First time implementation of Section 43B(h) of Income Tax Act for the Assessment Year 2024-25 | Treatment of Payments to be made to Micro & Small Enterprises outstanding as on 31.03.2024
Query No. 1: Please clarify whether dues pertaining to SME “Traders” are also liable to be disallowed?
“Traders” were not envisaged by law for Payments Protection and Late Payment Interest. Hence, dues payable to the “Traders” registered as ‘Micro or Small Enterprises’ under MSMED Act, will not be disallowed u/s 43B(h).
Please read, MSME-Office Memorandum dated 02.07.2021 which states “The Government has received various representations and it has been decided to include Retail and wholesale trades as MSMEs and they are allowed to be registered on Udyam Registration Portal. However, benefits to Retail and Wholesale trade MSMEs are to be restricted to Priority Sector Lending only.”
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Query No. 2: Delayed Payment to MSE Creditors for purchase of Fixed Asset/ Capex.
Reply: Let’s read the opening clause of Section 43B- “43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-“
The above means Section 43B applies only to the expenditure which is to be claimed as a deduction in the Computation of the Total Income. Therefore, Section 43B(h) should not apply to the payments made which are capitalized and are not charged to the Profit and Loss Account.
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In the views of the Author, 2 Complete months i.e. February and March 2024 are still there for the taxpayers and Auditors or Tax Auditors to take stock of legal provisions which are applicable for the current financial year and that would have significant impact in determination of total income of the Assessment Year 2024-25. This stock taking or review shall provide all leverages for avoiding legally any harsh legal provisions which may be waiting to get triggered if such due diligence is not done now. One of such harsh provisions is Section 43B(h) inserted last year whose first time implementation shall now be seen or done on March-31-2024.
Section 43B(h) inserted by Finance Act, 2023 w.e.f. Assessment Year 2024-25 reads as under-
“Any sum payable by the Assessee to a micro or small enterprise beyond the time limit specified in Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006″
The (Buyer) Assessees have to take precautionary measures to avoid disallowance those sums of Creditors which may be outstanding to Micro and Small Enterprises as per MSMED Act, 2006 as on March-31-2024 representing the expenditures of the financial year 2023-24.
Any liability which was outstanding in respect of the period prior to 01.04.2023 would not be hit by clause (h) of section 43B even if it is outstanding as on March-31-2024 or even subsequent periods. Such outstanding amounts may be due to pending disputes with respect to those supplies or services between the parties and agreed for settlement of dues upon resolution of dispute or any other issue between them.
NOTE: The proviso to section 43B which extends the time limit for allowance of deduction if actual payments are made up to the ‘due date’ for furnishing the return under section 139(1), would not apply in respect of the payment referred to in clause (h) of section 43B.
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Suresh Wadhwa, LL.B., FCA
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