Tribunal allows interest claim under section 14A & restricts service tax disallowance under section 43B

The Tribunal directed the Assessing Officer to allow the claimed interest amount disallowed under section 14A, as the interest, though not received in the relevant year, was offered for tax in a subsequent year. Regarding the disallowance of service tax under section 43B, the Tribunal restricted the disallowance to the amount wrongly claimed in the Profit & Loss A/c, holding that service tax collected but not credited to the account cannot be disallowed. The appeal by the assessee was allowed in both issues.

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Issues involved: Appeal against disallowance of interest u/s 14A and disallowance on account of service tax u/s 43B.

Issue 1 - Disallowance of interest u/s 14A:
The assessee, engaged in earning commission and brokerage and being a partner in a firm, claimed interest on loan in the Profit & Loss A/c. The Assessing Officer (AO) disallowed the interest, stating it was capital employed for earning tax-exempt profit. The Commissioner of Income Tax (CIT) upheld the disallowance, noting the capital was invested in the firm and the interest claim was not justified. The assessee contended that the interest was taxable as it was received upon retirement from the firm. The Tribunal held that the interest, though not received in the year under consideration, was offered for tax in a later year, making it deductible u/s 14A. The AO was directed to allow the claimed amount.

Issue 2 - Disallowance on account of service tax u/s 43B:
The AO disallowed service tax amount as the assessee did not pay the balance before the due date, invoking section 43B. The CIT upheld the disallowance, citing a decision to confirm the disallowance of service tax under section 43B. The Tribunal, however, noted that service tax collected by the assessee, not credited to the Profit & Loss A/c, cannot be disallowed u/s 43B. Relying on precedents, the Tribunal directed the AO to restrict the disallowance to the amount wrongly claimed in the Profit & Loss A/c. The appeal by the assessee was allowed.

Separate Judgement: No separate judgment delivered by the judges.

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