2013 (4) TMI 789 - AT - Income Tax

Addition on account of unpaid liability of Service Tax u/s 43B - Held that - Undisputedly the assessee has been following mercantile system of accounting and the liability of Service Tax is required to be paid only on the value of taxable service after its actual receipt in a particular month or quarter as the case may be and not on the amount billed by the assessee on the customers. It is also undisputed fact that Service Tax was not passed through profit & loss account nor was taken as part of income. The similar situation was examined by the Tribunal in the case of ACIT vs. Real Image Media Technologies (P) Ltd. (2007 (12) TMI 263 - ITAT MADRAS-C) and the Tribunal came to the conclusion that since the Service Tax was not payable by the assessee the rigour of the provision of Section 43B could not be applied to the facts of the case. -Decided in favour of assessee.

Summary

Issues:
Revenue's appeal against CIT(A)'s order deleting addition of unpaid Service Tax liability under section 43B of the Income Tax Act, 1961.

Analysis:
1. The Revenue appealed against the CIT(A)'s decision to delete the addition of Rs. 12,91,906 made by the Assessing Officer on account of unpaid liability of Service Tax under section 43B of the Income Tax Act, 1961.

2. The Assessing Officer treated the outstanding Service Tax liability as payable and added it to the assessee's income under section 43B. The CIT(A) held that since the assessee did not claim the liability of Service Tax in the profit & loss account, the provision of section 43B could not be invoked for disallowance.

3. The assessee contended that Service Tax was payable only on the value of taxable services after actual receipt, not on the gross amount billed. The CIT(A) relied on Tribunal orders and held that since the Service Tax was not payable by the assessee, section 43B could not be applied.

4. The Revenue appealed to the Tribunal, emphasizing the Assessing Officer's order.

5. The assessee's counsel argued that the assessee followed the mercantile system of accounting and did not claim the payment of Service Tax during the assessment year. Citing relevant case law, it was contended that section 43B could not be invoked for disallowance.

6. After considering submissions and previous judgments, the Tribunal found that the assessee followed the mercantile system of accounting and Service Tax was payable only upon actual receipt. The Tribunal agreed with previous decisions that the rigour of section 43B applies only when an item is allowable as a deduction but not paid. Since Service Tax was not payable by the assessee, section 43B could not be applied.

7. Consistent with previous decisions, the Tribunal confirmed the CIT(A)'s order, dismissing the Revenue's appeal.

8. Consequently, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision regarding the unpaid Service Tax liability under section 43B of the Income Tax Act, 1961.