2018 (5) TMI 1962 - AT - Income Tax

Disallowance u/s 43B - where the service tax calculated but had not paid to the central government account - HELD THAT - Admittedly, the service tax account is not routed through the profit and loss account but through suspense account which means that there was no debit to the profit and loss account on account of liability of service tax account or there is no claim by the assessee for deduction of service tax payable. This issue was considered by the Hon'ble Bombay high court in the case of CIT Vs. Knight Frank (India) Pvt. Ltd. 2016 (8) TMI 1096 - BOMBAY HIGH COURT - we allow the grounds of appeal raised by the assessee.

Summary

Issues Involved:
1. Treatment of service tax as part of income receipt for computing taxable income.
2. Disallowance of service tax under Section 43B of the Income Tax Act.
3. Appeal against the levy of interest under Section 234B of the Act.

Issue 1: Treatment of Service Tax as Part of Income Receipt:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2013-14. The dispute revolved around whether service tax should be considered as part of the income receipt for calculating taxable income. The Assessing Officer contended that service tax calculated but not paid to the Government Account should be treated as part of the trading receipt, invoking the provisions of Section 43B of the Act. The Commissioner upheld this addition, relying on a Supreme Court decision. The appellant argued that service tax was not credited to the Profit & Loss Account and was routed through a suspense account, hence disallowance under Section 43B was not warranted.

Issue 2: Disallowance of Service Tax under Section 43B:
The main contention was whether the service tax calculated but not paid to the central government account could be disallowed under Section 43B of the Act. The appellant argued that since the service tax account was not routed through the Profit and Loss Account and there was no claim for deduction of service tax payable, disallowance under Section 43B was not applicable. The Tribunal referred to a Bombay High Court decision that supported the appellant's argument, stating that if no deduction was claimed for service tax payable, Section 43B could not be invoked. Based on this precedent, the Tribunal allowed the grounds of appeal raised by the assessee.

Issue 3: Appeal Against Levy of Interest under Section 234B:
The appellant also raised an issue regarding the appeal against the levy of interest under Section 234B of the Act. However, the Tribunal did not delve into this issue specifically in the judgment, as the focus was primarily on the treatment of service tax and disallowance under Section 43B. Therefore, no detailed analysis or decision was provided regarding the appeal against the levy of interest under Section 234B.

In conclusion, the Appellate Tribunal, consisting of a Judicial Member and an Accountant Member, allowed the appeal filed by the assessee, based on the argument that disallowance under Section 43B was not warranted due to the specific circumstances regarding the treatment of service tax in the case. The Tribunal's decision was influenced by a relevant precedent set by the Bombay High Court, which established that if no deduction was claimed for service tax payable, disallowance under Section 43B could not be applied.