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2016 (9) TMI 1616 - AT - Income TaxRevision u/s 263 by CIT - service tax amount has not been paid on or before filing the IT return as mandated under the provision of Sec. 43B of the Act and secondly the AO at the time of assessment has allowed the depreciation @ 100% on the hoarding structure - HELD THAT - As per the Service Tax Law Service Tax is payable as and when the payment /fees for underlying service provided are realized. As the appellant firm has not received the sum till the end of the financial year i.e. 2007-08 the question of paying the same did not arise at all. As already stated the fact of non-realization of fees is disputed by the AO in his order. If for any reason the payment for services rendered is not realized (bad debts) there was no liability as to payment of service tax - service tax law stands on a different footing as compared to other laws like Central Excise or VAT. As per the provisions of section 145A taxes and duties should form part of the Gross Receipts but it as application is restricted to purchase and sale of goods only and does not extend to service contracts. Thus the liability of the service tax dos not also arise as per section 145A . As in respect of valuation of purchase and sale of goods and inventory and not to service contracts. Therefore the action of the Assessing Officer in invoking provisions of section 145A of the Act and adding Service Tax to Gross Receipts is incorrect in as much as against the very basic principles of section 145A. Apart from the above we find that the payment for services rendered was not received in the financial year under consideration. Similarly for the issue raised for the depreciation claimed @ 100% on the hoarding structure we find that the hoarding structures are temporary in nature and they cannot be equated with the building for the reason that the temporary structures are raised in temporary location which are taken on lease once the structures are removed the value becomes almost nil and cannot be used again. - Decided in favour of assessee.
Issues Involved:
1. Treatment of outstanding service tax under Section 43B of the Income Tax Act. 2. Depreciation claimed on hoarding structures. Issue-wise Detailed Analysis: 1. Treatment of Outstanding Service Tax under Section 43B of the Income Tax Act: The primary issue raised by the assessee was whether the Commissioner of Income Tax (CIT) erred in treating the assessment order as erroneous and prejudicial to the interest of revenue under Section 263 of the Income Tax Act due to the non-payment of outstanding service tax amounting to ?1,37,15,804/-. The CIT observed that this amount should be disallowed as per the provisions of Section 43B of the Act. The assessee argued that as per Section 145A of the Act, turnover includes sales tax and excise duty but excludes service tax. The assessee, acting as an agent for the government, is not entitled to claim a deduction for service tax. The liability to pay service tax arises only upon receipt of payment for the services rendered, as per Rule 6 of the Service Tax Rules, 1994. Since no service tax was debited or credited in the profit and loss account, there was no mistake in the assessment order. The CIT rejected the assessee's plea, stating that the payment of service tax is governed by Section 43B of the Act, which mandates that such payments should be allowed only if paid on or before the due date of filing the income tax return. The CIT directed the Assessing Officer (AO) to re-examine the matter. Upon appeal, the Tribunal found that the liability to pay service tax did not arise as the payment for the services rendered was not received within the financial year. The Tribunal noted that Section 43B applies to deductions claimed for taxes paid, and since the service tax liability had not crystallized due to non-receipt of payment, the question of claiming a deduction did not arise. The Tribunal also referenced the case of CIT vs. Noble And Hewitt (I) P. Ltd., where it was held that disallowance under Section 43B does not apply if the deduction was not claimed in the first place. 2. Depreciation Claimed on Hoarding Structures: The second issue was related to the depreciation claimed by the assessee at 100% on hoarding structures, which the CIT found to be against the provisions of law. The CIT observed that the hoarding structures, as per the assessee's accounting policy, had a useful life of 3-5 years, and thus, depreciation should be allowed at 10% per annum, similar to non-residential buildings. The CIT noted that the technology and life of hoarding structures had changed significantly since the initial assessment year (AY 1972-73), and therefore, the previous assessment orders had no bearing on the current case. The assessee argued that the hoarding structures were temporary and their value became almost nil once dismantled. The assessee provided details and technical certificates from Chartered Engineers to support the claim for 100% depreciation. The Tribunal referred to a previous Tribunal decision (ITA No.657 to 659/Kol/2011) where it was held that temporary structures like LED Video Display Boards, which are used in temporary locations and have a short lifespan, qualify for 100% depreciation. The Tribunal concluded that the hoarding structures were indeed temporary and could not be equated with buildings. The Tribunal found that the CIT's order was unsustainable in law and cancelled the revision order, allowing the assessee's appeal. Conclusion: The Tribunal allowed the assessee's appeal, concluding that the CIT's order under Section 263 was erroneous and prejudicial to the interest of revenue. The Tribunal held that the non-payment of service tax did not attract disallowance under Section 43B, and the hoarding structures qualified for 100% depreciation as they were temporary in nature. Revenue's Appeal: The Revenue's appeal raised similar issues regarding the deletion of the service tax addition and the depreciation on hoarding structures. Following the same reasoning as in the assessee's appeal, the Tribunal dismissed the Revenue's appeal, upholding the decisions in favor of the assessee. Final Order: The Tribunal pronounced the order in open court on 30/09/2016, allowing the assessee's appeal and dismissing the Revenue's appeal.
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