TaxTMI 
TaxTMI 
2020 (5) TMI 576
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....mmissioner of Income Tax (Appeals) ought to have considered the fact that, when Section 43B(a) speaks of the sum payable by way of tax etc; the said provision is dealing with the amounts payable to the sovereign qua sovereign, but not the amounts payable to the sovereign qua principal. The decision relied on by the CIT(A) was on the issue of amounts payable to the sovereign qua the principal while in the case on hand the amount is payable to the sovereign without any reference to the assessee as principal. 4. The CIT(A) failed to consider that in the case law relied on by the CIT(A) the amount in question is not an amount payable by the assessee qua tax but the amount collected by the assessee as the agent of the State of Kerala towards the tax payable by the consumer of electricity to the State of Kerala. 5. The CIT(A) failed to consider that the liability to pay and the corresponding authority of the State to collect the tax (flowing from a statute) is essentially in the realm of the rights of the sovereign. Whereas the obligation of the agent to account for and pay the amounts collected by him on behalf of the principal is purely fiduciary. The nature of the obligation conti....
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.... the service tax collected by it through the profit & loss account and instead it is directly shown as an outstanding liability in the balance sheet. The assessee therefore, contended that section 43B was not applicable since 43B deals with items debited in P&L account and claimed as a deduction. The assessee also relied on the judgment of the Delhi High Court in the case of CIT Vs. Noble and Hewitt India Pvt. Ltd. (305 ITR 324) and the decision of the ITAT Chennai in the case of Real Image Media Technology Pvt. Ltd. (2008) (114 ITD 573). The Assessing Officer rejected the claim of the assessee. The Assessing Officer relied on the judgment of the Allahabad High Court in the case of Jagdish Prasad Nigam Vs. CIT (1997) (228 ITR 112), wherein it was held that excise duty collected from customers as part of price of goods will have to be treated as trading receipts and brought to tax following the judgment of the Supreme Court in the case of Chowranghee Sales Bureau Pvt. Ltd. Vs. CIT (87 ITR 542). According to the Assessing Officer, the service tax is also a trading receipt as it is a part of the price for services imposed by statutory provision. Moreover, the service tax collected by ....
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....x payable cannot be disallowed as the same was not claimed by the assessee as an expense. Thus, relying on the judgment of the Kerala High Court and the order passed by the ITAT, Cochin in ACIT vs. Kerala State Electricity Board [2018] 100 taxmann.com 132 (Cochin Trib.), wherein the Tribunal followed the order of the Kerala High Court, the CIT(A) deleted the disallowance of service tax payable for both the assessment years. 3.3 Against this, the Revenue is in appeal before us. The Ld. DR submitted that ITAT, Ahmedabad upheld disallowance u/s. 43B on unpaid service tax for AY 2006-07 in the case of electricity transmission company and rejected the assessee's stand that since service tax payable was not reflected in the profit and loss account and was only shown as liability in the balance sheet for tracking the tax payable as assessee was acting as a mere collecting agent, section 43B disallowance was not applicable. The Tribunal observed that the assessee had charged service tax from its customers on the services rendered and tax charged was not paid to the credit of government, and that section 43B(a) was enacted for such taxes remaining payable at the year-end and are still not ....
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....y sum referred lo in clause (ii) of sub-section (1) of section 36, or (d) any sum payable by the assesses as interest on any loan or borrowing from any public financial institution or a Slate financial corporation or a State industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing. (e) any sum payable by the assesses as interest on loan or advances from a scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank in accordance with the terms and conditions of the agreement governing such loan or advances, or (f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, or (g) any sum payable by the assessee to the Indian Railways for the use of railway assets, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him 3.5 The Ld. A....
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....As such, the issue whether the provisions of section 43B of the I.T. Act applies to service tax, which is not paid before the due date of filing of the return. It was considered by the co-ordinate Bench of the ITAT, Hyderabad Benches in the case of M/s. Bartronics India Ltd. v. ACIT [ITA No.2188 and 2189/Hyd/2011 vide order dated 31.05.2012 that when the assessee has not paid the service tax as required under the provisions of section 43B, which is also very much covered u/s 43B of the I.T. Act. The provisions of section 43B of the Act is very clear and it states that "any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force". Therefore, even the service tax is liability which covers u/s 43B of the Act and nonpayment of the same within the stipulated time as specified u/s 43B of the Act attracts disallowance. Now the question is that when the assessee has not claimed it as expenditure in the profit and loss account, could it be disallowed u/s 43B of the Act. This was considered by the Hon'ble Apex Court in the case of Chowranghee Sales Bureau P. Ltd. v. CIT [(1973) 87 ITR 542 (SC)], in which it was held th....
