Short Analysis of Section 43B(h) and the clarification in the Explanatory Memorandum

The following position emerges from the plain reading of Section 43B(h) and the clarification in the Explanatory Memorandum:

a) The relaxation of payment under section 43B before due date of furnishing return of income for claiming deduction is not available for such payment. However, if the payment is made within time prescribed under MSMED Act the same will be allowed even paid in subsequent year for example, if the assessee buyer has received the bill from the supplier on 28/03/2024 and the payment is made on 05/04/2024, the same will be allowed in A.Y. 2024-25 (relevant to F.Y. 2023-24) as the same is paid within the prescribed time limit under the MSMED Act (refer to the Explanatory Memorandum to the Finance Bill, 2023 and clarifications in Notes on clauses to Finance Bill 2023).

b) Where the due date for the payment at the amount outstanding at year-end has exceeded the limitation period of section 15 of the MSMED Act, such amount shall be disallowed while computing the business income.

c) Advance payment to MSEs will be allowed as a deduction in the year of payment itself even if it does not fall due for payment in that year. (Refer CIT v. United Glass Mfg. Co. Ltd. [TS-798-SC-2012] rendered in the context of section 43B).

d) Under section 16 of the MSMED Act mandatory interest is to be paid on delayed payment and interest is not allowable as deduction under section 37(1) of the Act.

e) In case a taxpayer opts for presumptive income determination under section 44AD, the disallowance contained in section 43B will not apply for the reason that the presumptive income determination subsumes “anything contrary contained in sections 28 to 43C”. Thus, taxpayers having turnover up to Rs.2 crores may take shelter by opting S.44AD provisions.