Non-Deposit of Service Tax: No disallowance u/s 43B if same was not collected from customers

The Assessing Officer had disallowed a sum of Rs.10,82,023 under the provisions of section 43B of the I.T.Act. The observation of the A.O. while making the disallowance of Rs.10,82,023, reads as follow:-

“In the balance sheet filed for the AY. 2010-11, the assessee has shown Rs.10,82,023 as service tax payable. The AR. of the assessee vide letter dated: 16.11.2012 stated that Service Tax collected is treated as a current liability and does not affect the profit.

The assessee in the balance sheet filed for the AY. 2010-11 has shown Rs.10,82,023 as service tax payable. The assessee has collected service tax and not remitted to government account. The assessee should have considered service tax collected and not remitted as income for the year under the provisions of section 43B of the Income Tax Act. Hence the service tax payable of Rs.10,82,023 is disallowed under the provisions of section 43B of the Act. Accordingly an amount of Rs.10,82,023 is added to the returned income. 

The CIT(A) confirmed the view taken by the A.O.

ITAT View

It is not clear whether the assessee has collected service tax and has not paid the same within the due date to the Government account. The Bangalore Bench of the Tribunal in the case of Boraiah Shivananjaiah v. ACIT (supra) had held that when assessee collects the service tax from its customers and has not remitted the Government Exchequer, the same has to be disallowed u/s 43B of the I.T.Act.

We restore the issue to the A.O. The A.O. is directed to examine whether the assessee has actually collected the service tax from its customers and not remitted to the Government Exchequer. In such an event, the disallowance u/s 43B of the I.T.Act will have to be upheld. On the contrary, if the assessee has not collected the service tax from its customers, then the same would not be subjected to disallowance u/s 43B of the I.T.Act. It is ordered accordingly.