Anandit Foods: MSME Dues, TDS Defaults and a Rule 37A ITC Reversal
Anandit Foods Pvt Ltd (turnover ₹410 crore for FY 2024-25) is finalising its first return under scrutiny. Three issues have emerged. First, ₹2.40 crore of packaging material bought from an Udyam-registered micro enterprise was unpaid at 31 March 2025, having remained outstanding for 132 days; the accounts treat it as a trade payable. Second, ₹1.10 crore paid to a transport contractor was debited without deduction of tax at source; the contractor's PAN was on file and no certificate under section 197 was obtained. Third, the company claimed ₹6.50 crore of distributor incentives accrued on the last day of the year, with no invoice, no acknowledgement and no payment. On the GST side, a GSTR-2B reconciliation shows ₹1.80 crore of input tax credit availed in FY 2024-25 on invoices where the supplier had not filed GSTR-3B by 30 November 2025; a further ₹42 lakh relates to a supplier whose registration was cancelled with retrospective effect. The CFO proposes to 'wait and see' before reversing anything.
1. Quantify the income-tax adjustments for FY 2024-25, distinguishing between a deferral and a permanent disallowance.
Read the worked answer
1. MSME dues - section 43B(h)
Section 43B(h), applicable from AY 2024-25, allows a deduction for sums payable to a micro or small enterprise only on actual payment within the time limit in section 15 of the MSMED Act (45 days where there is a written agreement, otherwise 15 days). 132 days breaches either limit.
- Add back ₹2.40 crore to total income for FY 2024-25.
- This is a deferral, not a permanent loss: the deduction is available in the year of actual payment, provided the payment is made in a subsequent previous year.
- Two checks the CFO must run: the supplier must be a micro or small enterprise (not medium) on the date of supply, and the clause applies to goods or services supplied on or after 1 April 2023.
2. Non-deduction of TDS - section 40(a)(ia)
Payment to a transport contractor attracts section 194C; no certificate under section 197 displaces the obligation. Non-deduction disallows 30% of the expenditure:
- 30% × ₹1.10 crore = ₹33 lakh, added back for FY 2024-25.
- Unlike 43B(h), this is a permanent disallowance unless the tax is deducted and paid in a later year, which then permits the claim in that year.
- The TDS itself, with interest under section 201(1A), remains payable.
3. Distributor incentives ₹6.50 crore
On the mercantile system a provision is deductible only where a present obligation has crystallised. No invoice, no acknowledgement and no payment means the liability is an unascertained provision rather than a debt; adding back is the defensible position unless the company can produce signed distributor agreements fixing the amount. Exposure: up to ₹6.50 crore, with the possibility of a consequential adjustment against closing stock if the incentive is embedded in inventory.
Total certain add-back: ₹2.73 crore, plus ₹6.50 crore at risk. Under section 270A, an under-report of this kind carries penalty exposure unless the position is disclosed and supported.
2. Quantify the GST exposure and assess whether the 'wait and see' approach is defensible.
Read the worked answer
Rule 37A - supplier has not filed GSTR-3B
Where the supplier has not furnished GSTR-3B for a tax period, the recipient who availed credit must reverse it by 30 November following the end of the financial year (or the date of filing the return for October of the next year, whichever is later) - here, 30 November 2025.
- Reversal required: ₹1.80 crore. If the supplier subsequently files GSTR-3B, the recipient may re-avail the credit; but re-availment is a right, not an excuse for non-reversal.
- Interest at 18% runs from the date of availing until reversal, so delay is a direct cost: roughly ₹1.80 crore × 18% for the months of delay.
Retrospective cancellation of supplier registration
Circular 185/2022-GST permits credit only on invoices issued up to the effective date of cancellation (or the last return filed, if later). Credit on invoices issued before the date of cancellation is otherwise at risk and the recipient bears the burden of proving the transaction was genuine (transport, payment through banking channels, e-way bill).
- Exposure: ₹42 lakh, likely to become a permanent loss rather than a temporary reversal.
Total immediate reversal = ₹2.22 crore (plus interest), with approximately ₹42 lakh not recoverable.
Is 'wait and see' defensible? No. Section 16(2)(aa) and Rule 36(4) make credit conditional on the supplier's compliance appearing in GSTR-2B, and Rule 37A fixes a date. Non-reversal in the GSTR-3B for the relevant period is a short payment attracting section 73/74 proceedings with interest under section 50 from the date of availing, not from the date of the notice. The correct course is to reverse in the November 2025 return, keep the re-availment ledger, and pursue the defaulting suppliers contractually. It is also a governance point: 'wait and see' converts a disclosed timing difference into a suppression allegation.
3. Assuming total income after the above adjustments is ₹8.4 crore, should the company opt for section 115BAA? Advise the CFO.
Read the worked answer
Rate comparison
| Normal (total income ₹8.4 crore) | Section 115BAA | |
|---|---|---|
| Base rate | 30.00% | 22.00% |
| Surcharge | 7% | 10% |
| Cess | 4% | 4% |
| Effective rate | 33.384% | 25.168% |
| Tax | ₹2.80 crore | ₹2.11 crore |
The headline saving is ₹0.69 crore a year.
What is given up. The company must forgo additional depreciation under section 32(1)(iia) (claimed ₹1.90 crore), weighted deductions, and brought-forward losses attributable to additional depreciation; MAT under section 115JB ceases to apply and MAT credit lapses. Tax cost of losing the additional depreciation alone: 1.90 × 33.384% = ₹0.63 crore. Net annual benefit is therefore marginal - roughly ₹0.06 crore - and it turns on the forward depreciation profile: in a year with heavy capital expenditure, the normal regime can beat 25.168%.
Timing and irrevocability. The option is exercised in Form 10-IC on or before the due date under section 139(1). Once exercised it cannot be withdrawn, so it binds future years including those in which the company may have losses or large capital spends.
Recommendation. Do not opt on a single-year comparison. Model five years with the actual capital expenditure plan; if the company is evaluating the Phase-wise plant expansion or will claim additional depreciation materially above ₹1.9 crore a year, stay in the normal regime and use MAT credit. If capital expenditure is winding down, opting now locks in a 25.168% rate that also simplifies compliance. The decision must be taken before the return filing date; it cannot be repaired at assessment.