Actual payment rule for service tax deduction under Section 43B confirmed where liability was genuine and tax was deposited.

Service tax payments were deductible only on actual payment basis under Section 43B of the Income-tax Act, not on accrual of liability. Because the liability was genuine and the amounts had been deposited with the Government, the Tribunal correctly allowed the deduction in the year of actual payment, or consequentially in the appropriate earlier year. No error was found in that approach.

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Issues: Whether the assessee was entitled to deduction of service tax only on actual payment basis under Section 43B of the Income-tax Act, 1961, and not on accrual of liability.

Analysis: The assessment controversy related to deduction of amounts paid towards service tax. The liability was not disputed in genuineness and the amounts had been deposited with the Government. The only question was the year in which the deduction could be claimed. The governing rule under Section 43B permits such expenditure only on actual payment and not on accrual. The Tribunal's view that the deduction was allowable in the year of actual payment, or consequentially in the appropriate earlier year, was found to be correct.

Conclusion: The deduction was rightly allowed in terms of Section 43B on actual payment basis, and no error was found in the Tribunal's order.

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