CA Vinod Jain

In order to understand the provisions of section 43B(h), we need to first understand the provisions of Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter refer to as MSMED Act, 2006). To begin with, the provisions of section 15 of MSMED Act provides an obligation on a buyer of goods or recipient of services from a Micro or Small enterprises to make payment within specified time as under:

Sec.15. Liability of buyer to make payment Where any supplier, supplies any goods or renders any services to any buyer, the buyer shall make payment therefore on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day.

Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.

Section 16 of MSMED Act provides for penal interest payable by buyer to supplier, if buyer fails to fulfil obligation to make payment within specified time under section 15, as under:

Sec. 16 Date from which and rate at which interest is payable

Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rest to the supplier on that amount from the appointed day or, as the case may be, from the date immediately followed the date agreed upon, at three times of the bank rate notified by the Reserve Bank.

We also need to know definitions of some of terms specified hereinabove as defined in Sec.2 of MSMED Act, 2006 as under:

Sec. 2(n) supplier means a micro or small enterprise, which has filed a memorandum with the authority referred to in sub-section (1) of section 8 and includes, –

1. The national Small Industries Corporation, being a company, registered under the Companies Act 1956 (1 of 1956),
2. The small Industries Development Corporation of a State or Union Territory, by whatever name called being a company registered under the Companies Act 1956 (1 of 1956),
3. Any company, cooperative society, trust or a body, by whatever name called, registered or constituted under any law for the time being in force and engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprises.

Thus, we can observe that under MSMED Act, 2006 definition of supplier does not cover Medium Enterprises. Also it does not cover Traders, whole seller or retailer or otherwise.

Sec.2(e) “enterprise” means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (55 of 1951) or engaged in providing or rendering of any service or services;

Sec. 2(d) “buyer” means whoever buys any goods or receives any services from a supplier for consideration.

Sec. 2(b) “appointed day” means 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, —

1. the day of the actual delivery of goods or the rendering of services; or
2. 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;

Thus, we observe following from MSMED Act, 2006:

There is a stipulation that any buyer of goods or recipient of services from Micro or small enterprise is liable to make payment within 15 days of acceptance or deemed acceptance of goods or services, where there is no agreement for period of payment. Where there is agreement of period of payment, the payment must be made within such specified agreed period. However, agreed period cannot exceed 45 days. In other words, even if a supplier or buyer agrees payment terms of period exceeding 45 days, say 60 days, 90 days or 120 days, it will be assumed that agreed period is only of 45 days only and credit period allowed thereafter has to be ignored and payment has to be made within 45 days from date of acceptance or deemed acceptance.

It can also be observed that definition of supplier does not include Medium Enterprise, as such stipulation of payment in MSMED Act, 2006 does not apply where supplier is a Medium Enterprise.

Further, supplier means a micro or small enterprise and definition of enterprise does not include a trader be it a whole seller or retailer or otherwise. As such stipulation of payment in MSMED Act, 2006 does not apply where supplier is a Trader.

The consequences of failure to make payment within above specified time limit of section 15 of MSMED Act, 2006 is that a buyer is liable to pay to supplier for period of default compound interest with monthly rests from appointed day or agreed period not exceeding 45 days at the interest rate 3 times of the bank rate notified by Reserve Bank. The bank rate notified by the Reserve Bank of India for MSEs currently stands at @6.75% per annum, as of 22nd February 2024.

This means that Micro and small enterprise can claim interest from buyer for delayed period of payments, interest at 3 times RBI rate, the current notified RBI bank rate being 6.75%, they can claim interest @6.75 x 3 = @20.25% per annum compounded with monthly rests.

Further, as per provision of section 23 of MSMED Act, 2006 such interest payment by buyer for delay in payment to Micro and small enterprise under MSMED Act, will not be allowed as deduction to the buyer for the purpose of computation of income under Income Tax Act, 1961.

