2018 (1) TMI 1703 - AT - Income Tax

Disallowance of Service Tax u/s. 43B - service tax was paid after the due date of filling of return of income and added to the total income of the Appellant - HELD THAT - Issue decided in favour of assessee as relying on case of Knight Frank (India) (P) Ltd. 2016 (8) TMI 1096 - BOMBAY HIGH COURT as held that it is an admitted position before us that the respondent assessee had not claimed any deduction on account of the service tax payable in order to determine its taxable income. In the above view, there can be no occasion to invoke Section 43B of the Act. Appeal filed by the assessee stands allowed.

Summary

Issues:
Disallowance of Service Tax under section 43B of the Income Tax Act.

Analysis:

Issue 1: Disallowance of Service Tax under section 43B

Facts: The Assessing Officer disallowed service tax of Rs. 60,57,445 under section 43B as the tax collected from customers was not paid to the government account. The assessee argued that the service tax did not constitute its income as it was not debited to the profit & loss account.

Judgment: The Commissioner of Income Tax (Appeals) upheld the disallowance, considering service tax as a trading receipt and part of the income for the assessment year. The Commissioner relied on various case laws and emphasized that the liability should be debited in the profit & loss account for section 43B to not apply.

Key Points: The Commissioner highlighted that if the liability is not debited in the profit & loss account, section 43B does not apply. The Commissioner referred to the decisions of the Hon'ble Bombay High Court and the Delhi High Court to support the disallowance of service tax under section 43B.

Issue 2: Applicability of Section 43B

Facts: The assessee contended that section 43B was not applicable as the service tax was not claimed as a deductible expenditure while computing taxable income. The assessee argued that the tax was paid in the subsequent assessment year.

Judgment: The ITAT Mumbai found that the issue was covered in favor of the assessee by the decisions of the jurisdictional High Court. The ITAT set aside the orders of the lower authorities and decided the issue in favor of the assessee, emphasizing the importance of following relevant High Court decisions.

Key Points: The ITAT emphasized the significance of following the decisions of the jurisdictional High Court and criticized the lower authorities for not adhering to the applicable High Court decision. The ITAT allowed the appeal filed by the assessee based on the favorable legal precedents.

In conclusion, the ITAT Mumbai allowed the appeal filed by the assessee, setting aside the disallowance of service tax under section 43B based on the precedents established by the jurisdictional High Court. The judgment underscores the importance of considering relevant legal decisions in tax matters and following proper judicial discipline.