2016 (2) TMI 1263 - AT - Income Tax

ITAT upholds deletion of service tax liability under section 43B

The ITAT dismissed the revenue's appeal and upheld the decision of the ld CIT(A) to delete the addition of service tax liability under section 43B of the ... Disallowance of unpaid statutory liability under section 43B of the Income-tax Act - tax not debited to profit and loss account / deduction not claimed - accounts maintained on mercantile basis and separate accounting for tax collections - relevance of CBDT Circular No.372 regarding accrual vs paymentDisallowance of unpaid statutory liability under section 43B of the Income-tax Act - tax not debited to profit and loss account / deduction not claimed - accounts maintained on mercantile basis and separate accounting for tax collections - Deletion of addition made under section 43B in respect of service tax collected but not deposited, where the amount was not debited to profit and loss account and was not claimed as a deduction - HELD THAT: - The Tribunal affirmed the view taken by the CIT(A) that where service tax collected by the assessee was not charged to the profit and loss account and no deduction in respect of that amount was claimed, disallowance under section 43B does not arise. The decision follows earlier authorities and the guidance in CBDT Circular No.372 which distinguishes cases where a tax liability has been both claimed as an expense and not paid, from situations where the amount was not brought into accounts at all. Applying these principles to the admitted facts that the service tax amount was not debited to the profit and loss account and was kept in separate accounting, the Tribunal held there was no basis for invoking section 43B to make the addition. [Paras 6]Addition under section 43B in respect of the unpaid service tax was deleted; Revenue's appeal dismissed.Final Conclusion: The revenue's appeal against deletion of the addition under section 43B (assessment year 2009-2010) is dismissed; where tax collected was not debited to profit and loss account and not claimed as a deduction, disallowance under section 43B is not attracted. Issues:Appeal against deletion of addition of service tax liability under section 43B of the Income Tax Act, 1961.Analysis:The appeal arose from an order of the ld CIT(A), Raipur concerning the assessment year 2009-2010. The main issue raised was the deletion of an addition of Rs. 56,80,797 made by the Assessing Officer on account of nonpayment of service tax liability under section 43B of the Income Tax Act, 1961. The Assessing Officer noted that the assessee, a mechanical contractor, had collected service tax but failed to deposit it in the Government account within the specified time, resulting in the tax being levied under section 43B. The matter was taken to the first appellate authority by the aggrieved party.During the proceedings before the ld CIT(A), the assessee argued that the collected service tax was not reflected in the profit and loss account and thus fell outside the scope of section 43B. Citing relevant case laws, the ld CIT(A) allowed the claim made by the assessee. The ITAT, in its analysis, referred to a previous case and concluded that if the tax liability was not claimed as a deduction and a separate account was maintained, disallowance under section 43B should not be made. The ITAT upheld the decision of the ld CIT(A) based on established legal principles and circulars issued by the CBDT.Considering the precedents and legal interpretations, the ITAT found that the issue raised by the revenue department had already been settled in favor of the assessee. Therefore, the ITAT dismissed the appeal filed by the revenue, confirming the decision of the ld CIT(A) to delete the addition of the service tax liability under section 43B. The judgment was pronounced in open court on 12/02/2016.