Background of introducing section 43B(h) of the Income Tax Act, 1961

Micro and small enterprises generates employment and rural growth in India and thus they play vital role in development of our country. The MSMED Act, 2006 was enacted to give relief to such units. In addition to provide them working capital at lower rates, Government also strengthen them with above stated provision of early payment coupled with penal interest. The above provisions of the MSMED Act, 2006 were found inadequate by the Government. The provisions of payment of penal interest by buyer for delayed payment to MSEs and disallowance of same in buyer’s hands did not adequately address the issue of delayed payments by buyers to micro and small enterprises. Micro and Small enterprises were reluctant to use above referred Section 16 of MSMED Act, 2006 which allows them to claim interest on delayed payment from buyers. They fear that if they use weapon of charging penal interest, they will lose business as well as buyers. Hence, Government at the request of Micro Small enterprises felt to additionally to amend Income-tax Act to allow deduction to buyer of amounts payable to micro/small enterprises on payment basis only and not to allow payment on accrual basis of year- end outstanding unless the same was paid within the due date under section 15 of MSMED Act. Since provisions of section 43B(h) will be invoked by Government and not by the micro/small suppliers, it is thought to be more effective.

Hence Finance Minister in her speech of the Union Budget 2023 in paragraph 134 explained the object and aim of introducing section 43B(h) in Income Tax Act, 1961 as under:

“… Moreover, to support MSMEs in timely receipt of payments. I propose to allow deduction for expenditure incurred on payments made to them only when payment is actually made.”

The Explanatory Memorandum to Finance Bill, 2023 explains objects of s. 43B(h) as under:

“Promoting timely payments to Micro and Small Enterprises

1. Section 43B of the Act provides for certain deductions to be allowed only on actual payment. Further, the proviso of this section allowed deduction on accrual basis, if the amount is paid by due date of furnishing of the return of income.
2. In order to promote timely payments to micro and small enterprises, it is proposed to include payments made to such enterprises within the ambit of section 43B of the Act. Accordingly, it is proposed to insert a new clause (h) in section 43B of the Act to provide that any sum payable by the assessee to a micro enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 shall be allowed as deduction only on actual payment. However, it is also proposed that the proviso to section 43B of the Act shall not apply to such payments.

Provision of section 43B(h) of Income Tax Act, 1961 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 (27 of 2006), shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him:

Provided that nothing contained in this section except the provisions of clause (h) shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.

The expression “micro enterprise” and “small enterprise” is also defined in explanation 4 below section 43B as under:

(e) “micro enterprise” shall have the meaning assigned to it in clause (h) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006 (‘MSMED Act’);

(g) “small enterprise” shall have the meaning assigned to it in clause (m) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006.

CBDT Circular 1/2024, dated the 23rd of January, 2024 explains 43B(h) as under:

21. Promoting timely payments to Micro and Small Enterprises (is the object).

21.1 Section 43B of the Act provides for certain deductions to be allowed only on actual payment. Further, the proviso of this section allows deduction on accrual basis, if the amount is paid by due date of furnishing of the return of income.

21.2 In order to promote timely payments to micro and small enterprises, payments made to such enterprises have been included within the ambit of section 43B of the Act vide FA 2023.

A new clause (h) has been inserted in section 43B of the Act to provide that 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 (MSMED) Act 2006 shall be allowed as deduction only on actual payment. However, it has also been provided that the proviso to section 43B of the Act shall not apply to such payments.

21.3 Section 15 of the MSMED Act mandates payments to micro and small enterprises within the time as per the written agreement, which cannot be more than 45 days. If there is no such written agreement, the section mandates that the payment shall be made within 15 days. Thus, this amendment to section 43B of the Act allows the payment as deduction only on payment basis. It can be allowed on accrual basis only if the payment is within the time mandated under section 15 of the MSMED Act.

Applicability: This amendment takes effect from 1st April, 2024 and will accordingly apply in relation to the assessment year 2024-25 and subsequent assessment years.

Let’s now understand this Income Tax provision of Section 43B(h) for making payments to MSME creditors within specified time

In order to promote timely payments to Micro and Small Enterprises Government has brought new provision under section 43B(h) in Income Tax Act through budget of 2023, which will be applicable for the present year ending 31st March 2024.