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....the client. Therefore, the amount of service tax included in bills but not received could not be disallowed under s. 43B'. After analysing the relevant provisions of Incometax Act as well as Service Tax Act, the Tribunal had, further, recorded its findings as under: "12...............................................................From a plain reading of the above provision it becomes clear that the rigour of this provision would be attracted only in a case where an item is allowable as deduction but because of the failure to make payment such deduction will not be allowed. It can be argued that in the case of ST also the assessee does not claim deduction since it has been held that non-payment of Sales-tax would attract provisions of section 43B, but that is being done on the basis of the principles laid down by the Hon'ble Supreme Court in the case of Chowranghee Sales Bureau Ltd. V CIT 110 ITR 385 that Sales-tax is part of the trading receipt. Further, section 145A clearly provides that for the purpose of determining income under the head profits and gains of business or profession, the amount of purchase and sales i.e. turnover would include any tax, duty cess or fee. There....
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....d in the total income, the same is to be allowed as a deduction in the year it is paid to the Government account. In the instant case, this is what has been done by the learned CIT(A). The CIT(A) had allowed the alternative plea of the assessee and had directed the Assessing Officer to deduct the service tax when the payment is made to the Govt. account in the subsequent year. Therefore, we find there is no merit in the contention raised on behalf of the assessee and this issue is decided against the assessee. It is ordered accordingly." 4.1 Further, in the case of M/s. Hemkunt Infratech (P) Ltd. v. DCIT [ITA No.6683/Del/2017 - order dated 23.03.2018, the Delhi Benches of the Tribunal held as under: - "6. After hearing both the sides and perusing the entire material available on record, we observe that there is a credit balance of Rs. 1,16,09,924/- at the end of the year towards expenses payable. The assessee submitted that it is service tax liability, which arose due to crediting the service tax received from the service recipients. The assessee has challenged before us, the disallowance of Rs. 85,26,467/- disallowed u/s. 43B of the Act. We observe that the assessee has recorde....
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....provided that the said valuation would be in accordance with the method of accounting regularly employed by the assessee i.e. either mercantile or cash. Further, adjustment is to be made to include the amount of any tax, duties, cess or fees, by whatever name called, actually paid or incurred by the assessee to bring the goods to the place of its location and condition, as on the valuation date. In other words, where any expenditure is actually paid or incurred by the assessee by way of any tax, duties, cess or fees, by whatever name called, then adjustment is to be made both in the valuation of purchase and sale of goods and also in the valuation of inventory to include the aforesaid amounts while determining the income chargeable under head profits and gains of business or profession. The assessee has separately accounted for the service tax collected is also the indirect part of turnover because it is received along with turnover. The assessee has not shown any invoice raised by him before us as per service tax Rules, which is mandatory for the service provider to issue invoice to the service recipient. He has also not produced any evidence regarding payment received from serv....
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.... of a manufacturer. Provided also that where an assessee is eligible to avail of the exemption under a notification based on the value of clearances in a financial year, the CENVAT credit in respect of capital goods received by such assessee shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year. Explanation. - For the removal of doubts, it is hereby clarified that an assessee shall be "eligible" if his aggregate value of clearances of all excisable goods for home consumption in the preceding financial year computed in the manner specified in the said notification did not exceed rupees four hundred lakhs. (b) The balance of CENVAT credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer, or in the premises of the provider of output service, if the capital goods, other than components, spares and accessories, refractories and refractory materials, moulds and dies and goods falling under heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act, are in the poss....
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....er of Central Excise, as the case may be, having jurisdiction over the factory of the manufacturer of the final products who has sent the input or partially processed inputs outside his factory to a job-worker may, by an order, which shall be valid for a financial year, in respect of removal of such input or partially processed input, and subject to such conditions as he may impose in the interest of revenue including the manner in which duty, if leviable, is to be paid, allow final products to be cleared from the premises of the job-worker. (7) The CENVAT credit in respect of input service shall be allowed, on or after the day which payment is made of the value of input service and the service tax paid or payable as is indicated in invoice, bill or, as the case may be, challan referred to in rule 9. 9. As per Rule 6(1) of the Service Tax Rules, 1994, in case of company, service tax is to be paid on a monthly basis by 5th of the following month (in case of epayment, by 6th of the month immediately following the respective month). However, the payment for the month of March is required to be made by 31st of March itself. As per Rule 6(4) of the Service Tax Rules, 1994, the ass....
