Section 43B disallowance fails where service tax is shown only as a balance-sheet liability, not as revenue expense.

Late payment of service tax was not disallowable under section 43B where the assessee had not debited the amount to the profit and loss account and had shown it only as a balance-sheet liability. Because the sum did not pass through revenue expenditure in the relevant year, the statutory disallowance could not be sustained on that footing. The addition was therefore held unsustainable and the issue was decided in favour of the assessee.

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Issues: Whether the addition of Rs. 89,01,461 towards late payment of service tax could be sustained as a disallowance under section 43B of the Income-tax Act, 1961.

Analysis: The assessee had not debited the service tax amount to the profit and loss account and had shown it as a liability in the balance sheet. The amount was treated only as a balance-sheet liability and had not resulted in any effect on the profit and loss account for the relevant year. In these circumstances, the liability was not taken to revenue expenditure in the year under consideration, and the addition could not be made on that basis.

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

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