GRAND MOTORS vs. ITO WARD 2(1)

Facts

The assessee, Grand Motors, a partnership firm, filed its return for Assessment Year 2018-19. The Assessing Officer (CPC) processed the return under Section 143(1) and enhanced the total taxable income by disallowing ₹62,32,262/- under Section 43B of the Income Tax Act, 1961, on account of non-payment of liabilities like VAT, Entry Tax, and CST before the due date for filing the return. The CIT(A) partly allowed the appeal, deleting the disallowance pertaining to the opening balance but confirming the disallowance of ₹62,32,262/-. The Income Tax Appellate Tribunal (ITAT) dismissed the assessee's further appeal, leading to the present tax appeal before the High Court.

Held

The High Court held that the Assessing Officer, CIT(A), and ITAT had concurrently erred in disallowing ₹62,32,262/- under Section 43B. The Court noted that it is an admitted position that the assessee did not claim this amount in its profit and loss account as an expenditure or deduction, nor did it claim a deduction under Section 43B. Therefore, the disallowance was not warranted. The Court relied on its own decision in M/s Ganapati Motors and the Delhi High Court's decision in Commissioner of Income-tax v. Noble & Hewitt (I) (P.) Ltd., which held that if an amount is not debited to the Profit & Loss Account as expenditure and no deduction is claimed, the question of disallowing a deduction not claimed does not arise. The impugned order of the ITAT was set aside, and the substantial question of law was answered in favour of the assessee.

Key Issues

1. Whether the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal were justified in upholding the disallowance of ₹62,32,262/- made under Section 143(1)(a)(iv) by wrongly invoking Section 43B of the IT Act, resulting in a perverse finding? Assessee's contention: The assessee argued that it did not claim any deduction for indirect taxes, including VAT, in computing its income for the previous year. Since no deduction was claimed in the profit and loss account as expenditure, Section 43B, which mandates actual payment for deduction, should not be invoked for disallowance. The assessee relied on the High Court's decision in Assistant Commissioner of Income Tax-I v. M/s Ganapati Motors. Revenue's contention: The Revenue submitted that the assessee did not claim the amount of ₹62,32,262/- in its profit and loss account as expenditure and that the case is covered by the decision in M/s Ganapati Motors.