2017 (6) TMI 920 - AT - Income Tax

Addition u/s 40(a)(ia) - non deduction of TDS - expenditure payable v/s paid during the year - Held that - The subject matter is no more rest intergra. The Hon ble Supreme Court decision in its recent decision in case of M/s Palam Gas Service (2017 (5) TMI 242 - SUPREME COURT) has held that Section 40(a)(ia) covers not only those cases where the amount is payable but also those cases where the amount has been paid during the financial year without deduction of TDS. Coming to another contention raised by the AR that the amendment brought-in in section 40(a)(ia) by the Finance Act 2014 where it is provided that 30 percent of any sum payable to a resident shall be disallowed as against 100% disallowance made earlier should be applied in the instant case and disallowance restricted to 30% of the total amount. On perusal of the Finance Act, 2014, it is noted that the said amendment has been brought in and made effective from 01.04.2015 and there is nothing which suggest such amendment is made effective or to be read as retrospective in nature. In view of the clear wordings as enacted by the legislature, the same cannot be held applicable to the assessee for the year under consideration. - Decided against assessee. Disallowance of unpaid service tax and VAT under section 43B - Held that - Firstly, regarding VAT, the issue is no more rest intergra in view of the decision of Hon ble Supreme Court in case of Chowringee Sales Bureau 1972 (10) TMI 4 - SUPREME Court . In context of section 43B, how the said ruling continues to hold good has been discussed by the Coordinate Bench in case of SVG Express 2016 (12) TMI 452 - ITAT JAIPUR as held case of Chowringhee Sales Bureau continues to hold good except that its rigour has been slightly modified to the extent that the taxes collected can be deposited before the due date of filing of return of income and in case there is a delay, it will be added to the professional receipts of the assessee and will be allowed to claim deduction of the amount in the year of payment . Thus disallowance of VAT payable has rightly been made by the Assessing officer Disallowance regarding to service tax - Held that - We prima facie find force in the contentions of the ld AR that where amount on which service tax was payable was not collected, there cannot be a question of collection or deemed collection of service tax and in absence of the same, there cannot be a question of deemed receipt and applicability of section 43B of the Act. However, we find that there is no finding of fact recorded by the lower authorities in this regard to support the said contention of the ld AR that the assessee did not receive the amount on which service tax was payable from the parties to whom services were rendered. We, accordingly, set aside the matter relating to service tax to the file of the Assessing Officer to examine the same afresh after providing reasonable opportunity to the assessee. Appeal of the assessee partly allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance under Section 43B of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia):
The assessee challenged the disallowance of ?22,09,267/- under Section 40(a)(ia) for non-deduction of TDS on various expenses including hire charges, labor and job charges, advertisement, and freight. The assessee argued that Section 40(a)(ia) applies only to amounts payable as on the balance sheet date and not to amounts already paid during the year. However, this argument was rejected based on the Supreme Court's decision in M/s Palam Gas Service (Civil Appeal No. 5512 of 2017), which clarified that Section 40(a)(ia) covers both amounts payable and paid without TDS deduction. The Tribunal noted that the amendment to Section 40(a)(ia) by the Finance Act 2014, which restricts disallowance to 30% of the payable amount, is effective from 01.04.2015 and is not retrospective. Consequently, the Tribunal upheld the disallowance of ?22,09,267/- and dismissed the assessee's ground.

2. Disallowance under Section 43B:
The assessee contested the disallowance of ?7,67,899/- under Section 43B, arguing that since service tax and VAT were not claimed as expenses in the Profit and Loss account, Section 43B should not apply. The CIT(A) had upheld the disallowance, citing the Supreme Court's decision in Chowrangee Sales Bureau, which treats sales tax as part of turnover even if not debited in the P&L account. The Tribunal reviewed various case laws, including Noble & Hewitt (I)(P.) Ltd., Jet Lite (India) Ltd., and Real Image Media Technologies (P.) Ltd., which supported the assessee's position that Section 43B does not apply if the tax is not claimed as a deduction. However, the Tribunal noted that there was no factual finding by lower authorities to confirm that the assessee did not receive the amount on which service tax was payable. Therefore, the Tribunal remanded the matter to the Assessing Officer for fresh examination, confirming the disallowance of VAT but setting aside the service tax issue for further verification.

Conclusion:
The Tribunal dismissed the appeal regarding the disallowance under Section 40(a)(ia) and partly allowed the appeal for statistical purposes regarding the disallowance under Section 43B, directing further examination by the Assessing Officer. The order was pronounced in the open court on 24/5/2017.