The Supreme Court deleted income tax addition under Section 43B for unpaid excise duty on closing stock, upholding tax auditor's report showing reversal of such liability from profit and loss account.
SC Deletes Addition u/s 43B on Unpaid Excise Duty
The Supreme Court has set aside an addition made under Section 43B of the Income Tax Act on account of unpaid excise duty concerning closing stock, ruling that where the liability has been reversed in the profit and loss account per the tax auditor’s report, it cannot be treated as non-deductible.
The issue arose when the Assessing Officer added back excise duty not paid on closing stock, invoking Section 43B, which disallows deductions for liabilities not paid before the due date for filing return. However, the taxpayer demonstrated through the audited financial statements and a chartered accountant’s certificate that the excise liability had been de-recognized and reversed in accounts, indicating no accrual of liability.
"When a liability is reversed in the books and not claimed as a deduction, Section 43B has no field to operate,"the Court held. This decision clarifies that Section 43B applies only where a claim for deduction has actually been made but payment not made. For practitioners, it reinforces reliance on statutory audits and accounting standards in defending disallowances.
Citations
- S. 43B, Income Tax Act
