What if Tax Officer Denies 43B Expenses Paid After Tax Audit Report Date but Before ITR Filing Date?

The case "Eastman Exports Private Limited Vs DCIT" unraveled a multifaceted dispute concerning deductions under section 43B, amounting to Rs. 17,53,799/-.

Central to the dispute was the timing of the payment of bonuses, leave with wages, and leave encashment. Eastman paid these after the tax audit report date of 09/10/2017 but before the ITR filing date.

The Tax Officer denied these deductions, labeling it as a legal matter. The Commissioner of Income Tax (Appeals) further complicated the issue by misreading the tax audit report date 09/10/2017 as 19/10/2017, casting doubt on the CA certificate provided by Eastman Exports given on 10/10/2017.

Recognizing the complexity of the situation, the ITAT decided to remand the matter to the Assessing Officer for a comprehensive re-evaluation.

The tribunal's directive was unambiguous:

The AO must meticulously examine the actual payment date of the contested sums and validate the genuine date of the audit report. Where on verification, the AO finds that Eastman paid these sums (wholly or in part thereof) on or before the due date of filing of the return of income, provide Eastman the necessary relief.

The ITAT's decision underscored the importance of procedural accuracy and the need to ensure that all deductions align with the stipulated guidelines.

For you, this case serves as a critical guide in navigating the intricate landscape of tax deductions.

It emphasizes that the timing of payments, especially those falling between the tax audit report date and the ITR filing date, must be carefully considered.

The ITAT's decision is a testament to the significance of due diligence, proper verification, and adherence to legal norms.

It's a reminder that even seemingly minor discrepancies in dates can have substantial implications on your tax liabilities.

Court Name : ITAT Chandigarh

Parties : Eastman Exports Private Limited Vs DCIT 

Decision Date : 17 July 2023

Judgement ref : ITA NO. 684/Chd/ 2022

Order

PER VIKRAM SINGH YADAV, A.M. :

This is an appeal filed by the Assessee against the order of the Ld. CIT(A),

NFAC, Delhi dt. 13/10/2022 pertaining to Assessment Year 2017-18 wherein the

Assessee has taken the following grounds of appeal :

1. That order passed u/s 250(6) of the Income Tax Act, 1961 by the Learned

Commissioner of Income Tax (Appeals), NFAC, Delhi is against law and facts on the file in as much as CIT(A) was not justified to uphold the action of the Learned Assessing Officer in disallowing a sum of Rs. 17,53,799/- on account of bonus, leave with wages and leave encashment which had actually been paid before filing the return as per the certificate obtained from the Auditors on 10.10.2017.

2. That the Learned CIT(A) gravely erred in reading the date of Audit Report as 19.10.2017 whereas it was actually 09.10.2017.

3. That the Learned CIT(A) was further not justified to hold that the mistake in making the disallowance by CPC, Bengaluru was not a mistake apparent from record.

2. Briefly the facts of the case are that the assessee filed its return of income declaring total income of Rs. 83,08,230/-, thereafter the return was processed by CPC, Bangalore and intimation under section 143(1) dt. 16/07/2019 was issued to the assessee wherein an amount of Rs. 17,53,799/- was disallowed. As per the intimation issued by the CPC, Bangalore, there is inconsistency in amount debited to the P&L Account of the previous year and which is disallowable under section 43B wherein the assessee in the return of income has disallowed a sum of Rs. 1,19,214/- as against an amount of Rs. 18,73,013/- as per Tax Audit Report in Form No. 3CD. Subsequently, the assessee moved a rectification application before the AO and the same was rejected by the AO stating that the issue raised in the rectification application is a question of law and the assessee must go in appeal before the higher authority to get the necessary relief and the application so filed by the assessee was rejected vide order passed under section 154 dt. 04/10/2021.