As per Section 43B(h), if a person carrying on the business does not pay to specified creditors within specified time then “expense” in relation to that creditor will not be allowed as deduction in computing taxable income for that year. The deduction of said “expense” will be allowed in the year of payment. In other words, where any supplier, supplies any goods or renders any services to any buyer, the buyer shall make payment therefor within specified time. If buyer does not pay within specified time, then amount due for goods or services shall not be allowed, while computing income and as such will be added to compute taxable income. Thus, buyer has to bear the tax liability on such unpaid amount. The buyer will get deduction of such sum payable in the year in which payment is made.

Specified creditor is the one who is registered with Government in Udyam as Micro and Small enterprise on the date of transaction. However, a wholesale or retail trader falling in micro and small enterprise will not be covered here in provisions of section 43B(h). Similarly, Medium enterprise will also not be covered in section 43B(h). Thus if payment is not made within prescribed period to such wholesale /retail trader and medium enterprise, there will be no impact of disallowance of expense in that year under section 43B(h) of Income Tax Act.

The wording of section 43B(h) is such that the obligation to find who is registered in Udyam or not is on the assessee (buyer of goods or recipients of services) himself. It is necessary for Udyam Registered person to print Udyam registration number on the invoices, letter heads etc. Further, such person sends the information to buyer viz. their details of MSME registration. This will help assessee to know if his supplier is registered or not. Still if, buyer is not aware about status of supplier, the buyer should ask all its creditors (from whom goods purchased, services taken) their Udyam registration number. Then buyer can verify with Udyam (MSME) registration no., category of registration of his supplier and check whether the provisions of Sec. 43B(h) are applicable or not. The link to access is: https://udyamregistration.gov.in/ Udyam_Verify.aspx.

Udyam has introduced new functionality to “Verify Udyam Registration Number”, which is now made operational. Buyer should verify if his supplier is registered as Micro or Small enterprise. Since if supplier is registered as Medium enterprise section 43B(h) will not apply to a supplier registered as Medium Enterprise. Further, if supplier is registered as Micro or small enterprise, buyer should check, if he is registered as trader or Manufacturer / service provider. Since, in case the supplier is registered as Trader, even in this case provision of section 43B(h) will not apply.

Specified time it can be understood as a date whichever later out of following three is:

1. Where credit period for payment is not agreed between the parties, 15 days from the date of supply of goods or rendering of services.
2. Where the supplier has granted time to pay, in such a case credit period of time so granted or 45 days, whichever is less, is due date. So, if credit is granted for 30 days, due date will be 30 days from date of bill. On other hand if credit is granted for say 60 days / 90 days, in such a case due date will be 45 days from the date of supply of goods or rendering of services.
3. Financial year end date say 31st March. For FY 23-24, it will be 31st March 2024.

Thus specified time can be stated as a date is before end of the year say 31st March 2024. So, if assessee has received goods any time during the year say in May 2023 and if he pays before 31st March 2024, then it will be considered having paid within specified time. It will not have any negative impact of section 43B(h). However, if the same is not paid on or before 31st March 2024, entire amount of purchase will be disallowed while computing income for the year ended 31.03.2024. Later, purchase amount will be allowed in the year of payment, say if paid in June 2024, it will be allowed in FY 2024- 25 (AY 2025-26).

However, where payment is not due by say 31st March 2024, in such cases

1. Where there is no agreement for payment period within 15 days from the date of receipt of goods or services. For example, if goods are received on say 20th March 2024 then it becomes due within 15 days viz. on 4th April 2024.
2. Where there is agreement for payment period, within such agreed period from the date of supply of goods or services received. For example if goods are received on say 20th March 2024 and agreed credit period is 30 days, then it becomes due within 30 days viz. 19th April 2024. So, if it is not paid on or before 19th April 2024, then again it will not be allowed in FY 23-24 (AY 24-25) and will be allowed in the year of payment.

However, in case agreed credit period is 45 days, 60 days, 90 days, 120 days or 180 days in all these cases as per MSMED Act, 2006, it will be considered agreed period only as 45 days and any period exceeding 45 days will be ignored. Hence, if goods are received on say 20th March 2024 and agreed credit period will be considered as 45 days, then it becomes due within 45 days viz. 4th May 2024. So, if it is not paid on or before 4th May 2024, then again it will not be allowed in FY 23-24 and will be allowed in the year of payment.

