2022 (9) TMI 578 - AT - Income Tax

Disallowance u/s 43B - unpaid Service-Tax - Whether service tax component is not an item of deduction? - CIT-A deleted the addition - case of the assessee before the Lower Authorities that the assessee Company did not claim deduction in this regard nor did it deposit the amount as expenditure under P L Account - HELD THAT - CIT(A) while deleting the addition correctly observed that since the service tax component is not an item of deduction that has been claimed by way of debited to the P L Account by the assessee . Reliance on case of Noble and Hewitt India (P) Ltd. 2007 (9) TMI 238 - DELHI HIGH COURT Since, in the present case, the service tax component is not an item of deduction that has been claimed by way of debit to the P L Account by the assessee, the above ratio laid down by the Jurisdictional High Court is squarely applicable. By respectfully following the said ratio, we do not find any error or infirmity committed by the Ld. CIT(A) . Decided against revenue.

Issues:
1. Disallowance of service tax liability under Section 43B of the Income Tax Act.
2. Applicability of Section 43B in case of unpaid service tax liability.
3. Interpretation of the decision in Noble and Hewitt India (P) Ltd. case.
4. Consideration of the mercantile system of accounting.
5. Comparison with the decision in Jetline (India) Pvt. Ltd. case.

Analysis:
1. The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2013-14. The assessee, engaged in the business of domestic and international couriers, had a scrutiny assessment resulting in additions to the declared income due to unpaid service tax liability under Section 41 of the Act and Section 43B. The Revenue challenged the deletion of disallowance made by the Assessing Officer under Section 43B.

2. The issue revolved around whether the service tax liability, unpaid after the due date of filing the return of income, should be added back to the declared income of the assessee under Section 43B. The Revenue contended that the order of the Commissioner of Income Tax (Appeals) was erroneous and sought restoration of the Assessing Officer's order. The assessee, on the other hand, argued that since no deduction was claimed for the service tax and it was not debited to the Profit & Loss Account, Section 43B did not apply.

3. The assessee relied on the decision in the Noble and Hewitt India (P) Ltd. case, where it was held that if the assessee did not claim any deduction for service tax and did not debit the amount to the Profit & Loss Account, the disallowance under Section 43B would not arise. The Tribunal noted that the service tax component was not claimed as a deduction by the assessee, aligning with the principles established in the Noble and Hewitt India case.

4. The Tribunal considered the mercantile system of accounting and emphasized that since the service tax component was not claimed as a deduction in the Profit & Loss Account, the provisions of Section 43B did not apply. Citing the decision of the Delhi High Court in the Noble and Hewitt India case, the Tribunal upheld the deletion of the addition by the Commissioner of Income Tax (Appeals).

5. The Tribunal also referred to the decision in the Jetline (India) Pvt. Ltd. case, which supported the interpretation that Section 43B is attracted only when the assessee claims a deduction for the sum payable as tax or duty. In the present case, since the service tax component was not claimed as a deduction, the Tribunal dismissed the Revenue's grounds of appeal and upheld the decision of the Commissioner of Income Tax (Appeals), ultimately dismissing the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal based on the principles established in the Noble and Hewitt India case and the interpretation of Section 43B in relation to unpaid service tax liability where no deduction was claimed by the assessee.

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