2020 (4) TMI 123 - AT - Income Tax

Tribunal rules in favor of cable TV company on service tax disallowance under Income Tax Act

The Tribunal ruled in favor of the appellant, a cable TV distribution company, in a case concerning the disallowance of service tax under Section 43B of ... Disallowance of service tax u/s 43B - outstanding statutory liability not paid before filing of the return of income - HELD THAT:- Outstanding amount of ₹ 1,25,39,228/- on account of service tax pertains to the period prior to 30-06-2011 rather a sum of ₹ 1,21,38,957/- relates to earlier financial year being 2010-11 and therefore, it was the opening balance of statutory liability as on 01-04-2011. The assessee has not routed the outstanding service tax through its profit and loss account but has taken this amount directly to the balance sheet. Therefore, the assessee has not claimed any deduction on account of said amount of service tax which was neither collected nor paid to the Govt. account. As relying on M/S POWER LINERS VERSUS A.C.I.T., CIRCLE-3, JAIPUR [2018 (1) TMI 512 - ITAT JAIPUR] when the assessee has neither included this amount of service tax in the turnover/ revenue receipts nor claimed as deduction in the profit and loss account then the said amount cannot be disallowed u/s 43B for the year under consideration. The assessee cannot claim deduction of this amount in the subsequent years when it is paid to the Govt. Account by invoking the provisions of Section 43B of the I.T. Act, 1961. In fact, this is a claim allowability of which has to be first decided u/s 28 to 42 and only when the amount is allowable as a deduction under these provisions then the provision of section 43B can be invoked. If the claim is not allowable as the deduction u/s 28 to 42 of the I.T. Act, 1961 then the question of invoking the provisions of section 43B either for disallowance or for claiming the deduction on the event of payment does not arise. The Provisions of Section 43B are only restrictive in nature and not an enabling provision. If the claim is otherwise not allowable as deduction then the same cannot be allowed by invoking the provisions of Section 43B of the Act - we delete the disallowance/ addition made by the AO - Decided in favour of assessee. Issues:Disallowance of service tax under Section 43B of the Income Tax Act, 1961.Analysis:The appellant, a company providing cable TV distribution services, filed its return declaring Nil income after adjusting business loss. The Assessing Officer (AO) disallowed a sum of Rs. 1,25,39,228 of service tax under Section 43B as the appellant did not pay the service tax liability. The appellant argued that as per Service Tax Rules pre-30-06-2011, tax liability arises only when collected from customers. The AO rejected this, disallowing the amount. The appellant's contention was that since the service tax was not collected due to outstanding billing amounts, it should not be disallowed. The appellant also cited cases supporting their argument. The AO's decision was upheld by the CIT(A), leading to the appeal.The appellant's representative referred to Service Tax Rules pre-amendment, stating the liability arises when payments are received. They highlighted that the outstanding amount pre-30-06-2011 was not payable as per the rules. The appellant had not booked this amount in the profit and loss account, so disallowance was unwarranted. The Departmental Representative (DR) argued that the appellant's accounting method bypassed Section 43B, citing a case to support this claim. The appellant countered, stating the case cited by the DR was not applicable to their situation. The Tribunal noted that the outstanding service tax related to the period pre-30-06-2011 and was not included in turnover or claimed as a deduction. Referring to a previous case, the Tribunal ruled that if no deduction was claimed for the service tax payable, Section 43B cannot be invoked. The disallowance was deemed unsustainable, and the AO was directed to verify this fact.The Tribunal emphasized that as the service tax amount was not included in turnover or claimed as a deduction, disallowance under Section 43B was not justified. The Tribunal clarified that the claim's allowability under relevant provisions must be determined first. If not allowable, Section 43B cannot be invoked. The Tribunal deleted the disallowance/addition made by the AO, directing that the amount cannot be claimed as a deduction in the future. The appeal of the assessee was allowed, and the order was pronounced in open court on 14/02/2020.