Appeal partly allowed: Interest disallowance overturned, service tax disallowance upheld

The Tribunal partly allowed the appeal, setting aside the Principal Commissioner's order on the disallowance of interest payment for non-deduction of tax at source. However, the Tribunal upheld the Principal Commissioner's order on the disallowance of unpaid service tax payable under section 43B of the Income Tax Act.

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Issues:
1. Disallowance of interest payment for non-deduction of tax at source.
2. Disallowance of service tax payable under section 43B of the Income Tax Act.

Issue 1: Disallowance of interest payment for non-deduction of tax at source:
The appeal was filed against the order of the Principal Commissioner of Income Tax for the assessment year 2012-13. The Principal Commissioner observed that the assessee had debited interest payment without deducting tax at source. The Assessing Officer had not examined this issue during the assessment. The Principal Commissioner set aside the assessment order and directed a fresh assessment. The appellant contended that the assessment was not erroneous as the remaining interest amount had been added back to income by the Assessing Officer. The Tribunal found that the Assessing Officer had considered the issue and disallowed the amount not subjected to TDS. The Tribunal concluded that there was no error prejudicial to revenue, setting aside the Principal Commissioner's order.

Issue 2: Disallowance of service tax payable under section 43B:
The appellant had debited a sum as service tax payable, with a balance remaining unpaid at year-end. The appellant argued that though there was an error in the assessment for not disallowing the unpaid service tax, it did not affect revenue as the overall income was a loss. The appellant contended that reducing the loss through disallowance did not result in positive income. However, the Tribunal disagreed, stating that the unpaid service tax attracted disallowance under section 43B, which the Assessing Officer had not verified. The Tribunal held that not making the addition of unpaid service tax was both erroneous and prejudicial to revenue. Therefore, the Principal Commissioner's order was upheld, and the appeal on this issue was dismissed.

In conclusion, the Tribunal partly allowed the appeal, setting aside the Principal Commissioner's order on the disallowance of interest payment but upholding the order on the disallowance of unpaid service tax.

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