3. Being aggrieved, the assessee carried the matter in appeal before the Ld.

CIT(A) and it was submitted that an amount of Rs. 17,53,799/- was disallowed by the CPC due to inconsistency in disallowance as per the Tax Audit Report an and as per the return of income on account of bonus, leave with wages, casual leave with wages. It was submitted that these payments were paid before the due date of filing of the return of income and given that the Tax Audit Report was issued and signed by the Tax Auditor on 09/10/2017, the necessary effect thereof could not be taken in the Tax Audit Report and accordingly, the Auditors have disallowed the same, however, Section 43B clearly provides that where the liabilities mentioned therein have been paid on or before the due date of filing of the return of income under section 139(1), the same shall be allowed to the assessee as a deduction while computing its income from Profits & Gains from Business / Profession. In support, a copy of the C.A. Certificate dt.10/10/2017 was also submitted as per the CBDT Circular No. 601 dt. 04/06/1991 and it was accordingly submitted that the assessee may be allowed the necessary relief in terms of deleting the disallowance so made by the CPC.

4. As per the Ld. CIT(A), NFAC, there is no legal dispute that where the said amount has been paid by the assessee before the due date of filing of the return of income, the assessee become eligible for deduction. However,

referring to the C.A certificate dated 10/10/2017 as per the CBDT Circular No.601 dt. 04/06/1991, it was stated by the Ld. CIT(A) that if this amount were paid before 10/10/2017, it defies all logic as to how this amount was shown as not been paid till 19/10/2017 by the C.A in Form No. 3CD which is signed on 19/10/2017. It was accordingly held that the C.A. Certificate dt. 10/10/2017 appears to be incorrect and cannot be relied upon where the statutory documents i.e. Form No. 3CD which is part of the assessment record evidence the event of not payment till 19/10/2017. Accordingly, it was held that no intervention is called for in the order so passed by the AO wherein the AO has refused to rectify the alleged mistake of Rs. 17,53,799/-.

5. Against the said findings and direction of the Ld. CIT(A), NFAC the

assessee is in appeal before us. Shri Ashwani Kumar, CA has moved an

adjournment application, however, on perusal of records, it was observed that no useful purpose would be served in adjourning the matter and basis material available on record, it can be decided.

6. As per the grounds of appeal, the assessee has contended that the Ld.

CIT(A) has erred in reading the date of Audit Report as 19/10/2017 where as it was 09/10/2017. It has also been contended as per the grounds of appeal that the sum of Rs. 17,53,799/- towards bonus, leave with wages and leave

encashment has been actually paid before the due date of filing of the return of income as per the Certificate obtained from the Auditor on 10/10/2017.

7. We therefore find that the limited issue under consideration is whether the assessee has paid the sum of Rs. 17,53,799/- before the due date of filing of the return of income even though the same has been shown as outstanding as per the Tax Audit Report submitted by the Auditor as per Form No. 3CD. The Ld. CIT(A) has considered the date of the Audit Report as 19/10/2017 where as the assessee has submitted the date of Audit Report as 09/10/2017. Further, the assessee has also relied on the C.A. Certificate dt. 10/10/2017 which has also been disputed by the Ld. CIT(A) on account of the date of signing of the Tax Audit Report. We therefore deem it appropriate to set aside the matter to the file of the AO to examine the date of actual deposit of sum of Rs. 17,53,799/- after calling for necessary documentation in support of payments of these bonuses, leave with wages and leave encashment liability towards its employees and also to verify the actual date of the Audit Report as well as consider the certificate issued by the Tax Auditor. Where on verification, it is found by the AO that these sums (wholly or in part thereof) has been actually paid on or before the due date of filing of the return of income, the necessary relief be provided to the assessee. With this direction, the matter is set aside to the file of the AO to carry out the necessary verification after providing reasonable opportunity to the assessee.

8. In the result, appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open Court on 17/07/2023

Sd/- Sd/-

(AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV)

VICE PRESIDENT / ACCOUNTANT MEMBER

Date: 17/07/2023