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Facts
The Revenue appealed against the CIT(A)'s direction to delete additions made under section 43B of the Income Tax Act. The additions pertained to disallowances for stock bonus, gratuity, and leave encashment. The CIT(A) directed the Assessing Officer to verify if these disallowances were claimed in earlier years.
Held
The Tribunal held that section 43B of the Act allows deductions for statutory expenses only in the year of actual payment, irrespective of the accrual of liability. The CIT(A)'s directions to verify prior year claims and delete additions if not claimed earlier were found to be consistent with the Act.
Key Issues
Whether the CIT(A) erred in directing the AO to verify prior year claims for disallowances under section 43B, and whether the CIT(A)'s directions are contrary to the provisions of section 43B.
Sections Cited
43B, 143(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “ F ”, MUMBAI
ORDER
PER VIKAS AWASTHY, JM:
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the CIT(A)] dated 30/06/2023, for the Assessment Year 2021-22.
The solitary ground raised by the Revenue in appeal is against the directions of the CIT(A) in deleting addition made u/s. 43B of the Income Tax Act, 1961 [in short ‘the Act’].
Shri Ankush Kapoor representing the Department submitted that return of the assessee was processed u/s. 143(1) of the Act. The CPC had made disallowance u/s. 43B of the Act in respect of:
- Stock Bonus and Employees stock investment plant – Rs.3,95,91,992/- - Gratuity - Rs. 9,80,00,000/- - Leave Encashment - Rs.1,75,10,428/- The CIT(A) erred in directing the Assessing Officer to verify from books of account of the assessee whether the disallowance made u/s. 43B of the Act was claimed in earlier years. He submitted that the CIT(A) has failed to appreciate the fact that deduction u/s. 43B of the Act can only be claimed on the basis of actual payment during the current year. Hence, the directions of the CIT(A) are contrary to the provisions of section 43B of the Act.
Per contra, Shri Anish Takkar appearing on behalf of the assessee vehemently defended the impugned order. The ld. Authorized Representative of the assessee referring to Tax Audit Report relevant to Assessment Year 2021-22 submits that in Column 26 of the report(at page 31 of the paper book) the Auditors have specifically mentioned about the liabilities u/s. 43B of the Act , the amounts which were actually paid during previous the year and not paid during the previous year.
We have heard the submissions made by rival sides and have examined the orders of authorities below. The CIT(A) while adjudicating assessee’s ground with regard to disallowance made u/s. 43B of the Act has restored the issue back to the Assessing Officer with following directions:
“4.3 Section 43B is related to the head 'Income from business and profession'. It states some statutory expenses that can be claimed as deduction from the business income only in the year of actual payment irrespective of the year of accrual of its liability.
4.4 Keeping in view of the above facts, the AO is directed to verify from books of account of the appellant that the disallowance made under section 43B of the Act has not been claimed in earlier years in relation to the stock bonus and employee stock incentive plan, gratuity and leave encashment which has been claimed in the year under consideration and delete these addition made under section 43B of the Act if found to have not been claimed in earlier years. Ground No.2 is allowed for statistical purpose.” A perusal of the aforesaid directions would show that the CIT(A) has categorically mentioned that deduction u/s. 43B of the Act is allowable from the business income only in the year of actual payment irrespective of the year of accrual of the liability. We see no ambiguity in directions of the CIT(A), nor such directions are contrary to the provisions of section 43B. The ground raised by the Department in appeal is misplaced. We find no merit in appeal by the Department, hence, dismissed.
In the result, appeal by the Revenue is dismissed.