Section 43B disallows unpaid service tax, while depreciation cannot be claimed on land bought with an apartment.

Unpaid service tax collected and retained beyond the prescribed time was disallowable under section 43B even though it was credited to a liability account and not routed through the profit and loss account. The interest disallowance on funds allegedly diverted to sister concerns required fresh verification, because the record did not clearly establish the availability of own funds or the nexus with borrowed funds; the matter was remitted for examination of cash flow statements and supporting material. Depreciation on the undivided share of land purchased with an apartment was not allowable, since land is not a depreciable asset under section 32.

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Issues: (i) Whether unpaid service tax collected by the assessee was disallowable under section 43B notwithstanding that it was not routed through the profit and loss account; (ii) Whether the disallowance of interest on borrowed funds allegedly diverted to sister concerns required fresh verification of the availability of own funds; (iii) Whether depreciation was allowable on the undivided share of land purchased along with the apartment.

Issue (i): Whether unpaid service tax collected by the assessee was disallowable under section 43B notwithstanding that it was not routed through the profit and loss account.

Analysis: Section 43B applies to any sum payable by way of tax, duty, cess or fee under any law for the time being in force. The fact that the assessee credited service tax to a liability account and did not claim it as an expense in the profit and loss account was held to be immaterial where the tax had been collected and remained unpaid beyond the stipulated time. The non obstante nature of section 43B prevailed, and the unpaid service tax attracted disallowance.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Issue (ii): Whether the disallowance of interest on borrowed funds allegedly diverted to sister concerns required fresh verification of the availability of own funds.

Analysis: The record did not establish with certainty, on the basis of cash flow statements and supporting material, whether sufficient own funds were available at the time of the advances. The matter required verification of the nexus between borrowed funds and the interest-free advances, and the assessee was directed to produce relevant cash flow statements before the Assessing Officer for examination.

Conclusion: The issue was remitted to the Assessing Officer for fresh consideration and was partly decided in favour of the Revenue.

Issue (iii): Whether depreciation was allowable on the undivided share of land purchased along with the apartment.

Analysis: Land is not a depreciable asset under section 32. The assessee had shown the undivided share of land separately in the block of assets, and depreciation on that component could not be sustained merely because it formed part of a flat purchase.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Final Conclusion: The Revenue succeeded on the service tax and land depreciation issues, while the interest issue was sent back for verification, resulting in only a partial grant of relief to the Revenue.

Ratio Decidendi: Unpaid statutory dues of the nature covered by section 43B are disallowable even if not debited to the profit and loss account, and depreciation cannot be claimed on land, which is not a depreciable asset.

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