2015 (12) TMI 1818 - AT - Income Tax

Addition on account of unpaid Service Tax - unpaid statutory liability as prescribed u/s 43B - HELD THAT - We are of the considered opinion that no interference is required in the decision given by the learned CIT (A). The issue of disallowance of unpaid statutory liability as prescribed u/s 43B of the IT ACT now stood resolved by several decisions. The impact of Circular No.372 dated 8th December 1981 has also been considered. As per the said circular it is specifically mentioned that several cases have come to the notice where tax payers did not discharge their liability in respect of excise duties or other taxes although claimed the said liability as deduction on the ground that the accounts have been maintained on mercantile basis. The CBDT has observed that on one hand the tax payers have claimed the deduction merely on the basis of accrual of liability but on the other hand disputed the liability and did not discharge the obligation of payment of the tax. For some reasons or the other the liability is disputed and not paid. This aspect has been considered by several Courts and came to the conclusion that in a situation when deduction has not been claimed and a separate account has been maintained then disallowance u/s 43B of the IT Act should not be made. In the case of CIT Vs Noble Hewitt (India) (P) Ltd. 2007 (9) TMI 238 - DELHI HIGH COURT the case of Chowringhee Sales Bureau P. Ltd. Vs CIT 1974 (6) TMI 5 - CALCUTTA HIGH COURT has been distinguished and it was held that when the amount of tax has not been debited to profit loss account as an expenditure nor claimed any deduction in respect of the said amount then the question of disallowance u/s 43B of the IT Act does not arise. Respectfully following this decision we hereby hold that there was no fallacy in the view taken by the learned CIT (A). The same is hereby confirmed and ground No.1 of the appeal of the Revenue is therefore dismissed. Addition on account of donation treating the same as personal expenditure - HELD THAT - We are not in agreement with the view taken by the learned CIT (A) because he has simply generalised the issue although the AO had made a specific observation that the assessee had not filed any evidence through which the deduction could be qualified. The onus was on the assessee to place on record such evidence to establish that the donation was not in the nature of personal expenditure but in the nature of business expenditure to be allowed under the provisions of the Act. We hereby reverse the finding of the learned CIT (A) and allow this ground of appeal of the Revenue.

Summary

Issues:
1. Disallowance of unpaid Service Tax under section 43B of the IT Act.
2. Disallowance of donation treated as personal expenditure.

Issue 1: Disallowance of unpaid Service Tax under section 43B of the IT Act:
The appeal by the Revenue arose from the order of the CIT (A) concerning the addition of unpaid Service Tax amounting to Rs. 11,47,255 made by the AO for the assessment year 2009-10. The AO added back the unpaid Service Tax to the assessed income of the assessee invoking section 43B of the IT Act as the tax was not paid by the due date of filing the return. However, the CIT (A) examined the accounting method followed by the appellant and referred to Board Circular No.372 to emphasize the purpose behind section 43B, which is to prevent claiming deductions without actual payment of statutory dues. The CIT (A) concluded that since the appellant had consistently followed the Exclusive Method of Accounting and had not claimed the Service Tax amount as a deduction, disallowance under section 43B was not applicable. Citing relevant case laws, it was held that if the tax amount has not been debited to the Profit & Loss Account and no deduction has been claimed, disallowance under section 43B does not arise. The ITAT concurred with the CIT (A)'s decision, dismissing the Revenue's appeal.

Issue 2: Disallowance of donation treated as personal expenditure:
The second issue pertained to the disallowance of a donation of Rs. 17,000 treated as personal expenditure by the AO. The CIT (A) had deleted this addition, stating that the disallowance was made merely on assumption without specific evidence from the assessee. However, the ITAT disagreed with the CIT (A) and held that the onus was on the assessee to provide evidence that the donation was a business expenditure, not personal. As the assessee failed to establish this, the ITAT reversed the CIT (A)'s finding and allowed this ground of appeal by the Revenue. Consequently, the appeal filed by the Revenue Department was partly allowed on this issue.

In summary, the ITAT upheld the CIT (A)'s decision regarding the disallowance of unpaid Service Tax under section 43B of the IT Act, emphasizing the accounting method followed by the appellant and relevant case laws. However, the ITAT allowed the Revenue's appeal concerning the disallowance of a donation treated as personal expenditure due to lack of evidence provided by the assessee.