Section 43B

Section 43B — the law in short

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

• Checkmate Services P Ltd v CIT Supreme CourtHelps department
  You deposited employees' PF late but before filing the return. Is the deduction saved?
  No. Employees' contributions are held in trust and are deemed income; the deduction depends on depositing them by the due date under the PF or ESI Act. Section 43B, which governs the employer's own liabilities, does not rescue them.
• M.M. Aqua Technologies Ltd v CIT Supreme CourtHelps taxpayerSuperseded by amendment
  I cleared accrued interest by issuing debentures to the lender. Does that count as payment under s.43B?
  Yes, on these facts and for the years before the law was changed. Issuing debentures that extinguished the liability to pay interest is actual payment, and Explanation 3C — a removal-of-doubts provision — only catches interest that stays unpaid and is merely converted into a fresh loan or borrowing.
• Maruti Suzuki India Ltd v CIT Supreme CourtHelps departmentNo later treatment found
  Can I claim a deduction for unutilised MODVAT credit sitting in my books at the year end?
  No. Unutilised credit is not a sum payable by you by way of tax, duty, cess or fee, so s.43B(a) has nothing to operate on. The duty on the inputs was payable by the supplier; what passed to you was the incidence, not the liability.
• CIT v Gujarat Cypromet Ltd Supreme CourtHelps department
  The bank sanctioned a fresh loan and the outstanding interest was squared off against it. My books show no interest outstanding. Is that actual payment under section 43B?
  No. Where the accrued interest is not paid back but is adjusted against a further loan from the same institution, Explanation 3C to section 43B applies and there is no actual payment. The Supreme Court allowed the Revenue's appeal and restored the Assessing Officer's disallowance.
• CIT v Alom Extrusions Ltd Supreme CourtHelps taxpayer
  I paid the PF contribution after year end but before the return due date. Is the deduction gone?
  No, for the employer's own contribution. The deletion of the second proviso to s.43B and the amendment of the first proviso by the Finance Act 2003 are curative and operate retrospectively from 1 April 1988, so employer's contributions to provident and other welfare funds paid before the return due date are deductible.
• CIT v McDowell & Co Ltd Supreme CourtCuts both ways
  I have given the excise authorities a bank guarantee for unpaid bottling fee. Does that count as actual payment under section 43B - and is bottling fee even covered by section 43B?
  A bank guarantee is not payment, but bottling fee is outside section 43B altogether, so the deduction stood. The Supreme Court held that section 43B requires actual payment, meaning money must flow from the assessee to the public exchequer, and a guarantee of payment on a future event is not that. But it also held that tax, duty, cess or fee, by whatever name called, must be read ejusdem generis: the sum must belong to the genus of taxation, a compulsory exaction under the State's taxing power. Bottling fee under the Rajasthan Excise Act is the consideration for parting with an exclusive privilege - contractual, not an impost - so section 43B did not apply. The Revenue's appeal was dismissed.
• Berger Paints India Ltd v. CIT, Calcutta (SC, 17 February 2004) — where the Revenue has accepted a High Court's statement of the law in one assessee's case it cannot challenge it in another without just cause Supreme CourtHelps taxpayer
  The department accepted a High Court decision in someone else's case and never appealed it, and is now arguing the opposite against my client. Can it?
  Not without just cause. The Supreme Court held that if the Revenue has not challenged the correctness of the law laid down by a High Court and has accepted it in the case of one assessee, it is not open to the Revenue to challenge its correctness in the case of other assessees, without just cause. The Gujarat High Court in Lakhanpal National Ltd had held that the whole of the excise and customs duty actually paid in a year is deductible under section 43B irrespective of how much of it is embedded in closing stock; that decision was never challenged, was followed by the Bombay and Madras High Courts and by a Special Bench of the Tribunal, and none of those was challenged either. The Court found no just cause for a departure, held that the Commissioner, the Tribunal and the Calcutta High Court had erred in permitting the Revenue to contend to the contrary, set aside the Calcutta High Court's judgments for all three assessment years and answered the questions in favour of the assessee.
• Allied Motors P Ltd v CIT Supreme CourtHelps taxpayer
  I paid the sales tax after year-end but within the time the statute allows. Can the AO disallow it?
  No. The first proviso to s.43B, inserted by the Finance Act 1987, is retrospective in operation. A statutory liability paid after the close of the previous year but within the time allowed by the relevant statute and before the return due date is deductible in the year it accrued.
• Ambalal Sarabhai Enterprises Ltd v DCIT High CourtHelps taxpayerNo later treatment found
  The Assessing Officer has swept my gratuity and leave encashment payments into the s.35DDA five-year spread along with the VRS compensation. Must terminal benefits be amortised too?
