Section 43B query

guest (22 Points)
Replied 26 October 2008

Dear Rajesh,

My 2 cents on your query :

According to Section 43B, any amounts debited to P&L A/c and remaining unpaid in respect of certain expenses/ items for more than 6 months from end of FY, need to be disallowed while computing the taxes on income.

How can the amount be disallowed U/s 43B of the income tax Act when it has not been even included in P&L A/c.

The audtiors opinion seems to be prima facie incorrect. Rs.11.124 had never been debited to P&L A/c and hence they cannot be disallowed ( It doesnt even qualify for being called as disqualifying ). Try following the said auditors opinion and see what distorted post-view you're gonna get.

The amount of ST debited to P&L is Rs. 1.236 only, which should be subjected to lens of 43B and after satisfying oneself about the correct set off claim wrt ST.

Cheers!!

Originally posted by :Rajesh Poddar

"

Dear Friends
A client follows the following procedure for income:-
Debtors A/c DR Rs. 112.36
To Sales A/c Rs. 100 (Cr to P/L a/c)
To Service TAx a/c Rs. 12.36 (shown as current liabilities in BS)
For expenses he passes the following entries :-
Telephon exp A/c Dr Rs. 10 (DR to P/l Ac)
Service tax a/c Dr Rs. 1.236 (reduced from current liabilities in BS - cenvat for ser tax)
To Bank Rs. 11.236/-
Client has not paid Rs. 11.124/-(12.36-1.236) of service tax before the due date of filing return of income
Auditor has disallowed Rs. 11.124 u/s 43B as amount dr to profit and loss account but not paid before filing of return of income. My query is that is he correct in disallowing this as it has never been Dr to Profit and loss a/c and hence the question of disallowance does not arise, merely a note in TAX audit report is sufficient.. An expert advise in this regard shall be appreciated along with relevant supporting evidence.
Regards,
CA Rajesh Poddar
Mumbai

"

Pushkraj Sathe (Chartered Accountant) (203 Points)
Replied 26 October 2008

Dear Rajesh, From what you have stated, your auditor is under some misconception you are not.You insist on your protest being mentioned in the audit report in form No.3CD

Shah Kishor Chhotalal (chartered accountants) (27 Points)
Replied 26 October 2008

Originally posted by :Guest
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Shah Kishor Chhotalal (chartered accountants) (27 Points)
Replied 26 October 2008

Originally posted by :Guest
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Rohit Khare (student) (111 Points)
Replied 26 October 2008

Dear Mr. Poddar,

In case of above matter I think that assessee is not allowed a deduction of service tax which is collected on behalf of governmebt and paid to government. Assessse acts as an agent on behlf of government and is not entitled to deduction of service tax.

Section 43B is applicable in cases where deduction is allowable but the assessee has not paid the relevent within the due date or before filing return of income.

Service Tax libility arises on receipt basis. So under accrual method of accounting service tax outstanding in the books may not be the actual liability.

Hence in case of service tax section 43B is not applicable.

CA. Sandeep Kumawat (CA) (341 Points)
Replied 26 October 2008

Dear Mr. Rajesh

I have gone thru your case i m agree with u that any expenses which is not debited to P&L a/c, how it can be disallowed and added to income.

but you will have to intepret section 43B widely

just like this

anything which is payable by u that means your expenses and not paid is presently your liability,

now anything which is your liability, it can be due to this

1 your expenses not paid off

2 any thing which is received during the course of your business due to your business, but not yet paid

if u'll broaden your intepretation, and see from ITO's point of view

u'll come to know that anything u received is your income, wither sales revenue or loan or capital whatever u receive.

and whatever u pay is your expense either payment of your expenses or payment agsinst your expenses

that means any expeses which is payable by u is not paid till date should not be treated as expesnes, and anything which u received as income and not paid by u is yur liability,

here income which is not accounted for by u in your p&l a/c not it should be added to your income

and it should cover only cases refered in section 43B for Government liability (your own liability) liability created on behalf of others toward governemnt

Sandeep K.

+919826111513

CA Annie (Chartered Accountant ) (747 Points)
Replied 26 October 2008

Actual sales amount received is 112.36 (which was segregated into sales and service tax) But u r showing onlly 100 as income which means u r not showing 12.36 as income but as service tax. ie the income is understated if ST not paid. so the assessing officer is right in disalowing it coz the service tax has not been paid. Similar treatment wit teleph exp.

mehul (Consultant) (25 Points)
Replied 01 November 2008

Originally posted by :Rajesh Poddar
"	Dear Friends A client follows the following procedure for income:- Debtors A/c DR Rs. 112.36 To Sales A/c Rs. 100 (Cr to P/L a/c) To Service TAx a/c Rs. 12.36 (shown as current liabilities in BS) For expenses he passes the following entries :- Telephon exp A/c Dr Rs. 10 (DR to P/l Ac) Service tax a/c Dr Rs. 1.236 (reduced from current liabilities in BS - cenvat for ser tax) To Bank Rs. 11.236/- Client has not paid Rs. 11.124/-(12.36-1.236) of service tax before the due date of filing return of income Auditor has disallowed Rs. 11.124 u/s 43B as amount dr to profit and loss account but not paid before filing of return of income. My query is that is he correct in disallowing this as it has never been Dr to Profit and loss a/c and hence the question of disallowance does not arise, merely a note in TAX audit report is sufficient.. An expert advise in this regard shall be appreciated along with relevant supporting evidence. Regards, CA Rajesh Poddar Mumbai	"