Supreme court rules out disallowance of unclaimed excise duty under section 43b

The supreme court set aside a disputed addition worth rupees 69.92 lakh involving excise duty, noting that the goods stayed within bonded storage while no deduction was claimed by the assessee. The tax authorities had attempted to disallow the unclaimed amount under income tax section 43b, triggering prolonged legal litigation that finally reached the apex court for resolution.

Section 43b of the income tax act governs specific statutory deductions allowed only upon actual payment, preventing businesses from claiming tax benefits without cash outflow. However, when an assessee leaves inventory inside bonded storage facilities and foregoes claiming any deduction for the unpaid duty, applying this disallowance provision becomes legally flawed. The previous legal positions allowed tax officers to make broad additions, but this judgment restricts such overreach where no deduction was initially sought by the taxpayer.

Tax professionals and corporate assessees should review pending assessment orders involving bonded warehouse inventory to check for similar additions. Practitioners must advise clients to verify their historical tax filings and documentation regarding unclaimed statutory dues to contest unjustified disallowances. Bottom line: this judicial clarity protects businesses from paying tax on amounts they never claimed as expenses.