2020 (2) TMI 1536 - AT - Income Tax

Unpaid Service Tax Liability Deletion Upheld by ITAT Ahmedabad

ITO, Ward-3 (3) (11) Ahmedabad Versus Shri Sanjay Rampayare Prajapati

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 ... Addition u/s 43B - unpaid service tax liability - HELD THAT:- Section 43B provides that if any sum is payable by an assessee by way of tax, duty, cess or fees by whatever name called under any law for the time being in force, then such amounts shall be allowed to the assessee irrespective of the previous year in which the liability to pay such sum incurred by the assessee, according to the accounting method regularly employed by him, only in computing the income in the year in which such sum is actually paid by him. In other words, if these statutory levies were required to be claimed by the assessee, then the deduction of such amount could be claimed in the year in which they were actually paid. In the present case, the assessee has not paid service tax liability. Thus, it cannot claim deduction. The assessee has not claimed the deduction in its account. Therefore, nothing was to be disallowed by the AO. By this exercise, the AO has made double additions; viz (i) assessee himself has not claimed the deduction, and (ii) the AO has added back this amount. CIT(A) has rightly relied upon the decision of CIT Vs. Noble & Hewitt (I) P Ltd. [2007 (9) TMI 238 - DELHI HIGH COURT] and deleted the addition. - Decided in favour of assessee. 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.