In case of any objection or defect pointed by buyer on receipt of services or goods

In case any objection was raised by buyer to supplier in writing within 15 days from the day of the delivery of goods or the rendering of services regarding acceptance of goods or services, then the day of acceptance shall be the day on which such objection is removed by the supplier. So, it will be assumed that goods or services are supplied on the day on which such objection is removed.

One important thing to be noted is that period has to be counted from the date of receipt of goods or services and one should not count number of days from the date of bill.

Proviso of S. 43B allowing payment before due date of return, not applicable to S.43B(h)

Normally under provisions of section 43B, Government dues, bank interest etc. are allowed in same financial year if the Govt. Dues, bank interest etc. is paid on or before due date of filing of return of income or date of filing or return of income, whichever is earlier. However, there is no such benefit allowed u/s. 43B(h) to pay on or before due date of filing of return of income or date of filing return of income, whichever is earlier. Proviso of section 43B says except clause h this proviso will be applicable, thus as per provision of section 43B(h) payment has to be made within specified period as stated herein above.

Non applicability of S. 43B(h) for dues outstanding of prior years’ say of FY 2022-23

Any expense which was incurred prior to 1st April 2023 if not paid by 31st March 2024, it will not be disallowed in computing income for the year ended 31.03.2024 (AY 2024-25), since the expense is not claimed in FY 23-24. Section 43B(h) has become applicable from FY 2023-24 as such expenses incurred in earlier years prior to FY 2023-24, will not attract provisions of section 43B(h). Hence expenses debited in FY 22-23 or earlier years will not be hit by section 43B(h).

Non applicability S. 43B(h) for provisions made on 31st March where no service rendered

Section 43B(h) will have no implication for provisions made for expense on year end say 31st March 2024, where supply of goods or services not rendered. Since services / goods are not received before year end, it will be applicable from the date of receipt of goods or services. For example, provision for Audit Fees on 31st March 2024 need not be paid within specified period, since audit will take place in the coming year and services in this regard will be actually rendered later. If, however provisions are in respect of goods already delivered or services already rendered during the financial years in question, section 43B(h) will apply.

Whether disallowance u/s 43B(h) will include amount of GST

Normally purchase or expense is booked net of GST, as per accounting standard followed. In cases where purchase or expenses is claimed exclusive or GST and GST is not claimed while computing income, expense will be disallowed without GST. In such a case GST, per se will be governed by other provision of Section 43B.

Whether S. 43B(h) will apply for payment of Capital Assets

Section 43B(h) applies to sums payable in respect of which a deduction is otherwise allowable under this Act. Therefore, it would apply to amounts payable in respect of purchase of Capital Goods for which 100% deduction is admissible say u/s. 35AD. In such cases payment to supplier has to be made by buyer within specified time, otherwise deduction will not be allowed.

If 100% deduction of capital expenditure is not claimed by the taxpayer while computing its income, payment for capital assets purchased if not made within prescribed period will not be liable to be added to income u/s. 43B(h). There would be no disallowance in respect of depreciation on capital goods purchased. This is because depreciation is not a “ sum payable is respect of which deduction is otherwise allowable” but depreciation is a statutory allowance.

Non applicability of S. 43B(h) where assessee opts for 44AD, 44ADA, 44AE, etc.

Section 43B starts with the word “Notwithstanding anything contained in any other provisions of this Act”, however, sections 44AD also begins with non-obstante clause: “Special provision for computing profits and gains of business on presumptive basis. 44AD. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C,……. Similar wordings are there in section 44ADA, 44AE, 44BBB and 115VA. When two non-obstante clauses are there, courts have held that specific will prevail over general. Thus, here presumptive section being specific will prevail over general provision of section 43B.

Thus, if the assessee is opting for presumptive taxation u/s. 44AD, 44ADA, 44AE, 44BBB etc. then provisions of section 43B(h) will not be applicable. As such assessee opting presumptive tax in section 44AD etc, any delayed payment by such assessee to Micro or Small enterprises will not attract disallowance u/s 43B(h) of the Act.

