AI Drafter 
TaxTMI 
TaxTMI 
2022 (7) TMI 1006
X X X X Extracts X X X X
X X X X Extracts X X X X
....- on account of 'service tax collected but not paid', by treating it as 'business income' of the assessee u/s 28 r.w.s 5 of the IT Act made by the ld. AO. 3. That the assessee craves leave to add, urge, alter, modify and withdraw any ground/grounds before or at the time of hearing of the appeal." 2. Succinctly stated, the assessee who is a labour contractor had filed his return of income for AY 2012-13 on 31.03.2013, declaring an income of Rs.35,20,780/-. Case of the assessee was thereafter selected for scrutiny assessment u/s 143(2) of the Act. 3. Assessment was, thereafter, framed by the AO vide his order passed u/s 143(3), dated 31.03.2015 determining the income of the assessee at Rs. 98,53,210/- after inter-alia making the following additions/disallowances: Sr. No. Particulars Amt. (Rs.) 1. Disallowance u/s 36(1)(va) r.w.s 2(24)(x) of the delayed deposit of the employee's share of contribution towards EPF. 7,16,,761/- 2. Addition of service tax not paid by the assessee within the 'due date' of filing of return of income. Rs. 54,65,666/- 4. Aggrieved the assessee carried the matter in appeal before the CIT (Appeals) but without any su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e same much prior to the 'due date' of filing of his return of income as provided in Sec. 139(1) of the Act, therefore, no disallowance of the same could have been made under Sec. 43B of the Act. Accordingly, it was the averred by the ld. AR that as the assessee had deposited the employees share of contribution towards EPF prior to the 'due date' of filing of his return of income, therefore, he was saved from the disallowance of the same as per the mandate of the "Proviso" to Sec. 43B of the Act. 7. Per contra, the ld. Departmental Representative (for short 'DR') relied on the orders of the lower authorities. 8. Having heard the Authorized Representatives of both the parties, we are persuaded to subscribe to the contention advanced by the ld. AR that now when the employees share of contribution towards EPF had been deposited by the assessee prior to the "due date" of filing of his return of income for the year under consideration, therefore, no disallowance of the same was called for in his hands. We find that the aforesaid issue in question is squarely covered by a recent order of the Tribunal in the case of M/s Ind Synergy Limited Vs. The DCIT-1(2), Raipur, ITA No. 312/RPR/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urt) b. CIT Vs. Hemla Embroidery Mills (P) Ltd. (2014) 366 ITR 167 (P&H) c. Bihar State Warehousing Corporation Ltd.Vs. CIT 386 ITR 410 (Patna) d. Sagun Foundary Pvt. Ltd Vs. CIT 145 DTR 265 (All) e. CIT Vs. Mark Auto Industries (2008) 358 ITR 43 (P&H) f. CIT Vs. Jaipur Vidyut Vitran Nigam Ltd (2014) 363 ITR 307 (Raj) g. Essae Teraoka Pvt. Ltd Vs. DCIT (2014)366 ITR 408 (Kar) h. CIT Vs. Vijay Shree Ltd (2014) 43 Taxmann.com 396 (Cal) i. CIT Vs. Kichha Sugar Co Ltd (2013) 356 ITR 351 (Uttarakhand) In the backdrop of the aforesaid settled position of law, we are of the considered view that no distinction is to be drawn between the employers as well as employees contribution to PF and ESI, as both are covered u/s 43B of the Act. 11. Before parting qua the aforesaid issue in hand, we think it apt to deal with the scope of applicability of the amendments that have been made available on the statue vide the Finance Act, 2021, i.e, "Explanation 5" to Section 43B and "Explanation 2" to Section 36(1)(va), i.e, as to whether those are applicable prospectively w.e.f A.Y 202122 onwards, or, are to be give....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o contrary judgements of the jurisdictional High Court against the assessee on the aspect under consideration hence, first determination of the Ld. CIT(A) qua non-applicability of the provisions of Section 43B of the Act to the employee's share qua PF & ESI, is unsustainable. 