2016 (10) TMI 885 - AT - Income Tax

Inclusion of service tax for the purpose of presumptive income under Section 44B - Held that - Respectfully following the decision of the Hon ble Delhi High Court in the case of Mitchell Drilling International Ltd. (2015 (10) TMI 259 - DELHI HIGH COURT ) and of the Coordinate Bench of this Tribunal in the assessee s own case for assessment years 2007-08, 2008-09 & 2010-11 (supra), we hold that for the purpose of computing the presumptive income of the assessee under section 44BB of the Act, since service tax collected by the assessee does not have any element of income, it therefore cannot form part of the gross receipts and consequently delete the addition made in this regard by the authorities below. Short credit of advance tax and tax deducted at source (TDS) - Held that - We direct the AO to consider, examine and verify the assessee s claim of grant of short credit of Advance Tax of ₹ 10,95,525/- and TDS of ₹ 34,583/- while giving effect to this order, after affording the assessee of adequate opportunity of being heard in the matter and to file details/submissions required in this regard. Uuphold the action of the AO in charging the assessee interest under sections 234C and 234D of the Act. See Commissioner of Income Tax Versus Anjum MH Ghaswala And Others 2001 (10) TMI 4 - SUPREME Court

Issues Involved:
1. Inclusion of service tax for the purpose of presumptive income under Section 44B of the Income Tax Act, 1961.
2. Non-consideration of the correct amount of service tax collected and paid.
3. Short credit of advance tax and tax deducted at source (TDS).
4. Erroneous levy of interest under Section 234C of the Act.
5. Erroneous levy of interest under Section 234D of the Act.
6. Initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. Inclusion of Service Tax for the Purpose of Presumptive Income under Section 44B of the Act:
The assessee challenged the inclusion of ?1,79,11,894, being 7.5% of the service tax collected from customers and paid to the government, in the computation of presumptive income under Section 44B. The assessee cited previous favorable decisions from the Tribunal in its own cases for assessment years 2007-08, 2008-09, and 2010-11. The Revenue supported the inclusion based on the decision in the case of M/s. China Shipping Container Lines (Hong Kong) Company Ltd. The Tribunal, after considering various judicial pronouncements, including the Hon'ble Delhi High Court's decision in DIT-I vs. Mitchell Drilling International (P) Ltd., held that service tax collected does not have any element of income and should not be included in gross receipts for computing presumptive income under Section 44B. Consequently, the Tribunal deleted the addition made by the authorities below and allowed this ground of the assessee’s appeal.

2. Non-Consideration of Correct Amount of Service Tax Collected and Paid:
This ground was raised as an alternative to Ground 1. Given that Ground 1 was allowed, this ground became academic and did not require adjudication.

3. Short Credit of Advance Tax and Tax Deducted at Source (TDS):
The assessee contended that the AO granted short credit of TDS amounting to ?34,583 and short credit for Advance Tax amounting to ?10,95,525. The Tribunal directed the AO to verify and rectify the short credit of Advance Tax and TDS while giving effect to the order, after affording the assessee an opportunity to present necessary details. This ground was allowed for statistical purposes.

4. Erroneous Levy of Interest under Section 234C of the Act:
The assessee denied liability for interest under Section 234C. The Tribunal upheld the AO's action, citing that the charging of interest is consequential and mandatory, as upheld by the Hon'ble Supreme Court in Anjum H. Ghaswala (252 ITR 1). However, the AO was directed to recompute the interest while giving effect to the order.

5. Erroneous Levy of Interest under Section 234D of the Act:
Similar to Ground 4, the assessee denied liability for interest under Section 234D. The Tribunal upheld the AO's action for the same reasons and directed the AO to recompute the interest while giving effect to the order.

6. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee challenged the initiation of penalty proceedings under Section 271(1)(c). The Tribunal noted that this ground was premature since no penalty had been levied. Therefore, this ground was dismissed as not maintainable.

Conclusion:
The appeal was partly allowed. The inclusion of service tax for the computation of presumptive income was deleted, and the AO was directed to verify and rectify short credits for Advance Tax and TDS. The charges of interest under Sections 234C and 234D were upheld but required recomputation. The initiation of penalty proceedings under Section 271(1)(c) was dismissed as premature.

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