Tribunal rules in favor of assessee, dismissing Revenue's appeal on service tax and depreciation issues.

The Tribunal allowed the assessee's appeal, determining that the CIT's order under Section 263 was erroneous and prejudicial to the interest of revenue. It held that the non-payment of service tax did not warrant disallowance under Section 43B, and the hoarding structures qualified for 100% depreciation due to their temporary nature. The Revenue's appeal, challenging these decisions, was also dismissed by the Tribunal, affirming the rulings in favor of the assessee.

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Issues Involved:
1. Treatment of outstanding service tax under Section 43B of the Income Tax Act.
2. Depreciation claimed on hoarding structures.

Issue-wise Detailed Analysis:

1. Treatment of Outstanding Service Tax under Section 43B of the Income Tax Act:

The primary issue raised by the assessee was whether the Commissioner of Income Tax (CIT) erred in treating the assessment order as erroneous and prejudicial to the interest of revenue under Section 263 of the Income Tax Act due to the non-payment of outstanding service tax amounting to Rs. 1,37,15,804/-. The CIT observed that this amount should be disallowed as per the provisions of Section 43B of the Act.

The assessee argued that as per Section 145A of the Act, turnover includes sales tax and excise duty but excludes service tax. The assessee, acting as an agent for the government, is not entitled to claim a deduction for service tax. The liability to pay service tax arises only upon receipt of payment for the services rendered, as per Rule 6 of the Service Tax Rules, 1994. Since no service tax was debited or credited in the profit and loss account, there was no mistake in the assessment order.

The CIT rejected the assessee's plea, stating that the payment of service tax is governed by Section 43B of the Act, which mandates that such payments should be allowed only if paid on or before the due date of filing the income tax return. The CIT directed the Assessing Officer (AO) to re-examine the matter.

Upon appeal, the Tribunal found that the liability to pay service tax did not arise as the payment for the services rendered was not received within the financial year. The Tribunal noted that Section 43B applies to deductions claimed for taxes paid, and since the service tax liability had not crystallized due to non-receipt of payment, the question of claiming a deduction did not arise. The Tribunal also referenced the case of CIT vs. Noble And Hewitt (I) P. Ltd., where it was held that disallowance under Section 43B does not apply if the deduction was not claimed in the first place.

2. Depreciation Claimed on Hoarding Structures:

The second issue was related to the depreciation claimed by the assessee at 100% on hoarding structures, which the CIT found to be against the provisions of law. The CIT observed that the hoarding structures, as per the assessee's accounting policy, had a useful life of 3-5 years, and thus, depreciation should be allowed at 10% per annum, similar to non-residential buildings. The CIT noted that the technology and life of hoarding structures had changed significantly since the initial assessment year (AY 1972-73), and therefore, the previous assessment orders had no bearing on the current case.

The assessee argued that the hoarding structures were temporary and their value became almost nil once dismantled. The assessee provided details and technical certificates from Chartered Engineers to support the claim for 100% depreciation. The Tribunal referred to a previous Tribunal decision (ITA No.657 to 659/Kol/2011) where it was held that temporary structures like LED Video Display Boards, which are used in temporary locations and have a short lifespan, qualify for 100% depreciation.

The Tribunal concluded that the hoarding structures were indeed temporary and could not be equated with buildings. The Tribunal found that the CIT's order was unsustainable in law and cancelled the revision order, allowing the assessee's appeal.

Conclusion:

The Tribunal allowed the assessee's appeal, concluding that the CIT's order under Section 263 was erroneous and prejudicial to the interest of revenue. The Tribunal held that the non-payment of service tax did not attract disallowance under Section 43B, and the hoarding structures qualified for 100% depreciation as they were temporary in nature.

Revenue's Appeal:

The Revenue's appeal raised similar issues regarding the deletion of the service tax addition and the depreciation on hoarding structures. Following the same reasoning as in the assessee's appeal, the Tribunal dismissed the Revenue's appeal, upholding the decisions in favor of the assessee.

Final Order:

The Tribunal pronounced the order in open court on 30/09/2016, allowing the assessee's appeal and dismissing the Revenue's appeal.

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