TaxTMI 
TaxTMI 
TaxTMI 
2017 (6) TMI 920
X X X X Extracts X X X X
X X X X Extracts X X X X
....rming the action of ld. AO in disallowing a sum of Rs. 7,67,899/- u/s 43B of the Income Tax Act, 1961. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. relief may please be granted by quashing the said disallowance of Rs. 7,67,899/- u/s 43B." 2. Regarding ground No. 1, briefly the facts of the case are that the AO disallowed expenses incurred by the assessee under various heads u/s 40(a)(ia)of the Act amounting to Rs. 22,09,267/- on account of non deduction of TDS. During the appellate proceeding, the assessee took the plea that the provisions of Section40(a)(ia)are applicable only to the expenditure which is payable as on the balance sheet and hence cannot be applied on the expenditure which has already been paid during the year. However, the contention of the assessee were not accepted and hence, the present appeal before us. 3. The subject matter is no more rest intergra. The Hon'ble Supreme Court decision in its recent decision in case of M/s Palam Gas Service (Civil Appeal No. 5512 of 2017) dated 03.05.2017 has held that Section 40(a)(ia) covers not only those cases where the amount is payable but also those cases where the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....till go scot free, without suffering the consequences of such monetary default in spite of specific provisions laying down these consequences." 4. Now coming to another contention raised by the AR that the amendment brought-in in section 40(a)(ia) by the Finance Act 2014 where it is provided that 30 percent of any sum payable to a resident shall be disallowed as against 100% disallowance made earlier should be applied in the instant case and disallowance restricted to 30% of the total amount. On perusal of the Finance Act, 2014, it is noted that the said amendment has been brought in and made effective from 01.04.2015 and there is nothing which suggest such amendment is made effective or to be read as retrospective in nature. In view of the clear wordings as enacted by the legislature, the same cannot be held applicable to the assessee for the year under consideration. Regarding the reliance by the ld. AR of the decisions passed by the Coordinate Benches in case of Rajendra Prasad (ITA 895/JP/2012) and subsequent decision in case of Smt. Sonu Khandelwal (ITA No. 597/JP/2013), on perusal of these two decisions, it is noted that though the Coordinate Benches have acknowledged the f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... earlier. Accordingly the disallowance made by the assessing officer under section 43B is confirmed." 6. In this regard the ld. AR submitted as under:- "3.1 It is undisputed that assessee did not claim Service Tax and VAT payable as expenditure in his Profit and Loss Account. 3.2 Since no deduction is claimed of the Vat payable and Service Tax by the assessee for the relevant previous year, provisions of section 43B are not applicable. 3.3 Under similar set of facts, Noble & Hewitt (I)(P.) Ltd. [2008] Taxman 48 (Delhi-HC) (Case law page-39-40) collected service tax during the relevant previous year. Out of the service tax so collected it did not deposit part of the service tax amount with the concerned authorities. However, the company did not claim any deduction in this regard nor did it debit the amount as an expenditure in the Profit and Loss Account. Departmental Authorities relaying on the case of Chowinghee Sales Bureau (P.) Ltd. (Supra) disallowed the amount and added it back to the income of the company. Hon'ble Delhi High Court under such circumstances held that "We are unable to agree. In that case it was held that the liability to pay sales tax arose the mom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....such tax or duty under section 43B is totally misconceived. Such being the fact in this case we are unable to accept the contention of Mr. Dev that in view of Explanation 2 of second proviso to section 43B, the question of disallowing any such tax or duty under section 43B cannot at all be accepted.." 3.6 It is pertinent to note that the assessee did not receive the amount on which service tax was payable from the parties to whom services were rendered and thus, the provisions of section 43B were not attracted. 3.7 Hon'ble ITAT Chennai Bench in the case of Real Image Media Technologies (P.) Ltd. [2008] 114 ITD 573 (Chennai) on the issue of Service Tax getting covered by the provisions of section 43B was of the view that the rigours of section 43B might be applicable to the case of sales-tax or excise duty but the same could not be said to be the position in case of service-tax because of the following two reasons:- (i) The assessee is never allowed deduction on account of service tax which is collected on behalf of the Government and is paid to the Government account, accordingly. Therefore, a service provider is merely acting as an agent of the Government, and is not enti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ver. 3.9. Hon'ble ITAT Mumbai Bench in the case of Pharma Search [2012] 21 taxmann.com 44 (Mum.) , relying on the decision in the case of Real Image Media Technologies (P.) Ltd. (supra), echoed similar views that Service Tax would be out of the rigors of section 43B. 3.10. Hon'ble Bombay High Court vide its order dated 17.04.2015, in case of Ovira Logistics (P.) Ltd. took cognizance of the above mentioned judgment in the case of Pharma Search (supra) and also the ratio laid down by the Hon'ble Supreme Court in the case of Chwringhee Sales Bureau (P.) Ltd. (supra) held that "Having perused the aforesaid decisions, we are clearly of the view that section 43B does not contemplate liability to pay the service tax before actual receipt of the funds in the account of the assessee. In our view, liability to pay service tax into the treasury will arise only upon the assessee receiving the funds and not otherwise. Accordingly, when services are rendered, the liability to pay the service tax in respect of the consideration payable will arise only upon the receipt of such consideration and not otherwise." 3.11. Hon'ble ITAT Jaipur Bench, under identical set of facts, in the case of A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he year in which point of taxation rules have been changed from cash towards accrual basis. * The assessee collected the amount of Service tax but not deposited the same with the Government. * Reliance was placed on the decision of the Hon'ble ITAT Banglore bench in the case of Jain Christopher (2013) CCH 0011, which distinguished the decision of Hon'ble Delhi High Court in the case of CIT vs. Noble and Hewitt (I) P. Ltd. [2008] 305 ITR 324 ( Delhi). In Jain Christopher also the amount of Service Tax was realized by the assessee. Facts of Assessee's Case: * Related to A.Y. 2009-10 i.e. F.Y. 2008-09, the year in which point of taxation rules were on cash basis only. * The assessee did not collect the amount of Service tax and as a result of which did not deposit the same with the Government." 7. We have heard the rival contentions and perused the material available on record. The provisions of Section 43B has been invoked in respect of VAT as well as service payable by the assessee at the end of the relevant financial year and not paid before the due date of filing of return of income. Firstly, regarding VAT, the issue is no more rest intergra in view of the decisio....