Section 43B(h)

Section 43B(h) — the law in short

What the courts have decided on section 43B(h), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Federation of All India Vyapar Mandal v Union of India Supreme CourtHelps departmentJudgment not reachable
  I heard the 45-day MSME payment rule was challenged in the Supreme Court. Was it struck down?
  Nothing has been struck down. Section 43B(h) is in force. Tax-press reports in 2024 said a traders' federation had moved the Supreme Court against the clause and that the Court did not take up the challenge, but no order of any court in that matter has been located, and the reports do not agree with each other on what was actually done. Treat the position as: no court has struck down or read down s.43B(h), and there is no order you can cite.
• Dhruv Anand v State of U.P. High CourtCuts both waysHigh Courts differ
  The buyer says the 1 September 2021 Office Memorandum takes your trader-supplier outside the delayed-payment machinery. Is that right?
  The Allahabad High Court held it is not. The Office Memorandum relied on is specifically in respect of lending and not for any other purpose, and where the dispute concerns a supply of goods for which payment has been delayed the memorandum is 'not at all applicable'. The remedy is the one the MSMED Act provides under ss.15, 17 and 18, and the criminal proceeding against the buyer was quashed on that footing.
• Luxe Panel Distributors v Additional Commissioner of Customs High CourtHelps departmentHigh Courts differ
  Your client is a trader holding Udyam registration as a micro enterprise. Does that registration carry any benefit beyond priority sector lending?
  On the Kerala High Court's reading, no. Wholesale and retail trade was excluded from the MSMED Act in 2017, re-included by the Office Memorandum of 2 July 2021, and that re-inclusion was for the limited purpose of priority sector lending only. The Court refused a trader the micro-enterprise exemption in a Quality Control Order because, registration notwithstanding, nothing beyond priority sector lending could be claimed.
• Frontier Information Tech Ltd v DCIT High CourtHelps taxpayerNo later treatment found
  My lender took equity shares against the outstanding interest. The Assessing Officer says there was no actual payment under section 43B. Is he right?
  No. Where the liability to pay interest ceases to exist because shares have been issued to the lender, that is actual payment within section 43B, and Explanations 3C and 3D have nothing to bite on. The test the High Court applied is whether the liability to pay the interest stands extinguished.
• Wadhwa Group Holdings Pvt Ltd v PCIT (Central), Mumbai-3 ITATHelps taxpayerNo later treatment found
  The Commissioner has revised your assessment for a year before AY 2024-25 saying the officer never verified MSME trade payables. Can s.43B(h) support that?
  No. Clause (h) of s.43B was inserted by the Finance Act 2023 with effect from 1 April 2024 and operates prospectively from AY 2024-25. For AY 2022-23 the Tribunal held the Commissioner could not found prejudice to the Revenue on the non-application of a provision that did not apply, and set the s.263 order aside.
• Bosch Ltd v ACIT ITATHelps departmentNo later treatment found
  You paid interest on a delayed payment to an MSME supplier. Can you claim it?
  No, and the Tribunal decided it by adoption rather than by reasoning. Counsel accepted that an identical issue had arisen in the assessee's own case for assessment year 2010-11, and the Bench reproduced its earlier order of 16 September 2020, which held that s.23 of the MSMED Act specifically provides that interest paid to micro, small and medium enterprises on account of delayed payment is not allowable as a deduction from income, that such interest is penal in nature and so is otherwise not allowable under s.37, and that s.24 of that Act has overriding effect to the extent of inconsistent provisions in any other law. The Bench's own holding is one sentence at para 73: following that order, it dismissed Ground No.11.
• Landis+Gyr Ltd v DCIT ITATHelps taxpayerNo later treatment found
  MSMED interest is disallowed under the normal provisions. Does it also have to be added back to book profit?
  No - and the Tribunal decided it by adoption. It noted that the issue raised in Ground No. 10 had been decided by the Tribunal in the assessee's own case by its consolidated order dated 13 September 2017 for assessment years 2010-11 and 2011-12, reproduced that order, and allowed the ground on the strength of it. The reasoning reproduced is that s.23 of the MSMED Act operates on the computation of income under the normal provisions and not on the computation of book profit under s.115JB, and that a provision for interest payable to MSMED suppliers, being an ascertained liability, does not have to be added back.
• CBDT Circular 1/2024 CBDT Circulars & InstructionsHelps departmentSuperseded by amendment
  I paid my MSME supplier late but before filing my return. Is the expense disallowed this year?
  Yes, it is deferred. For a sum payable to a micro or small enterprise beyond the time limit in s.15 of the MSMED Act, the proviso to s.43B is expressly switched off, so paying before the return due date does not rescue the deduction. You get it only in the year you actually pay.
• MSME Office Memorandum 1/4(1)/2021 CBDT Circulars & InstructionsCuts both waysHigh Courts differ
  My supplier is a trader with Udyam registration. Does the 43B(h) disallowance apply to him?
  No. The Ministry of MSME's memorandum confines the benefit of Udyam registration for wholesale and retail traders to Priority Sector Lending; the delayed-payment provisions of the MSMED Act, including s.15, are excluded. Since clause (h) works by reference to the s.15 time limit, purchases from traders fall outside it.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.