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....tax relating to the taxable service referred to in sub-section (1). (6) Where any surplus amount is left after the adjustment under subsection (5), such amount shall either be credited to the Consumer Welfare Fund referred to in section 12C of the Central Excise Act, 1944 or, as the case may be, refunded to the person who has borne the incidence of such amount, in accordance with the provisions of section 11B of the said Act and such person may make an application under that section in such cases within six months from the date of the public notice to be issued by the Central Excise Officer for the refund of such surplus amount.] 12. We further observe that the point of taxation as per Rule 3 of Point of Taxation Rules, 2011 is as under: RULE 3. Determination of point of taxation. - (Notification No. 18/2011-ST dt. 01.03.2011 as amended). For the purposes of these rules, unless otherwise provided, point of taxation shall be, - (a) the time when the invoice for the service provided or agreed to be provided is issued: Provided that where the invoice is not issued within the time period specified in rule 4A of the Service Tax Rules, 1994, the point of taxation shall be the....
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....saying that he accounted for the service tax received separately. Since the assessee did not pay service tax as contemplated u/s. 43B(a) and as per above provisions of Service Tax Act within the stipulated time, therefore, the ld. CIT(A) has rightly disallowed the same u/s. 43B of the IT Act. The case laws relied by the assessee are based on different footings as in all the decisions it was held that Service Tax was not at all payable because the service Tax was not received from the customer. The law prevailing at that particular time was that Service Tax was to be paid to the Government only when Service Tax is received from the service receiver to the service provider. Subsequently, there is change in the law which provides that Service Tax is to be deposited by the service provider even if service tax is not paid by the service receiver to the service provider. Therefore, in all those decisions it was held that service tax outstanding is hit by the provisions of Section 43B of the Income Tax Act. 1961. Due to the change in the law now those decisions do not help to the assessee. Moreover, the assessee has filed the service tax returns belatedly, i.e., for April to June on 16.....
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.... diverted for any other purpose. The assessee also submitted that the company is engaged in construction activities for the projects executed by Kunnel Projects Pvt. Ltd. and there was commercial expediency in advancing the loans. The CIT(A) observed that the Assessing Officer had made the disallowance in a routine and mechanical manner without examining the facts and appreciating the explanation of the assessee. The CIT(A) observed that assessee's reserves and surplus were much higher than the interest free advances given to the sister concerns and the Assessing Officer has not made any effort to establish the linkage between the borrowed funds and the interest free loans given to sister concerns. Under these circumstances, the CIT(A) deleted the disallowance made by the Assessing Officer. 5.3 Against this, the Revenue is in appeal before us. The Ld. DR submitted that the assessee has not established the availability of own funds on account of commercial expediency. Without examining these facts, the CIT(A) had allowed the claim of the assessee which is bad in law. 5.4 The Ld. AR submitted that the assessee had net reserves of Rs. 16,18,20,075/- which is far in excess of the amo....
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....such investments with supporting documents which have to be examined by the Assessing Officer before making disallowance. Accordingly, we remit this entire issue in dispute to the file of the Assessing Officer for fresh consideration with a direction to the assessee to produce relevant cash flow statements to show that interest free funds were available with the assessee to make such investments. With this observation, this ground of appeals of the Revenue is partly allowed for statistical purposes for both the assessment years. 7. The next ground of the Revenue is with regard to depreciation on undivided share of land treating them as cost paid towards building. 7.1 The facts of the case are that during the previous year, the assessee had shown addition to building amounting to R.1,36,67,500/-. From the copy of agreement submitted for purchase, the Assessing Officer noticed that the assessee had purchased Flats numbered 1A and 1B, Royal Cronet. The payment for undivided share of land was Rs. 6,30,000/- and Rs. 10,10,000/- respectively. The assessee had claimed depreciation on these amounts by treating them as cost paid towards building. The amount of such depreciation works out....
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....Supreme Court, overturning the decision of the Punjab & Haryana High Court, ruled that - 'Building does not include the site because there cannot be any question of destruction of site.... Depreciation means decrease in value of property through wear, deterioration or obsolescence. (Webster's New Word Dictionary). In that sense, land cannot depreciate. Depreciation is allowable only on the value of superstructure on the land and not on the value of land." The Ld. DR relied on the judgment of the Rajasthan High Court in the case of CIT vs. Vimal Chand Golecha ) wherein it was held that "Land is a capital asset in terms of Section 2(14) of the Act and, in accordance with the scheme of the Act, it is treated as a separate asset. Even for the purpose of Section 32, a building which is entitled for depreciation would mean only the superstructure and would not include the site." 7.5 Thus, in view of the aforementioned judgments, the Ld. DR submitted that it is clear that in a case where the value of building and the value of the land on which it is built is separately identifiable, assessees must determine the depreciation on the value of the building only, at the rates specif....