  No. The Gujarat High Court held that gratuity and leave encashment are post-retirement benefits accruing from actual service rendered, payable whether retirement is voluntary or on superannuation, and are ancillary to — not part of — the voluntary retirement scheme. Only the VRS compensation component falls into the one-fifth spread under s.35DDA; the terminal benefits are deductible in full.
• Raj Kumar Bothra v DCIT High CourtHelps taxpayer
  CPC disallowed my late-deposited PF and ESI under 143(1)(a). Was a summary adjustment even open to them?
  No, not for an intimation issued in December 2021. The Chhattisgarh High Court held the issue was genuinely debatable on that date, with conflicting High Court authority and the matter pending in the Supreme Court, so the officer had to take scrutiny under s.143(3) rather than adjust summarily.
• 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.
• Bahar Infocons P Ltd v PCIT High CourtHelps taxpayer
  I over-reported income by mistake and the time to file a revised return has gone. Can it be fixed?
  The Commissioner cannot reject a revision application under s.264 solely because a revised return was not filed within the s.139(5) time. The power exists to relieve against over-assessment and reaches a mistake the assessee detects after the assessment is complete. Here provisions for bonus written back had been taxed twice across assessment years 2019-20 to 2021-22, and the revision applications were sent back to the Principal Commissioner to decide the adjustment on merits - the Court did not itself order relief.
• DIT (International Taxation) v Schlumberger Asia Services Ltd (Full Bench) High CourtHelps taxpayer
  Our Uttarakhand assessments add back the service tax ONGC reimbursed to us. Is there a binding answer in that High Court?
  Yes, and it is against the Revenue. A Full Bench of the Uttarakhand High Court answered the reference holding that the amount reimbursed by ONGC to the service provider, representing service tax the provider had already paid to the Government, does not form part of the aggregate amount referred to in clauses (a) and (b) of s.44BB(2).
• Pr CIT, Kota v Modern Motors — a deed that fixes the METHOD of computing partners' salary is enough High CourtHelps taxpayerNo later treatment found
  Our deed does not name a rupee figure; it gives slabs of book profit and percentages. The officer says the amount is not specified and has disallowed the salary. Is he right?
  No. The Rajasthan High Court upheld the Tribunal's view that where the deed provides the manner of quantifying the remuneration — here as slabs of percentages of book profit determinable only at the year end, shared equally among the partners, with no salary in a year of loss — the exact quantum need not be stated, and the deduction under s.40(b)(v) is allowable. Circular No. 739 of 1996 itself requires either the quantum OR the manner of quantification, and on these facts it supported the assessee rather than the Revenue.
• CIT v Rathi Graphics Technologies Ltd High CourtHelps taxpayer
  Under a negotiated settlement the lender took equity shares against interest due. Does Explanation 3C to section 43B catch that?
  No. Explanation 3C is directed at the conversion of interest into a loan or borrowing, where the liability continues in a different form. Where interest is converted into equity shares in the lender's name the liability is extinguished, there is no outstanding interest to that extent, and the conversion is actual payment for section 43B.
• Thomas George Muthoot v CIT High CourtHelps departmentHigh Courts differ
  My payee has already paid the tax on the interest I paid him without deducting TDS. Can I use the second proviso to s.40(a)(ia) for an earlier year?
  Not in Kerala. The Kerala High Court held that the second proviso to s.40(a)(ia), inserted by the Finance Act 2012 with effect from 1 April 2013, is prospective only, because it confers an additional benefit rather than removing an unintended hardship, and so cannot rescue a disallowance for an earlier assessment year. The Court also held that the fact that the recipient has since paid the tax does not undo the disallowance, Hindustan Coca Cola being confined to s.201(1).
• CIT v Pruthvi Brokers & Shareholders High CourtHelps taxpayer
  Goetze says I cannot make a claim except by revised return. Does that stop me raising it before the CIT(A) or the Tribunal?
  No. An assessee is entitled to raise before the appellate authorities not merely additional legal submissions but additional claims not made in the return. Goetze (India) was confined to the power of the assessing authority and the Supreme Court expressly said it does not touch the power of the Tribunal under s.254. The appellate authorities have jurisdiction to entertain a new ground; whether they exercise the discretion to admit it is a separate question.
• CIT v Noble & Hewitt (I) P Ltd High CourtHelps taxpayer
  The AO disallowed unpaid service tax under s.43B, but I never charged it to my P&L. Is that right?
  No. Section 43B regulates the timing of a deduction and operates only on a deduction actually claimed. Where the levy was carried as a liability in the balance sheet and never debited to the profit and loss account, there is nothing to disallow, and following the mercantile system makes no difference.
• 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.
• DCIT v ANI Integrated Services Ltd ITATHelps taxpayer
  My Tribunal order on employees' contributions became final before Checkmate and no appeal was filed. The department now wants it recalled under section 254(2). Is finality any answer?
