Disallowance u/s 43B(h) for Non-payment to Micro & Small Enterprises

Introduction

Greetings, dear readers! In today’s discussion, we delve into a crucial amendment that surfaced last year, demanding careful scrutiny from an audit perspective as the financial year comes to a close. The amendment in question introduces a new clause, 43(B)(h), under Section 43B, disallowing expenditures incurred with Micro or Small Enterprises if not paid within the stipulated time frame.

Key Points of the Amendment

The significant amendment, encapsulated in Section 43(B)(h), targets expenditures sourced from Micro or Small Enterprises and not settled within the timeframe prescribed by Section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.

Important Points :

• Above stated amendment will take effect from 01.04.2024 and will accordingly apply in relation to AY 2024-25 and subsequent years.
• Definitions:
  • Definition of Micro Enterprise: Investment in Plant & Machinery less than Rs. 1 crore and Turnover less than Rs. 5 crore
  • Definition of Small Enterprise: Investment in Plant & Machinery less than Rs. 5 crore and Turnover less than Rs. 50 crore
  • The above definition is for both Manufacturing Enterprises and Enterprises rendering Services.
• Applicability of Disallowance: Disallowance u/s. 43B of the Act will be attracted in case the supplier is either Micro Enterprise or Small Enterprise.
• Let us understand Section 15 of MSME Development Act (MSMED) 2006-
  • Sec-15 of MSME Development Act, 2006 is reproduced below: “Where any supplier, supplies any goods or renders any services to any buyer, the buyer shall make payment therefor 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”, Where 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.” Therefore, if a buyer is entering into an agreement with an MSME supplier, the due date of payment cannot exceed 45 days from the date of actual delivery of goods or rendering of services as the case may be. Where there is no written agreement, the due date will be the 16th day of actual delivery. Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed 45 days from the day of acceptance or the day of deemed acceptance.
• Exclusion of Traders/Retailers/Distributors: Trader / Retailer/ Distributor, etc would not be classified as an Enterprise and would not be covered under the Micro or Small Enterprise Definition. Only Manufacturing of goods and providing services will be covered under this definition.
• Maximum Payment Period: Maximum of 45 days can be allowed and not beyond that to make payment.
• Crucial Step: Obtain an MSME certificate from suppliers before proceeding to ensure compliance with the aforementioned provisions.

Conclusion

As we approach the end of the financial year, it becomes imperative for businesses to meticulously assess their dealings with Micro and Small Enterprises. The new amendment under Section 43B serves as a reminder of the evolving regulatory landscape, emphasizing the need for proactive compliance and due diligence.

To address any queries or concerns related to the amendment, feel free to reach out at mamta0581@gmail.com. Stay informed, stay compliant!