Implication of S. 43B(h) where advance is paid to the supplier

The advance payment made to the covered Micro and Small Enterprise shall be allowed as a deduction in the year of payment itself even if goods not supplied or services not rendered during the year. Hon. Supreme Court in the case of CIT v. United Glass Mfg. Co. Ltd. [2012] 28 taxmann.com 429 (SC) upheld deduction u/s. 43B for the advance payments.

This will be because of the specific wordings of section 43B(h): “shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him”

Consequence where cheque is not encashed by supplier within specified time

In case where buyer has handed over cheque to the supplier within specified time but cheque is encashed by the supplier after specified due date, in such case payment will be treated within due date. This is due to the fact that as per accepted commercial usages, payment is regarded as made on the due date the cheque is handed over to payee provided the cheque does not bounce subsequently. However, it is not advisable to use this method as a loophole in said provision, since auditors as well as assessing officer may look in actual cause of such delay.

Applicability of S. 43B(h) where part payment is made before specified date

In case where payment of goods or services is made in part before the specified date, proportionate disallowance should be made for the part for which no payment is made. This view is taken from the fact that section 43B(h) provides for deduction of “such sum is actually paid by him”.

Applicability of S. 43B(h) in computing Book Profit under MAT provisions

Section 43B(h) is applicable for calculating taxable income under income tax laws only. Hence, it will not be applicable for calculating book profit to compute MAT (Minimum Alternate Tax) u/s. 115JB of the Income Tax Act, 1961.

Applicability of S. 43B(h) where cash system of accounting is followed

Since in cash system expense is allowed in the year of payment, which matches with provisions of section 43B(h) there would be no impact of section 43B(h), where assessee follows cash system of accounting. There would be no amount outstanding in books of assessee following cash system.

Non applicability of S. 43B(h) in case of personal purchases

Section 43b(h) will not apply for personal purchases, since S.43B(h) is applicable to a business or professional transaction of a buyer- assessee who is carrying on a business or profession.

Applicability of S. 43B(h) where supplier of goods is retailer

As per author’s view 43B(h) will not apply to Traders, however, a different view is taken that it will apply to retailers also since the term used is “supplier” and supplier includes retailers. In this regard, as seen earlier as per definition under MSMED Act, 2006 Sec. 2(n) supplier means a micro or small enterprise, hence to be a supplier under MSMED Act, 2006 it must be an enterprise. Further definition in Sec.2(e) of “enterprise” covers only one engaged in manufacture or production of goods or engaged in providing or rendering services, thus it does not cover Retailer under MSMED Act defining supplier.

As per para 2 of office memorandum number 5/2(2)/2020/E/P&G/ Policy dated 2nd July 2021 issued by the Central Government, it has been clarified that “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 Prior Sector Lending only”.

Central Government’s office memorandum (1)/2021-P & G Policy dated 1st September 2021, further clarifies that “the benefits to Retail and Wholesale Trade MSMEs are restricted up to prior sector lending only, and other benefit, including provisions of delayed payment as per MSMED Act, 2006 are excluded.

Minster of Housing and Urban Affairs vide their D.O. letters No. K-12017(33)/1/2021-UPA-I-UD (9111371) dated 09.07.2021 and 19.07.2021 has requested for inclusion of urban street vendors in the ambit of MSME. Accordingly, M/o MSME vide notification 16/17/2020- P&G/Policy (E- 19421) dated 09.08.2021 clarified that the Street Vendors can register as retail trades on Udyam Registration (UR) portal. The registration process does not differentiate between urban and rural enterprises. However, the benefits to Retail and Wholesale trade MSMEs are to be restricted to Priority Sector Lending only.

Applicability of S. 43B(h) where goods purchased from unregistered MSE

From 1-7-2020 Udyam Registration (UR) has replaced the earlier Udyog Adhar Memorandum (UAM). In case of those registered under the earlier UAM would be regarded as unregistered unless they have obtained the new Udyam Registration.

