BUSINESS DISALLOWANCES Payment to MSME Units VisaVis Section 43B(h)

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The Tax Publishers Income Tax--Business Disallowances Payment to MSME Units Vis-a-Vis Section 43B(h) Sameer Bhatia The learned author in his write-up analyses the various layers/dimensions associated and arising out of the recently promulgated provision legislated under section 43B clause (h) of the Income Tax Act, 1961 vis-a-vis Section 15 of the MSMED Act, 2006. Whether entries by way of Book-Adjustment will factually amount to discharge of outstanding payment due, Whether provisions of section 43(h) will apply in relation to liabilities incurred prior to financial year 2023-24, whether assessees declaring income under section 44AD/44ADA of the Income Tax Act, 1961 will be bound to make payment within time stipulated under section 15 of the MSMED Act, 2006 etc. besides many other questions duly stands addressed to the satisfaction of professionals, business-fraternity and other stakeholders at large. The visionary also prays for release of clarification(s) in light of prevailing uncertainty as to the enforcement and implementation of section 43B(h) of the Income Tax Act, 1961 vis-a-vis section 15 of the MSMED Act, 2006 on a country wide basis. 1. Prologue The Finance Act, 2023 inserted clause (h) in section 43B of the Income Tax Act, 1961 so as to allow deductions of any sum payable to a micro or small enterprise beyond the time specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006). Ordinarily the provisions of section 43B as they stand on the statute were inserted by the Finance Act, 1983 with effect from 01st April, 1984 so as to allow deductions claimed only in the event of actual payment by the assessee. However the fate of payments which remained outstanding as on the last day of financial year became a bone of contention between the department and the assessees as it was witnessed by growing tendency to allow deductions in respect of liabilities which accrued, arose or were incurred during the financial year itself but the very incidence of its payment was deferred either on account of non-payment by the assessee, variation arising out of method of accounting followed by the assessee or for any other attributable reason. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Income Tax--Business Disallowances

Payment to MSME Units Vis-a-Vis Section 43B(h)

Sameer Bhatia

The learned author in his write-up analyses the various layers/dimensions associated and arising out of the recently promulgated provision legislated under section 43B clause (h) of the Income Tax Act, 1961 vis-a-vis Section 15 of the MSMED Act, 2006. Whether entries by way of Book-Adjustment will factually amount to discharge of outstanding payment due, Whether provisions of section 43(h) will apply in relation to liabilities incurred prior to financial year 2023-24, whether assessees declaring income under section 44AD/44ADA of the Income Tax Act, 1961 will be bound to make payment within time stipulated under section 15 of the MSMED Act, 2006 etc. besides many other questions duly stands addressed to the satisfaction of professionals, business-fraternity and other stakeholders at large. The visionary also prays for release of clarification(s) in light of prevailing uncertainty as to the enforcement and implementation of section 43B(h) of the Income Tax Act, 1961 vis-a-vis section 15 of the MSMED Act, 2006 on a country wide basis.

1. Prologue

The Finance Act, 2023 inserted clause (h) in section 43B of the Income Tax Act, 1961 so as to allow deductions of any sum payable to a micro or small enterprise beyond the time specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006). Ordinarily the provisions of section 43B as they stand on the statute were inserted by the Finance Act, 1983 with effect from 01st April, 1984 so as to allow deductions claimed only in the event of actual payment by the assessee. However the fate of payments which remained outstanding as on the last day of financial year became a bone of contention between the department and the assessees as it was witnessed by growing tendency to allow deductions in respect of liabilities which accrued, arose or were incurred during the financial year itself but the very incidence of its payment was deferred either on account of non-payment by the assessee, variation arising out of method of accounting followed by the assessee or for any other attributable reason.