Service tax liability deduction allowed despite non-payment as assessing authority accepted accounting system without objection under Section 43B

ITAT Raipur dismissed revenue's appeal regarding non-payment of service tax liability under Section 43B. The tribunal followed its coordinate bench precedent and distinguished the Supreme Court's Checkmate Services decision, which pertained to PF/ESI contributions rather than service tax. Following Chhattisgarh HC's ruling in Ganpati Motors, the tribunal held that where assessing authorities accepted the assessee's accounting system without objection, Section 43B provisions need not be applied to deny deductions. Appeal decided in favor of assessee.

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Issues Involved:
1. Deletion of addition made by the AO on account of non-payment of 'unpaid service tax liability' under Section 43B of the IT Act.
2. Justification of considering unpaid Service Tax as allowable in contravention of Section 43B of the IT Act.
3. Erroneousness of the CIT(A)'s order both in law and on facts.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made by the AO on Account of Non-Payment of 'Unpaid Service Tax Liability' under Section 43B of the IT Act:

The Revenue's appeal contested the deletion of an addition of Rs. 2,02,96,683/- made by the AO due to the non-payment of service tax liability under Section 43B of the IT Act. The AO had determined the total assessed income at Rs. 3,12,78,780/- after making certain additions, including the unpaid service tax. The CIT(A) deleted this addition, relying on various judicial pronouncements, and decided that the unpaid service tax liability was not liable to be added to the income of the assessee. The CIT(A) referenced the ITAT Raipur decision in ITA No.174/RPR/2012 for AY 2009-10, which was in favor of the assessee. The Revenue, dissatisfied with this deletion, appealed to the ITAT.

2. Justification of Considering Unpaid Service Tax as Allowable in Contravention of Section 43B of the IT Act:

The Revenue argued that the assessee was required to pay the service tax liability within the due date prescribed under the respective statute or before the date of filing the return under Section 139 of the IT Act. The AO observed that the assessee made certain payments aggregating to Rs. 2,02,96,683/- beyond the date of filing the return, justifying the disallowance under Section 43B of the Act. The AO also noted that the assessee failed to provide a breakup of the amount actually paid pertaining to the relevant or earlier years. The CIT(A), however, held that since the assessee had not claimed any amount by way of service tax as a deduction, there was no question of disallowance under Section 43B. This view was supported by the ITAT Raipur's decision in the case of ITO vs. Sri Tapan Das, where it was held that if the amount of tax is not debited to the profit & loss account as an expenditure nor claimed as a deduction, disallowance under Section 43B does not arise.

3. Erroneousness of the CIT(A)'s Order Both in Law and on Facts:

The Revenue contended that the CIT(A)'s order was erroneous in law and on facts. The Revenue relied on the Supreme Court's decision in Checkmate Services Pvt. Ltd. vs. CIT, which held that the deduction shall be admissible only if the amount is paid within the due date prescribed under the respective Act and not before the filing of the ITR. The assessee, however, argued that this decision pertained to employees' contributions towards PF/ESI and could not be applied to service tax liability. The ITAT Raipur, referencing the Bombay High Court's decision in CIT vs. Knight Frank (India) Pvt. Ltd., held that Section 145A of the IT Act, which deals with the valuation of purchase and sale of goods and inventory, does not apply to service tax billed on rendering services. The ITAT also noted the Chhattisgarh High Court's decision in ACIT vs. M/s. Ganpati Motors, which held that VAT not charged to the profit and loss account cannot be disallowed even if unpaid, as it was not claimed as a deduction in the books of accounts.

Conclusion:

The ITAT Raipur found no merit in the Revenue's appeal, holding that the issue was already decided in favor of the assessee by the co-ordinate Bench of ITAT Raipur and supported by the jurisdictional High Court's decision. The ITAT upheld the CIT(A)'s order, confirming that the unpaid service tax liability was not liable to be added to the income of the assessee under Section 43B. The appeal of the Revenue was dismissed.

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