Section 43B disallowance fails where service tax was not claimed as a profit and loss deduction

An earlier appellate order was recalled because it dealt with inclusion of service tax in gross receipts under section 44BB, while the Revenue's grounds actually challenged disallowance of unpaid service tax under section 43B. On the merits, unpaid service tax could not be disallowed where the assessee had not claimed that amount as an expenditure in the profit and loss account. Following the coordinate bench view on identical facts, the disallowance was held unsustainable and the Revenue's challenge failed.

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Issues: (i) whether the earlier order required recall because the issue decided did not match the Revenue's grounds of appeal; and (ii) whether unpaid service tax liability could be disallowed under section 43B when no deduction of that amount had been claimed in the profit and loss account.

Issue (i): whether the earlier order required recall because the issue decided did not match the Revenue's grounds of appeal.

Analysis: The appeal grounds concerned deletion of disallowance of unpaid service tax liability under section 43B, whereas the earlier order proceeded on the different footing of inclusion of service tax in gross receipts for computation under section 44BB. The mismatch showed that the issue decided was contrary to the issue actually arising from the Revenue's appeal.

Conclusion: The earlier order was recalled.

Issue (ii): whether unpaid service tax liability could be disallowed under section 43B when no deduction of that amount had been claimed in the profit and loss account.

Analysis: The record showed that the assessee had not claimed the service tax amount as an expenditure in the profit and loss account. In identical facts, the coordinate bench had already held that there was no basis for disallowance where the liability was not debited as a deduction. Following that view, the Revenue's challenge could not survive.

Conclusion: The disallowance under section 43B was not sustainable and the issue was decided in favour of the assessee.

Final Conclusion: The miscellaneous application succeeded, the earlier order was recalled, and the Revenue's appeal on the service tax disallowance failed.

Ratio Decidendi: A disallowance under section 43B cannot be made for a liability that has not been claimed as a deduction in the profit and loss account, and an order deciding a different issue from the one raised in the appeal is liable to be recalled.

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