Synopsis
The newly inserted clause (h) to section 43B of Indian Income Tax Act, any sum payable by the assessee (Buyer) to a Micro or Small Enterprise (Supplier) beyond the time limit specified in Section 15 of the MSMED Act shall be allowed as deduction only on actual payment.
Let's Understand what MSMED Act Says:
Section 15 of the MSME Development Act, 2006 (the “said MSMED Act”) defines that:
Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment thereof on or before the date agreed upon between him and the supplier in writing or, where there is no agreement on this behalf, before the appointed day.
Provided that in no case the period agreed upon between the supplier and the buyer in writing shall not exceed forty-five days from the day of acceptance or the day of deemed acceptance”
SUPPLIER is defined in the said MSMED Act as a micro or small enterprise, which has filed a memorandum with the authority referred to in sub-section (1) of section 8.
AND
BUYER means whoever buys any goods or receives any services from a supplier for consideration
Appointed day - shall mean the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.
Explanation for the purposes of this clause :
(i) “the day of acceptance" means:
(a) the day of the actual delivery of goods or the rendering of services; or
(b) where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier
(ii) "the day of deemed acceptance" means:
where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services
Interpretation and Understanding of the Act:
The said provisions are NOT applicable to any sums payable to medium enterprise covered under the MSMED Act.
The above section will NOT be applicable for capital expenditure in the hands of the company.
Only those unpaid suppliers (micro enterprise or small enterprise) as on March 31, 2024, which have remained unpaid beyond the “due date” in accordance with section 15 of the said MSMED Act, shall not be allowed as a deduction in the Financial Year 2023-24 but will be allowed as deduction in the Financial Year in which the payment is actually made to the suppliers.
Unpaid suppliers (micro enterprise or small enterprise) as on March 31, 2024, to whom the amount is “not due” in accordance with section 15 of the said MSMED Act, should be allowed as a deduction in the Financial Year 2023-24 itself since as on the date of March 31, 2024, the provisions of section 43B (h) will not be applicable.
In conclusion, businesses may align their payment process to the suppliers in order to comply with these changes bought-in under the Indian Income Tax Act. We are of the view that in respect of those “not due” cases as on March 31, 2024 and if the same are paid within the specified time period as per section 15 of the said MSMED Act, then the amount should not to be disallowed; but if the amount is paid after the specified time period, then it should be disallowed in the Financial Year 2023-24 and the same can be claimed as deduction in the subsequent Financial Year on actual payment to the suppliers. Readers and followers are requested to consult their advisors to arrive at a best conclusion to deal with the real scenarios.
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