2025 (9) TMI 287 - AT - Income Tax

Deletion of additions under s.43B; overturned, remanded to verify service tax routing and timing of receipt

Deputy Commissioner of Income Tax, Circle-11 (1), Kolkata Versus Seven Hills Project Private Limited

Deputy Commissioner of Income Tax, Circle-11 (1), Kolkata Versus Seven Hills Project Private Limited - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the deletion of an addition made under section 43B (non-payment of service tax) by the appellate authority was justified without ascertaining (a) whether the amounts on which service tax was payable were actually received by the assessee and (b) whether such amounts were routed through the profit and loss account. 2. Whether the appellate authority's order is a speaking order and adequately records the verification required to apply the legal principle that service-tax liability for the purposes of section 43B arises only on actual receipt of consideration. 3. Whether, in the absence of requisite factual examination by the appellate authority, the proper course is to remit the matter for fresh adjudication with opportunity to the AO and the assessee under applicable rules. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Applicability of section 43B to service-tax liability and requirement of receipt and routing through P&L Legal framework: Section 43B permits disallowance of certain payments not actually paid before the due date for return; the question arises whether service-tax liabilities fall within section 43B when amounts on which service tax is leviable have not been actually received by the taxpayer and/or have not passed through the profit & loss account. Precedent Treatment: The appellate authority relied upon higher court authority holding that service-tax liability for the purpose of section 43B arises only upon receipt of consideration by the assessee (the principle that consideration must be actually received and only then does liability to pay indirect tax arise for section 43B purposes). Interpretation and reasoning: The Tribunal accepts the settled legal proposition that service-tax liability (for s.43B purposes) is governed by actual receipt of consideration and that amounts not received and not routed through profit & loss cannot be disallowed under s.43B on an accrual basis. However, application of that proposition requires factual determination - specifically, (i) quantification of amounts actually received versus receivable, and (ii) verification whether any portion was routed through profit & loss (and thereby reflected as paid) as opposed to remaining as receivable/deposits. The appellate authority concluded deletion based on the legal principle but did not undertake or record the necessary factual verification (no ascertainment of amounts routed through P&L; no remand to AO for factual probe), nor did it consider the assessee's alternate computation fully documented before it. Ratio vs. Obiter: The legal proposition that s.43B does not apply to amounts not actually received is treated as ratio (binding legal principle applied to the facts). The appellate authority's unexplained acceptance of the assessee's claim without factual verification is treated as obiter with respect to the particular figures because the Tribunal finds it unsupported by documented verification. Conclusions: While the legal principle relied upon by the appellate authority is correct, the appellate authority's deletion cannot stand without a contemporaneous factual determination as to amounts received and routed through profit & loss. Consequently, the deletion requires reconsideration after factual verification. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Adequacy and speaking quality of the appellate order Legal framework: Administrative adjudications must be speaking orders recording the factual and legal basis for conclusions; appellate authority must record whether necessary verifications were undertaken and must address material alternate submissions of parties. Precedent Treatment: The Tribunal reiterates that when a legal principle (e.g., requirement of actual receipt for s.43B application) is invoked, the authority applying it must record the factual basis that justifies invoking that principle in the case at hand. Interpretation and reasoning: The appellate authority (Ld. CIT(A)) (a) noted the assessee's alternate computation of liability but declined to consider it on the ground of lack of statutory power under section 246A to revise assessments, (b) accepted the legal proposition that service-tax is not within s.43B absent receipt, and (c) deleted the addition. However, the order does not state whether the authority examined the books to determine which amounts were routed through profit & loss, nor does it quantify how much was received versus receivable; the paper book contained an auditor's certification indicating 'NO' for passage of indirect taxes through profit & loss, but the appellate order is silent on verification of this and related entries. Such silence renders the order non-speaking in relation to the critical factual inquiries necessary to sustain the deletion. Ratio vs. Obiter: The Tribunal's holding that the appellate order is non-speaking and incomplete is a dispositive finding (ratio) on the adequacy of adjudicatory reasoning; observations about specific missing verifications are explanatory (obiter) to the extent they guide remand. Conclusions: The appellate authority's order is not a speaking order on key factual matters; hence it is legally deficient and cannot be sustained without fresh fact-finding or verification. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Appropriate remedy where appellate order applies correct legal principle but fails factual examination Legal framework: Where an appellate order applies correct legal principle but fails to conduct essential factual inquiries, the proper remedy is remand to the appellate authority for fresh decision after affording parties opportunity to be heard and, if necessary, calling for a remand report from the assessing officer; procedural safeguards (e.g., opportunity under rule 46A) must be observed. Precedent Treatment: The Tribunal follows the established remedial approach of setting aside and remitting for fresh adjudication when the appellate order lacks necessary factual findings and is not a speaking order on those facts. Interpretation and reasoning: Given (i) the legal principle favouring deletion if amounts were not received or not routed through P&L, and (ii) the absence of any recorded verification by the appellate authority as to amounts received/routed, the Tribunal determines that justice requires remand. The Tribunal directs that the appellate authority shall afford an opportunity of being heard to both the AO and the assessee and permit the AO to represent the case under rule 46A, and thereafter pass an order after examining facts in accordance with law. Ratio vs. Obiter: The remand and directions for fresh adjudication are the operative ratio of the Tribunal's disposition; ancillary comments about what to examine on remand are guiding observations. Conclusions: The proper course is to set aside the appellate order and remit the matter for fresh adjudication with express directions to examine (a) how much consideration was actually received, (b) which amounts (if any) were routed through profit & loss, (c) reconciliation of figures claimed in ITR and audit reports, and (d) grant of adequate opportunity to AO and assessee under applicable rules; the appeal is partly allowed for statistical purposes to this limited extent.