DCIT Vs Corteva Agriscience Services India Private Limited (ITAT Hyderabad)
No ‘Deemed Payment’ Under Section 43B: Transfer of Employee Liabilities on Slump Sale Not Enough — ITAT Hyderabad Reverses CIT(A)
The Hyderabad ‘B’ Bench of the Income Tax Appellate Tribunal, Hyderabad Bench allowed the Revenue’s appeal for AY 2019-20 and held that employee-related liabilities transferred under a slump sale do not qualify for deduction under section 43B in the absence of actual payment.
The assessee, Corteva Agriscience Services India Pvt. Ltd., had transferred one of its business undertakings on a slump sale basis with effect from 01.04.2019. As part of the transfer, liabilities relating to bonus, leave encashment and gratuity were also transferred to the transferee company. The assessee claimed deduction of ₹2.84 crore under section 43B, contending that transfer of liabilities amounted to “deemed payment”, especially since the transferee had discharged the liability and had not claimed deduction.
The Tribunal rejected this theory and held that section 43B allows deduction only on actual payment made by the assessee on or before the due date under section 139(1). There is no concept of “deemed payment” for employee dues merely because liabilities are contractually transferred to another entity. Statutory obligations under section 43B cannot be shifted by agreement. The Bench relied heavily on the Supreme Court decision in Exide Industries Ltd. and distinguished cases relating to conversion of interest into loans or debentures.
The ITAT further held that whether the transferee paid the employees or claimed deduction is irrelevant for determining the assessee’s eligibility under section 43B. Rule of consistency was also rejected, observing that each assessment year is independent and an erroneous allowance in a subsequent year cannot justify relief.
On the assessee’s Rule 27 application, the Tribunal admitted the application but rejected both grounds. It held that (i) disallowance under section 43B is not a debatable issue and hence permissible as a prima facie adjustment under section 143(1)(a), and (ii) the CPC had followed due process while making the adjustment.
Accordingly, the order of the CIT(A) was set aside and the adjustment made by the CPC/AO disallowing deduction under section 43B was restored. The Revenue’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
