Some more intricacies related to disallowances U/S 43B(h) ie payments to MSMEs:
Introduction:
⏩1. In my earlier posts, I have already mentioned about the introduction of clause (h) in Sec 43B of the Income Tax Act vide Finance Act 2023, which provides a deduction of the sum payable to Micro Enterprise or Small Enterprise (“MSME”) otherwise allowable only on a payment basis.
⏩2. As per this amendment, any sum payable by an assessee to MSME supplier beyond the time limit specified in section 15 of the Micro Small and Medium Enterprises Development Act, 2006 (“MSMED Act”) shall be allowed as a deduction in the year in which actual payment has been made.
⏩3. 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.
Some more important points to remember:
⏩1. As per O.M. 5/2(2)/2021-E/P & G/Policy dated 02-07-2021, wholesale and retail trader are entitled for Udyam registration only for the benefit of Priority Sector Lending only. So, purchase from traders would be outside the purview of these amendments.
⏩2. In case any defect in goods or deficiency in service is noticed, then an objection in writing should be made within 15 days. Date of removable of objection by the vendor should also be kept in record as counting of due date will start from this date.
⏩3. 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.
⏩4. 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. along with GST number and also include a declaration to the effect of its validity similar to that of declaration under the GST law.
⏩5. As per section 2(e) of MSMED Act, 2006 “enterprise” means an industrial undertaking or a business concern or any other establishment, by whatever name called. Thus an individual carrying out a business without an office may not classify as a MSME.
Team- Intellex Strategic Consulting Private Limited
www.startupstreets.com, www.intellexCFO.com, www.intellexconsulting.com, www.growfranchisees.com
