Section 43B disallowance does not apply to service tax shown as liability but never claimed as deduction.

Service tax collected and shown as a liability, but neither debited to the profit and loss account nor claimed as a deduction, is not liable to disallowance under section 43B. Where an assessee follows the mercantile system, credits service tax to a separate account and remits it to the treasury without treating it as expenditure, the statutory disallowance provision does not apply. The Delhi High Court view noted in the text was followed, and the addition for service tax payable was deleted in favour of the assessee.

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Issues: Whether service tax collected and reflected as a liability, but not debited to the profit and loss account and not claimed as a deduction, could be disallowed under section 43B.

Analysis: The assessee followed the mercantile system of accounting. The service tax collected was credited to the service tax account and paid to the treasury from time to time. No part of the service tax receipt was taken to the profit and loss account, and no expenditure on account of its deposit was debited there. In similar facts, the Delhi High Court had held that where the amount was neither debited as expenditure nor claimed as deduction, disallowance under section 43B would not arise.

Conclusion: The addition on account of service tax payable was not sustainable and was deleted in favour of the assessee.

Ratio Decidendi: Where a liability is not claimed as a deduction and is not debited to the profit and loss account, section 43B cannot be invoked to disallow it.

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