Provisions of Sec 43B not applicable on service tax when same has not been routed through P&L: ITAT

Brief facts of the case are that in this case, in the order passed under section 143 (3) of the Income-tax Act, 1961 (for short ‘the Act’), AO noted that there were unpaid service tax amounting to Rs.1,79,91,057.80. AO opined that provisions of section 43B are applicable.

Ld. Counsel of the assessee submitted that the issue is squarely covered in favour of the assessee by several case laws in which it has been held that provisions of section 43B of the Act are not attracted in the case of service tax. In this regard, he referred to following case laws :-

(i) CIT vs. Noble and Hewitt (I) (P) Ltd. (2008 305 ITR 324 (Del.);

(ii) Srikakollu Subba Rao & Co. & Ors. Vs. UOI & Ors. (1988) 173 ITR 708 (AP HC);

(iii) India Carbon Ltd. vs. Inspecting Assistant Commissioner of Income- tax (1993) 200 ITR 759 (Gau HC);

(iv) CIT vs. Everest Litho Press (2006) 285 ITR 297 (Mad HC);

(v) ACIT vs. Biotech Consortium India Ltd. ITA no.2841/Del/12 dated 09.08.2012, ITAT Delhi Bench;

(vi) ACIT vs. Real Image Media Technologies (2008) 114 ITD 573, ITAT Chennai Bench;

(vii) Wadhwa Residency (P) Ltd. vs. ACIT (2018) 95 taxmann.com 294, Mumbai Bench;

(viii) DCIT vs. M/s. M.C. Retail Pvt. Ltd., ITA No.419/Mum/2017 dated 28.09.2018, ITAT Mumbai Bench;

(ix) Envision Enterprise Solutions Pvt. Ltd. vs. ITO, ITA No.315/Hyd/2016, dated 12.08.2016, ITAT Hyderabad Bench;

(x) Vijay Associates Wadhwa Construction Pvt. Ltd. vs. Addl.CIT, ITA No.5460/Mum/2015 dated 16.01.2018, ITAT Mumbai Bench; and

(xi) Planet Advertising Pvt. Ltd. vs. ACIT, ITA No.1500/Del/2011 dated 05.07.2013, ITAT, Delhi Bench.

Upon careful consideration, ITAT noted that in the case of Planet Advertising Pvt. Ltd. vs. ACIT (supra) same issue has been adjudicated.

“ Ld. Counsel of the assessee submitted that issue involved is squarely covered in favour of the assessee by the following decisions.

6. (I) ACIT V. Real Image Media Technologies (P) Ltd. 114 ITD 573 (Mad.) (II) CIT V. Noble & Hewitt India Pvt. Ltd. 166 Taxman 48 (DELHI).

7. Ld. Departmental representative on the other hand could not rebut the submissions of the Ld. Counsel of the assessee.

8. We have carefully considered the submissions. We find that in the case of ACIT V. Real Image Media Technologies Pvt. Ltd. (Supra) the tribunal had as under :-

“(1) S. 43B starts with the non-obstante clause and specifies that the education “otherwise allowable” under the Act shall not be allowed unless it is actually paid. The rigour of S. 43B might be applicable to excise or sales tax, but the same could not be applicable in the case of servive tax due to two reasons.

(i) The assessee merely acts as an agent of the Government in collection of service tax, and is not entitled to claim deduction on account of service tax.

(ii) S. 43B (c) uses the expression “any sum payable”. For making any disallowance, it has to be established that such sum is payable. A reading of Rule 6 of the Service Tax Rules states that the liability to pay such service tax arises on receipt of payments towards the value of taxable service. If there is no liability to make the payment to the Government, because of non-receipt of payments from the receiver of services, then it cannot be said that such service tax had become payable in terms of S. 43B(a).

(2) 145 A includes sales tax, excise duty, etc. in the turnover of purchases and sales of goods, but it does not apply to services and hence service tax cannot be included in the turnover.

(3) In the given case, the assessee had not preferred a claim for the amount of service tax. Further, there was no liability on the assessee to make payments to the credit of Central Government because of non-receipt of payments from the receiver of services. Therefore, the rigor of S. 43 B is not attached and the CIT (A) was right in deleting the additions made on account of disallowance u/s 43B.”

9. We further find that in the case of CIT Vs. Noble and Hewitt India Pvt. Ltd. (Supra) Hon’ble Delhi High Court has held as under :-

“In our opinion since the assessee did not debit the amount to the Profit & Loss Account as an expenditure nor did the assessee claim any deduction in respect of the amount and considering that the assessee is following the mercantile system of accounting, the question of disallowing the deduction not claimed would not arise.

Ld. Counsel for the revenue submits that the assessee has sought to evade tax under the mercantile system of accounting. We are of the view that it is not for the revenue authorities to tell the assessee how to maintain its accounts.

We cannot find any fault in the view taken by the Tribunal and find no merit in this appeal.”

10. From the above case lodge it is clearly evident that provisions of section 43B are not applicable to the service tax liability. Accordingly, respectfully following the decisions as above the set aside orders of authorities below, and decide the issue in favour of assessee.”

Considering the same, the tribunal adjudged that. the provisions of section 43B are not applicable to the service tax liability as same has not been routed through P&L account.

For Official Order Download PDF Given Below: