2020 (7) TMI 777 - AT - Income Tax

Disallowance u/s 43B - disallowances of outstanding service tax liability - HELD THAT - CIT(A) has rightly held that since the assessee has not debited the service tax in its profits and loss account therefore no disallowance can be made u/s 43B of the Act. Since the ld. CIT(A) has already directed to the AO stating that in subsequent years when the service tax liability has been settled at a lesser amount the assessee is duty bound to offer the difference for taxation, and the ld. CIT(A) directed the Assessing Officer to verify the same and if the assessee had not offered the difference for taxation then bring the same to taxation by invoking section 148 of the Act. We note that there is no infirmity in the direction given by the ld. CIT(A) therefore, we decline to interfere in the order passed by ld. CIT(A), his order on this issue, is hereby upheld and grounds of appeal raised by the revenue is dismissed.

Summary

Issues:
1. Disallowance of outstanding service tax liability under Section 43B of the Income Tax Act, 1961.

Analysis:
The appeal pertains to the assessment year 2013-14 and concerns the disallowance of outstanding service tax liability of ?1,89,52,413 by the Assessing Officer under Section 43B of the Act. The Assessing Officer found that the assessee had only paid ?13,00,000 of the total liability before the due date of filing the income tax return. The assessee contended that since the service tax liability was not routed through the Profit and Loss Account, Section 43B was not applicable. However, the Assessing Officer maintained that the liability must be added back to the total income as per Section 43B, regardless of whether it was reflected in the Profit and Loss Account.

The Commissioner of Income Tax (Appeal) (CIT(A)) deleted the addition made by the Assessing Officer, citing that since the service tax liability was not debited in the Profit and Loss Account, disallowance under Section 43B could not be justified. The CIT(A) directed the Assessing Officer to verify if the difference in the settled service tax liability in subsequent years had been offered for taxation. The Tribunal upheld the CIT(A)'s decision, emphasizing that no disallowance could be made under Section 43B as the service tax liability was not reflected in the Profit and Loss Account. The Tribunal declined to interfere with the CIT(A)'s order, dismissing the revenue's appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision, ruling that the disallowance of the outstanding service tax liability under Section 43B was not justified as the liability was not accounted for in the Profit and Loss Account. The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order.