Tribunal Upholds Disallowance of GST under Income Tax Act

The Tribunal upheld the disallowance under section 43B of the Income Tax Act, 1961, due to the non-deposit of GST before the due date of filing the return of income under section 139(1). The Tribunal emphasized that the GST is part of sales and turnover and must be accounted for accordingly, rejecting the assessee's argument that bypassing the profit and loss account exempted them from disallowance. Citing precedent cases, the Tribunal held that non-payment of GST liability by the due date attracts disallowance under section 43B, regardless of accounting treatment. The appeal was dismissed, affirming the CIT(A)'s decision.

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Issues Involved:
1. Disallowance under section 43B of the Income Tax Act, 1961, due to non-deposit of GST before the due date of filing the return of income under section 139(1).

Issue-wise Detailed Analysis:

1. Disallowance under Section 43B due to Non-deposit of GST:
The primary issue in this appeal is the disallowance made by the Assessing Officer (AO) under section 43B of the Income Tax Act, 1961, due to the assessee's failure to deposit GST before the due date of filing the return of income under section 139(1). The assessee argued that since the GST was not claimed as a deduction in the profit and loss account and was directly taken to the balance sheet, no disallowance should be made under section 43B.

The learned Departmental Representative (DR) contended that the GST is an inseparable part of the sales and turnover, and therefore, non-deposit of GST within the prescribed time under section 43B would attract its provisions. The DR also referred to the tax audit report, which specifically reported the GST amount as disallowable under section 43B.

The Tribunal considered the submissions and found no dispute that the GST was not paid within the time limit prescribed under section 43B and was shown as outstanding in the balance sheet. The Tribunal noted that the assessee's method of bypassing the profit and loss account by directly taking the GST amount to the balance sheet was not acceptable. The GST is part of the sales and turnover and must be shown as part of the inventory/closing stock. The Tribunal emphasized that the assessee is required to maintain books of accounts as per the accounting standards notified under section 145 of the Act, which includes adjustments for taxes, duties, cess, or fees as per section 145A.

The Tribunal held that the assessee's contention that it did not claim any deduction on account of GST by taking it directly to the balance sheet and not through the profit and loss account is not acceptable. The assessee cannot adopt an accounting treatment to circumvent the provisions of section 43B. The Tribunal referred to the decision of the Hon'ble Supreme Court in Chowranghee Sales Bureau P. Ltd. vs. CIT, which held that sales tax collected by the assessee is a revenue receipt even if shown under a non-revenue head.

The Tribunal also referred to the decision of the ITAT Cochin Bench in the case of "M/s. Kunnel Engineers & Contractors (P) Ltd.", which dealt with a similar issue involving service tax. The Tribunal noted that the Cochin Bench had decided the issue in favor of the revenue, holding that non-payment of service tax within the stipulated time attracts disallowance under section 43B, even if the service tax was not claimed as an expenditure in the profit and loss account.

The Tribunal concluded that the non-payment of GST liability into the government account on or before the due date of filing the ITR under section 139(1) clearly attracted disallowance under section 43B, irrespective of whether the GST component of the sales was credited/debited to the profit and loss account. The Tribunal upheld the CIT(A)'s order, which had followed various decisions of the Tribunal and the Supreme Court, and dismissed the appeal of the assessee.

The Tribunal's decision was pronounced in the open court on 25.08.2022 at Varanasi, U.P.

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