Unpaid Service Tax Liability Deletion Upheld by ITAT Ahmedabad

The Appellate Tribunal ITAT Ahmedabad upheld the deletion of an addition of Rs. 2,34,04,061 related to unpaid service tax liability under section 43B of the Income Tax Act for the assessment year 2013-14. The Tribunal ruled in favor of the assessee, stating that since the unpaid service tax liability was not claimed as a deduction in the profit & loss account and not paid, the AO's disallowance was unjustified. Citing a Delhi High Court judgment, the Tribunal dismissed the Revenue's appeal, affirming the decision of the ld.CIT(A) and pronouncing the order on 27th February 2020 at Ahmedabad.

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Issues:
- Appeal against deletion of addition of unpaid service tax liability under section 43B of the Income Tax Act.

Analysis:
The appeal before the Appellate Tribunal ITAT Ahmedabad revolves around the Revenue's challenge against the deletion of an addition of Rs. 2,34,04,061 pertaining to unpaid service tax liability under section 43B of the Income Tax Act. The case involves the assessment year 2013-14 and centers on the contention that the ld.CIT(A) erred in law and on facts by deleting the said addition.

The assessee, an individual deriving income from construction business, filed a return of income declaring total income at Rs. 44,26,155. During scrutiny assessment, it was discovered that the assessee had unpaid service tax liabilities of Rs. 1,27,22,684 and Rs. 1,07,81,377 as per the certified audit report. The ld.AO issued a show cause notice questioning the disallowance of this unpaid service tax liability under section 43B. Subsequently, the AO added back the amount, resulting in the total addition of Rs. 2,34,04,061.

In response to the addition, the assessee appealed before the ld.CIT(A), arguing that the unpaid service tax liability was not claimed as a deduction in the profit & loss account. The ld.CIT(A) considered the appellant's explanation, noting that the amount was not debited in the P&L account and hence cannot be disallowed. The ld.CIT(A) referred to the Delhi High Court judgment in CIT Vs. Noble & Hewitt, emphasizing that under the mercantile system of accounting, disallowing deductions not claimed does not apply.

During the Tribunal proceedings, the ld.DR supported the AO's order, while the assessee's counsel relied on the ld.CIT(A)'s decision. The Tribunal analyzed Section 43B, emphasizing that if statutory levies were required to be claimed by the assessee, the deduction could be claimed in the year of actual payment. Since the assessee did not pay the service tax liability and did not claim it as a deduction, the AO's disallowance was unwarranted. The Tribunal upheld the ld.CIT(A)'s decision based on the Delhi High Court precedent and dismissed the Revenue's appeal.

In conclusion, the Tribunal found no merit in the Revenue's appeal and dismissed it, upholding the deletion of the addition related to the unpaid service tax liability. The order was pronounced on 27th February 2020 at Ahmedabad by the Appellate Tribunal ITAT Ahmedabad.

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