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2021 (12) TMI 546 - AT - Income TaxDeductibility of the amount of service tax paid under VCES, 2013 - contention of the assessee is that the amount paid was a discharge of liability which got crystallized during the year and hence was an expenditure deductible for the year - AR raised an alternative argument that the amount of service tax should be allowed in terms of section 43B of the Income-tax Act, 1961 - HELD THAT - A cumulative reading of the main part of the provision along with its proviso deciphers that if any tax, duty, cess or fee etc. is received, say, on 31st March of the financial year X, but is actually deposited on 5th of April of the financial year X 1, then going with the main provision, the deduction should be allowed in the year of payment that is X 1, but the proviso intervenes to provide for deduction of such an amount in the financial year X - there is a clear cut mandate that incurring of liability to pay tax, duty, cess or fee etc. in a particular previous year is not a relevant criterion for granting deduction. Rather it is only when the amount of such tax etc. is actually paid by the assessee that the deduction follows. The position which ergo emerges is that an assessee is otherwise eligible for claiming deduction, in law, in the financial year of raising the invoice, even if the service tax is neither received nor deposited in such a year. If however, the assessee suo motu does not claim deduction of service tax in the financial year of raising invoice for not having received and deposited the amount of service tax, he can validly claim deduction u/s 43B in the later year on realizing the amount and paying the service tax. Reverting to the facts of the case, it is seen that the amount of service tax has actually been paid in the year under consideration but no deduction was claimed by the assessee in the earlier financial years when Incentives, impliedly including the amount of service tax, were received. As such, the same has to be allowed as deduction in the year in question in terms of the main provision of section 43B granting deduction at the time of actual payment. When the assessee incurred liability in respect of service tax in earlier years for which deduction was otherwise allowable under this Act, the deduction will be allowed in computing the income of the year in which the amount is actually paid which is the year under consideration as no such deduction was claimed in earlier years. On a relative reading of section 43B(a) in juxtaposition to section 145A(ii), it becomes explicitly unambiguous that any sum payable by way of tax, under any law for the time being in force, which essentially includes service tax also, is required to be considered for the purposes of section 43B. The fortiori is that the amount of service tax is includible in the total income in the first instance, which then qualifies for deduction or non-deduction u/s 43B of the Act. Thus, the contention of the Revenue that the amount of service tax is not includible in the total income at the time of collection is devoid of merits and hence jettisoned. Once it is held that the amount of service tax is includible in the total income of the assessee, the inevitable conclusion which follows is that its deduction will also result, which may be otherwise allowable or disallowable as per the facts and circumstances of a case. Such payment during the year is nothing but, in a way, reversal of the original entry of receipt passed in the earlier years. Once receipt of the amount of service tax was included in the total income in earlier years, the obvious corollary is that its payment in the year in question will also qualify for deduction from the total income. In view of the foregoing discussion thus hold that the sum paid by the assessee during the year as service tax relatable to earlier years should be allowed as deduction in the year under consideration. The impugned order is, therefore, overturned on this score. Appeal allowed.
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Deductibility of service tax paid under the Service Tax Voluntary Compliance Encouragement Scheme (VCES), 2013. 3. Applicability of Section 43B of the Income-tax Act, 1961. 4. Inclusion of service tax in total income and its subsequent deduction. Detailed Analysis: 1. Condonation of Delay in Filing the Appeal: The appeal was time-barred by 729 days. The assessee filed a condonation application with an affidavit explaining the reasons for the delay. The tribunal was satisfied with the reasons provided and condoned the delay, admitting the appeal for disposal on merits. 2. Deductibility of Service Tax Paid Under VCES, 2013: The assessee, engaged in the business of sales and service of two-wheelers and tractors, claimed a deduction of ?12,25,998/- as a prior period expenditure under the head “Rates and Taxes.” This amount was paid under the VCES, 2013, for service tax liabilities pertaining to financial years 2007-08 to 2012-13. The Assessing Officer (AO) disallowed this deduction, treating it as a prior period expense and noting the lack of documentary evidence proving it was not a penal payment. The CIT(A) upheld this disallowance. The tribunal examined the details and concluded that the amount paid by the assessee was solely towards service tax and education cess, without any penalty component. 3. Applicability of Section 43B of the Income-tax Act, 1961: The assessee argued that the service tax paid should be deductible under Section 43B, which allows deductions for sums payable by way of tax, duty, cess, or fee only in the year they are actually paid. The tribunal noted that Section 43B opens with a non obstante clause and mandates that deductions for taxes are allowable in the year of actual payment, irrespective of the year in which the liability was incurred. The tribunal held that since the service tax was paid in the year under consideration and no deduction was claimed in earlier years, the deduction should be allowed in the current year. 4. Inclusion of Service Tax in Total Income and Its Subsequent Deduction: The Revenue contended that service tax included in the incentives did not constitute income when received, and thus, no deduction could be allowed upon its subsequent payment. The tribunal rejected this argument, clarifying that while Circular No. 4/2008 exempts TDS on service tax for rent, it does not exclude service tax from total income. Section 145A(ii) mandates the inclusion of taxes in the valuation of services, implying that service tax is part of the total income. Consequently, the service tax paid during the year qualifies for deduction under Section 43B, as it was included in the total income in earlier years. Conclusion: The tribunal concluded that the sum of ?12.25 lakh paid by the assessee as service tax for earlier years should be allowed as a deduction in the year under consideration. The impugned order was overturned, and the appeal was allowed. Order Pronounced: The order was pronounced in the Open Court on 18th November, 2021.
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