5.3 Now, coming to the second aspect/determination made by the CIT(A) to the effect that the amendment made in Section 36(1)(va) and 43B of the Act by Finance Act 2021 has to be considered as clarificatory in nature and having retrospective effects, therefore would be applicable to the previous assessment years as well. We may observe that various benches of the ITAT including Hyderabad Bench in the case of Value Momentum Software Services Pvt. Ltd. (ITA No.2197/Hyd/2017 decided on 19.05.2021), have taken into consideration the identical issue qua applicability of the amendment to Section 36(1)(va) and Section 43B of the Act, by inserting Explanations by the Finance Act, 2021 and clearly held that the amendment shall be applicable from 1st April, 2021 onwards . It is also relevant to note that the CBDT has also issued Memorandum of Explanation qua applicability of the amended provisions of Se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....We, thus, in terms of our aforesaid observations set-aside the order of the CIT(Appeals) and direct the AO to vacate the disallowance of Rs. 7,16,761/- made in the hands of the assessee qua the delayed deposit of the employees share of contribution of EPF. The Ground of appeal No. 1 is allowed in terms of our aforesaid observations. 9. We shall now deal with the grievance of the assessee that both the lower authorities had erred in law and on the facts of the case in sustaining an addition of Rs. 54,65,666/- on account of servicetax that was collected but not paid by treating the same as his business income under Sec. 28 r.w.s 5 of the Act. Succinctly stated, it was observed by the AO that the balance sheet of the assessee revealed "Service Tax Payable" of Rs. 1,53,78,341/-. It was gathered by the AO from a perusal of the service-tax register that the assessee qua the services provided by him as a labour contractor had during the year under consideration received service-tax amounting to Rs. 54,65,666/-. Although the assessee produced before the AO challans evidencing deposit of service tax of Rs.9,25,972/-, but the period for which the same were deposited was not found mentione....
X X X X Extracts X X X X
X X X X Extracts X X X X
....od of accounting of his contract receipts (i.e net of service-tax), therefore, having not claimed any deduction for the amount of service-tax that was collected during the year under consideration no disallowance of the same could have validly been made. In sum and substance, it was the claim of the assessee that as he had not claimed any deduction of the amount of service-tax, therefore, the disallowance of the same was beyond comprehension. On the contrary it was the claim of the ld. DR that as the assessee upto the 'due date' of filing of his return of income had failed to deposit the amount of service-tax collected during the year in the government exchequer, therefore, the same had rightly been disallowed by the AO. 11. We have given a thoughtful consideration to the aforesaid issue in hand in the backdrop of the contentions advanced by the ld. Authorised representatives of both the parties. As observed by us hereinabove, both the lower authorities had drawn adverse inferences in the hands of the assessee for the reason that he had upto the 'due date' of filing of his return of income as contemplated in sub-section (1) of Sec. 139 of the Act failed to deposit the amount of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny deduction of the amount of service-tax of Rs. 54,65,666/- (supra) in question, therefore, the same could not have been disallowed by triggering the provisions of Sec. 43B of the Act. But then, it is the exclusive method of accounting of contract receipts (i.e net of service tax) that is consistently being followed by the assessee that has been challenged by the CIT(Appeals). In fact, the CIT(Appeals) finding fault with the exclusive method of accounting of contract receipts (i.e net of service-tax) that was being followed by the assessee had re-casted his Profit & loss a/c. After including the amount of service-tax in the amount of contract receipts, the CIT(Appeals) was of the view that as the assessee had failed to deposit the aforesaid amount of tax by the 'due date' for filing of his return of income as provided in sub-section (1) of Sec. 139 of the Act, thus, a corresponding claim for debit of the same was not be allowed to him as per the mandate of Sec. 43B of the Act. 12. We shall now deal with the sustainability of the observation of the CIT(Appeals) that the assessee was not justified in following the exclusive method for accounting his contract receipts (i.e net of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment." As is clearly discernible from a perusal of the aforesaid statutory provision i.e Sec. 145A of the Act, it transpires beyond doubt that Section 145A(a)(ii) during the year under consideration i.e AY 2012-13 contemplated only the valuation of purchase and sale of goods and inventory and had no bearing on valuation of services. Our aforesaid view is supported by the judgment of the Hon'ble High Court of Bombay in the case of The Commissioner of Income-tax-2 vs. Knight Frank (India ) Pvt. Ltd., ITA No. 247 & 255 of 2014, dated 16.08.2016. Before the Hon'ble High Court the following question of law was, inter-alia, raised : "(i). Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in deleting the addition u/s 145A of the Income Tax Act, 1961 due to inclusion of service tax as part of trading receipts, by holding that the provisions of Section 145A of the Act are applicable to manufacturing segment of business and not to a service provider company?" Answering the aforesaid question, it was observed by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(a)(ii) of the Act that it only covers cases where the amount of tax, duty, cess or fee is actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. (d). In this case, the respondent-assessee has admittedly not paid or incurred any liability for the purposes of bringing any goods to the place of its location. In this case, the respondent­ assessee is rendering services. Thus, on the plain reading of Section145A(a)(ii) of the Act, it is self evident that the same would not apply to the service tax billed on rendering of services. This is so as the service tax billed has no relation to any goods nor does it have anything to do with bringing the goods to a particular location. (e). The Explanation to Section 145A(a) of the Act does not expand its scope. An Explanation normally does not widen the scope of the main section. It merely helps clarifying an ambiguity. (See Zakiyr Begam v/s. Shanaz Ali &Ors., 2010 (9) SCC 280). The main part of the Section specifically restrict its ambit only to valuation of purchase and sale of goods and inventory. Rendering of service is not goods or inventory.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be canvassed by the Revenue, is not sustainable. Therefore, Section 145A of the Act would have no application in cases where service is provided by the Assessee. (f) In view of the above, the question (i) as proposed does not give rise to any substantial question of law. Thus, not entertained." (emphasis supplied by us) Further, referring to the fact that Service tax was first introduced in India by the Finance Act, 1994, but the legislature neither at the time of insertion of Sec. 145A of the Act on the statute, i.e, vide the Finance (No.2) Act, 1998 w.e.f 1st April, 1999 nor at the time of its subsequent amendment vide the Finance (No.2) Act, 2009 had on either of the occasions deemed it fit to bring the valuation of services within the sweep of Sec. 145A of the Act, it was observed by the Hon'ble High Court that the said purposive omission by the legislature clearly revealed its intention to restrict the applicability of Sec. 145A only to goods and not to extend it to services. Accordingly, it was observed by the Hon'ble High Court that Sec. 145A would have no application in cases where services were being provided by the assessee. 13. Before proceeding any fu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ount of service-tax, therefore, there could be no justification for disallowance of the same by triggering the provisions of Sec. 43B of the Act. Before proceeding any further, we may herein observe, that as we have approved the exclusion method (i.e net of service-tax) of accounting of contract receipts by the assessee, therefore, the adjudication of the present issue, i.e, disallowance of the unpaid amount of service-tax would rest on the edifice of our said observation. As observed by us hereinabove the disallowance under Sec. 43B presupposes a claim of deduction by the assessee. However, as in the present case before us, as averred by the ld. AR, and rightly so, now when the assessee had not claimed any deduction for the amount of the service-tax, thus, the failure on his part to deposit the same in the government account within the stipulated time period would not entail or lead to any disallowance of the said amount. In fact, the said issue too had came up for adjudication before the Hon'ble High Court of Bombay in the case of Knight Frank (supra), wherein the following question of law was raised : "(ii). Whether on the fats and in the circumstances of the case and i....