• By ADMIN
• Posted 27 Jan, 2024
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Effect of non-payment of dues to Micro & small entities under Income-tax Law

1.What is disallowed u/s 43B with respect to Micro & Small Enterprises?

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 (MSEM Act, 2006)

Section 15 of MSME Act, 2006

“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 therefor 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.”

2.Year of applicability of these provisions?

It is applicable from AY 2024-25 (FY 2023-24)

3.What is Micro Enterprise?

A micro enterprise, where the investment in Plant and Machinery or Equipment does not exceed one crore rupees and turnover does not exceed five crore rupees. (MSME Notification)

4.What is Small Enterprise?

A small enterprise, where the investment in Plant and Machinery or Equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees. (MSME Notification)

5.What if payments to Micro & small entities were made before filing of ITR?

Even if the payments to Micro & small entities for a particular year is made in the next year, even a single day delay leads to disallowance in the current year and allowance in the subsequent year.

Example:

If security charges invoice raised by a micro enterprise in December 2023 not paid as of 31.03.2024 but paid on 01.4.2024 is disallowed in FY 2023-24 and allowed in FY 2024-25.

6.What is the due date for payment to Micro & Small enterprise?

7.When a payment agreed for  is within 7 days but actually paid within 45 days. What is the effect?

If the payment not made within 7 days of acceptance or deemed acceptance then it is a non-compliance and if it is not paid before 31^st March of that year, then it is not allowed in that year and allowed only in the year in which it was paid.

8.What is appointed day?

"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.

9.What is ‘day of acceptance’?

"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;

10.What is ‘day of deemed acceptance’?

"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;

11.Whether Traders will be covered under this provision?

The Central Govt. had allowed the traders to get registered for UDHAYM vide office memorandum issued on 02.07.2021 under the NIC code 45,46 and 47 but in the O.M it is specifically stated that benefits to retail and wholesale trader are also MSME for this clause as they fulfilled the criteria of investment and turnover though benefit of MSME is restricted only for calculation of prime sector lending as per O.M under MSMED.

Hence, in our opinion, traders will be not be considered for the purposes of section 43B(h) as word enterprises connotes only for the concern engaged in the manufacturing or processing or rendering of services. Traders have been considered by the Central Govt. on the basis of power conferred under the Act for specific purposes only.

12.Whether Job work is covered under this provision?

Yes. Person engaged in the business of manufacturing or production on job work basis shall be considered as manufacture. Accordingly covered under this provision.

13.What will be the position of provision made against amount payable to Micro & Small enterprises?

Where provision for expenses created at the year end which are not the actual expenditure to be considered / specified u/s 15 of MSME Act. As the date of acceptance or deemed date of acceptance are not available. Hence, provision for expenses not covered under section 43B(h) for the purpose of disallowances.

14.Whether only a MSME registered Micro or small enterprises are covered under Section 43B(h)?

No. All the entities which fulfil the limits and conditions to become micro or small enterprises are covered under section 43B(h).

15.Why are these provisions introduced in Income-tax Act?

It is introduced in the Finance bill 2023 and the budget memorandum states as follows:-

B. Socio Economic Welfare Measures Promoting.

1.Timely payments to Micro and Small Enterprises. 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.

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 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 is also proposed that the proviso to section 43B of the Act shall not apply to such payments.

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, the proposed amendment to section 43B of the Act will allow 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.

4. This amendment will take effect from 1st April, 2024 and will accordingly apply to the assessment year 2024-25 and subsequent assessment years.