MSMED Act, 2006 requires micro and small enterprise to register on Udyam Registration portal and obtain Udyam number. Sec. 2(n) of MSMED Act defines “supplier” specifies a micro or small enterprise, which has filed a memorandum with the authority.

In Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. (unit2) & Anr. (2003) 6 SCC 401, Hon. Supreme Court has held that the MSMED Act is a special act and overrides any general act like the Arbitration Act. It further held that if the supplier on the date of transaction is not holding the registration/ memorandum and is not covered under the MSMED Act, it can’t claim benefits with subsequent registration.

Thus, status of the supplier has to be checked on the date of transaction. If the supplier has registered after the date of supply of goods or rendering of services, provision of section 43B(h) should not be applicable in such cases.

Since, the status of the MSE may be changed every year based on its turnover and/ or investment in Plant and Machinery for example a Small enterprise may become medium enterprise, hence, supplier must update its information on Udyam portal every year and specify its status. Thus, registration needs to be renewed every year.

Few Suggestions:

For Suppliers: As per the memorandum No. No.2(18)/2007-MSME(pol), dt. 26-08-2008, it is not only enough to obtain Udyam Registration but necessary to print the said number on the tax and other invoices and letter heads etc. As a practice, to comply with GST provisions suppliers specifies GST number and declaration of its validity in their Tax Invoice. It is advisable that Micro and Small suppliers should also specify on their tax invoice, their Udyam registration number and its validity.

For buyers: For Ensuring proper and timely compliance of provisions of section 43B(h) one may consider payments to Micro and Small Enterprises have to be made by within the timeframe specified in the MSMED Act, 2006. If the payment is made late, the deduction will not be allowed until the following financial year in which payment is made.

It is advisable to initiate communication with all suppliers to confirm if they are registered in Udyam and obtain their Registration Certificates for the fiscal year 2023-24. If there is no response, send reminder or review their documents such an letter heads, invoices, Purchase Orders, etc., where in they may have stated their MSME status. Check written agreement, purchase order or invoice for terms of payment. If there is no mention and credit period is allowed as a practice, get written confirmation by email or otherwise regarding credit period allowed by the supplied.

Check whether they are registered as Medium Enterprise or as Retailers, if so section 43B(h) will not apply for such suppliers. In case of capital goods, this will be applicable only if 100% deduction is to be claimed. In case there are any advance payments made to specified Micro or Small Enterprise, claim them as deduction u/s. 43B(h) even if they are not reflected in the Profit and Loss Account. Otherwise deduction for such payment will not be allowed in the year of receipt of goods or services.

For Auditors: As per CBDT circular dated 19th March 2024 in form 3CD clause 22 the auditors will have to specify “or any other amount not allowable under clause (h) of Section 43B of Income Tax Act, 1961”. As such Auditors will have to properly understand the provisions of the section, verify records properly and specify views taken by him wherever there is controversial issue may arise.

Conclusion:

As the provision of section 43B(h) is a latest and thus becomes an evolving one, views expressed and interpretation made herein are purely personal and based on the understanding of the law as on date. This may change in due course of time due to further different interpretations/ explanations and Government’s decision on its various aspects over the time to come. The reader should consider these views as one possible views of the law, which may be interpreted differently by different person. Businessmen’s are facing lots of issues viz. liquidity crunch, working capital issue to comply with the provisions. Although, it is being anticipated that the Government may bring some relaxation in this regard in forthcoming final budget in July 2024, however, till then we have to remain in and abide by the law as it exists today and duly comply the same to avoid any negative impact thereof.

APPLICABILTY OF 43B(h)_ in Flow chart

As per MSMED Act following are the investment and turnover criteria:

Criteria	Mirco	Small	Medium
Investment in Plant & machinery or Equipment	Less Than 1 Crore	Less Than 10 Crore	Less Than 50 Crore
Turnover (Excluding Exports)	Less than ₹ 5 Crore	Less than ₹ 50 Crore	Less than ₹ 250 Crore

• The twin conditions of investment and turnover limits have to be complied to be covered under the Micro/Small/Medium enterprise
• For the purpose of Investment in Plant and Machinery WDV as per IT is to be considered.