2014 (3) TMI 957 - AT - Income Tax

Tribunal decision on notice service and tax disallowance; appeal partially allowed under Section 43B

The Tribunal upheld the CIT(A)'s decision regarding the disputed service of notice u/s 143(2), advising the assessee to file a revision before the ... Disallowance u/s 43B - Held that:- An explanation was sought from the assessee in respect to non-payment of outstanding service tax as on 31.03.2008, and since it was found by the AO that an amount of ₹ 11,72,233/- (service-tax) which was due to be paid before the due date of filing of return of income had been remitted after the due date. To this query the assessee had explained that due to clerical mistake this amount was not added to the income of the assessee company at the time of filing of the income tax return. - explanation given by the assessee in any manner amounts to an admission to tax the said out-standing service tax. The claim of the assessee throughout was that the service tax expenditure has not been debited in P&L Account and since the assessee has not claimed the said amount as expenditure, the question of disallowance u/s 43B of the Act does not arise. We find force in the said contention of the ld AR and we set aside the order of the ld CIT(A) and remand the matter back to the file of the Assessing Officer with a direction to verify the said claim of the assessee that no such expenditure has been debited in its P&L Account, and if the Assessing Officer finds the said claim of the assessee as correct then the question of disallowance u/s 43B does not arise and consequently the Assessing Officer shall delete the said addition and pass fresh assessment order in this respect in accordance to law. - Decided in favour of assessee. Issues involved:1. Disputed service of notice u/s 143(2) on assumed ground of non-filing of objection before Assessing Officer.2. Disallowance u/s 43B of the Act amounting to Rs. 11,72,233 based on admission before Assessing Officer.Analysis:Issue 1: Disputed service of notice u/s 143(2)The assessee challenged the service of notice u/s 143(2) by the Assessing Officer, claiming non-receipt and lack of jurisdiction. However, the CIT(A) dismissed this ground citing Section 292BB of the Act, which states that any defect in the notice shall not invalidate the assessment. The CIT(A) advised the assessee to file a revision before the Commissioner of Income Tax u/s 264 of the Act. The Tribunal upheld the CIT(A)'s decision, stating that the ground cannot be entertained at the appellate level after participating in the assessment proceedings.Issue 2: Disallowance u/s 43B of the ActThe Assessing Officer added Rs. 11,72,233 to the assessee's income under Section 43B of the Act for outstanding service tax not remitted before the due date. The assessee contended that since they did not claim any deduction for service tax in their Profit and Loss Account, the addition was unwarranted. Citing the case of CIT Vs. Noble & Hewitt India (P) Ltd, the Tribunal agreed with the assessee's argument. The Tribunal emphasized that the assessee not claiming the deduction and following the mercantile system of accounting meant disallowance under Section 43B did not apply. The Tribunal set aside the CIT(A)'s order and remanded the matter to the Assessing Officer to verify the claim that the service tax expenditure was not debited in the Profit and Loss Account. If found correct, the addition under Section 43B was to be deleted, and a fresh assessment order was to be passed accordingly.In conclusion, the appeal by the assessee was partly allowed for statistical purposes, emphasizing the need for proper verification and adherence to accounting principles in tax assessments.