2021 (8) TMI 103 - AT - Income Tax

Addition u/s 43B - Method of accounting - unpaid statutory dues of service tax, Excise and PF by changing the method of accounting - HELD THAT - CIT(A) after considering the submission of assessee and held that the assessee s service tax disallowance and added by AO has never been claimed as expenses by assessee in its profit and loss account but claim as liability in the balance-sheet. The Assessing Officer has not brought this fact in the assessment order. AO merely calculated the service tax by taking total tax collected by deducting the amount of service tax paid. CIT(A) concluded that no disallowance under section 43B can be made in this case because no expense on this count has been claimed. The assessee followed the exclusive method of accounting and whatever liability or expense debited in the profit and loss account had been paid through CENVAT credit and profit and loss account so no addition under section 43B on account of unpaid service tax is warranted. Hon'ble Delhi High Court in CIT vs. Noble Hewitt (I) (P) Ltd. 2007 (9) TMI 238 - DELHI HIGH COURT held that when the assessee was following mercantile system of accounting and had not deposited parts of service tax collection with the authorities concerned. The assessee neither claimed the deduction in this regards nor it debited the amount as expenditure in profit and loss account, there is no question for disallowance of said amount. Objection of Ld. DR for the revenue is that no payment was made by the assessee, therefore, no deduction was allowable - CIT(A) while granting relief to the assessee has taken not of the fact that no disallowance under section 43B can be made in this case because no expense on this count has been claimed. The assessee followed the exclusive method of accounting and whatever liability or expense debited in the profit and loss account had been paid through CENVAT credit and profit and loss account so no addition under section 43B on account of unpaid service tax is warranted. Thus, the grounds of appeal raised by the revenue are dismissed

Issues Involved:

1. Deletion of addition of unpaid statutory dues under Section 43B.
2. Method of accounting change from inclusive to exclusive.
3. Applicability of Section 43B to unpaid statutory dues.
4. Inclusion of statutory dues in turnover.
5. Applicability of the Delhi High Court judgment in Noble & Hewitt case.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Unpaid Statutory Dues under Section 43B:
The Revenue contended that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in deleting the addition of ?1,88,77,981 under Section 43B for unpaid statutory dues of service tax, excise, and provident fund (PF). The Assessing Officer (AO) added these unpaid dues to the income of the assessee, arguing that they must be paid before the due date of filing the return.

2. Method of Accounting Change from Inclusive to Exclusive:
The Revenue argued that the assessee changed its method of accounting from inclusive to exclusive to avoid disallowance under Section 43B. The AO noted that the assessee had not included service tax, excise, and VAT in its gross receipts nor claimed them as expenses, which led to the disallowance being contested.

3. Applicability of Section 43B to Unpaid Statutory Dues:
The AO held that under Section 43B, statutory dues must be paid before the due date of filing the return to be deductible. The assessee contended that since they followed the exclusive method of accounting, they neither included these dues in their gross receipts nor claimed them as expenses, making Section 43B inapplicable.

4. Inclusion of Statutory Dues in Turnover:
The Revenue argued that under the inclusive method of accounting, statutory dues should be included in the turnover, and deductions for these dues can only be claimed upon actual payment. The AO added unpaid service tax, excise duty, and PF to the income of the assessee, as these were not paid by the due date.

5. Applicability of the Delhi High Court Judgment in Noble & Hewitt Case:
The Revenue contended that the CIT(A) erroneously applied the Delhi High Court's judgment in Noble & Hewitt, as the method of accounting was not discussed in that case. The assessee relied on this judgment, arguing that since they did not claim these dues as expenses, no disallowance could be made under Section 43B.

Tribunal's Findings:

- The Tribunal noted that the assessee followed the exclusive method of accounting and did not include service tax, excise, and VAT in its gross receipts nor claimed them as expenses.
- The CIT(A) found that the assessee's service tax disallowance was not claimed as an expense in the profit and loss account but was shown as a liability in the balance sheet.
- The Tribunal upheld the CIT(A)'s decision, stating that no disallowance under Section 43B could be made since no expense was claimed by the assessee.
- The Tribunal referenced the Delhi High Court's judgment in Noble & Hewitt, which held that no addition could be made if the assessee did not claim the deduction or debit the amount as an expenditure in the profit and loss account.
- The Tribunal dismissed the Revenue's appeal, concluding that the CIT(A) correctly granted relief to the assessee, as no expenses were claimed, and the exclusive method of accounting was followed.

Conclusion:
The appeal of the Revenue was dismissed, affirming the CIT(A)'s order that no disallowance under Section 43B was warranted since the assessee did not claim the unpaid statutory dues as expenses. The Tribunal emphasized that the exclusive method of accounting and the non-claiming of these dues as expenses were crucial factors in their decision.

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