirmed. The CIT(A) directed the AO to verify the opening balance of entry tax in earlier years and disallow the same if not paid before filing the return of income.

3. Disallowance of CST under Section 43B:

The entire CST balance of Rs. 1,32,168/- was an opening balance as of 1.4.2017. As this amount pertains to earlier years, it cannot be disallowed in the A.Y. 2018-19. Therefore, the disallowance made to the extent of Rs. 1,32,168/- was deleted. The CIT(A) directed the AO to verify the opening balance of CST in earlier years and disallow the same if not paid before filing the return of income.

4. Power of CIT(A) to Issue Directions to Reopen Earlier Years' Cases:

The appellant contested that the CIT(A) has no power to issue directions to the AO to reopen the case for earlier years. This ground was withdrawn by the appellant during the hearing, and the revenue did not object. Consequently, this ground of the appeal was dismissed as withdrawn.

Conclusion:

The ITAT upheld the CIT(A)'s decisions regarding the disallowances under Section 43B for VAT, Entry Tax, and CST. The ITAT confirmed that the CIT(A) correctly applied the law and accounting standards, and the exclusive accounting method adopted by the appellant was inconsistent with statutory requirements. The appeals of both the assessee and the revenue were dismissed.

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