  On this bench's view it is a complete answer. Once the order has attained finality between the parties and no lis is pending, a subsequent decision of a superior court cannot be a ground to recall or review it under section 254(2), and the Revenue's remedy was to have appealed to the High Court. The Revenue's miscellaneous application was dismissed.
• BNY Mellon International Operations (India) P Ltd v National e-Assessment Centre ITATHelps departmentNo later treatment found
  My PF due date fell on Independence Day and I remitted the next working day. Checkmate says nothing about that. Can I still save the deduction?
  No, not for a period after January 2016 and not where the remittance channel was internet banking. The five-day grace period under the EPF Manual of Accounting Procedure was withdrawn by the EPFO circular of 8 January 2016 with effect from the February 2016 remittance, and section 10 of the General Clauses Act does not help because the fund's designated internet banking account is open 24x7, so the recipient office cannot be said to have been closed on the holiday.
• DCIT v National Insurance Co. Ltd (ITAT Kolkata) — under s.44 and Rule 5 an amortised premium and an investment written off are neither expenditure nor allowance nor provision, and the unexpired-risk reserve stays out of book profit ITATHelps taxpayerNo later treatment found
  The Assessing Officer has disallowed my general insurance client's amortisation of premium on investments and its investments written off, and has added the reserve for unexpired risks to book profit under s.115JB. What is the limit on his power?
  The Kolkata Tribunal dismissed all three of the Revenue's appeals. It upheld the Commissioner (Appeals) in deleting the disallowance of amortisation of premium paid on purchase of investments and of investments written off, on the footing that under section 44 read with Rule 5 of the First Schedule the Assessing Officer may add back only an expenditure, an allowance or a listed provision that is inadmissible under sections 30 to 43B, and an amount amortised or written off is none of those. It also upheld the Commissioner (Appeals) in holding that the reserve created for unexpired risk need not be added back in computing book profit under section 115JB, that reserve having been created not by a debit to the profit and loss account but out of the premium received, as the Insurance Act 1938 requires and as Rule 5(c) of the First Schedule and Rule 6E of the Income-tax Rules recognise.
• Statutory position — s.43D: interest on a bad or doubtful debt of a bank, financial institution or NBFC is taxed on credit or receipt, not on accrual, and what Rules 6EA and 6EB prescribe CBDT Circulars & InstructionsCuts both ways
  My client is a bank and has stopped accruing interest on non-performing accounts under RBI norms, but the Assessing Officer has added the interest on the mercantile basis. Is there a provision that displaces accrual?
  Yes. Section 43D opens "Notwithstanding anything to the contrary contained in any other provision of this Act" and provides that, for the institutions it names, income by way of interest in relation to such categories of bad or doubtful debts as may be PRESCRIBED — having regard to the guidelines issued by the Reserve Bank of India — is chargeable to tax in the previous year in which it is credited to the profit and loss account, or in which it is actually received, whichever is earlier. It therefore displaces the accrual basis for that interest and nothing else. The institutions named on the current departmental edition are a public financial institution, a scheduled bank, a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, a State financial corporation, a State industrial investment corporation, and "such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf". The prescribed categories are in Rule 6EA of the Income-tax Rules, 1962.
• Statutory position — s.44 and the First Schedule: what the opening non-obstante words displace, Rule 2 for life insurance and Rule 5 for general insurance CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  My client is an insurance company and the Assessing Officer has computed its income head by head, disallowing items under sections 14A, 37 and 45. Is that computation open to him at all?
  No, not on that footing. Section 44 begins "Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head 'Interest on securities', 'Income from house property', 'Capital gains' or 'Income from other sources', or in section 199 or in sections 28 to 43B", and directs that the profits and gains of any business of insurance — including such a business carried on by a mutual insurance company or by a co-operative society — shall be computed in accordance with the rules contained in the First Schedule. That non-obstante clause is the whole point of the section: it takes the four other heads of income out of play, takes section 199 out of play, and takes the ordinary business-computation machinery of sections 28 to 43B out of play, leaving the First Schedule as the exclusive code. Rule 2 computes life insurance profits as the annual average of the actuarial surplus; Rule 5 computes general insurance profits as the profit before tax and appropriations disclosed in the regulatory profit and loss account, subject only to the adjustments the rule itself lists.
• Kalpesh Synthetics Pvt Ltd v DCIT, CPC ITATHelps taxpayerOverruled
  The CPC disallowed my late PF under section 143(1)(a) purely because my auditor filled in clause 20(b) of Form 3CD. Is the auditor's entry enough to found the adjustment?
  This order held it was not, and read down section 143(1)(a)(iv) so that an adjustment cannot be made where the audit report takes a stand contrary to the law laid down by the courts above. It is set out here because it is the most fully reasoned statement of that argument, but the reader must know at once that it no longer stands: it was recalled by the Tribunal itself under section 254(2) on 13 April 2023 and the appeals were re-decided against the assessee on 20 June 2023, following Checkmate Services.

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.