2024 (10) TMI 1570 - AT - Income Tax

Disallowance u/s 43B for non-payment of Service Tax - neither the tax amount was received from the customer nor was the service tax amount debited to profit and loss account - HELD THAT - We find that the assessee is a works contractor mainly doing contract work for BSNL. It is the contention of assessee that due to cash crunch BSNL was unable to make payment to various contractors including the assessee. It is his submission that the assessee has not received service tax and Goods Service Tax amount for the period under consideration and other contract amount was also not received by him since last 3 years. The assessee is said to have filed case against the BSNL under MSME Samadhan and also wrote various letters to Finance Minister of Government of India for early settlement of his dues. The case of the assessee is that he has not received payment of service tax and Goods Service Tax for the period under consideration and in the cases relied on by Addl./JCIT(A)-3, Bengaluru the amount of service tax was already received by the parties and not paid to the Government Exchequer. Accordingly, in our considered opinion, the case laws relied on by ld. Addl./JCIT(A)-3, Bengaluru do not apply in the present case. We find in the case of CIT vs. Ovira Logistics Pvt. Ltd 2015 (4) TMI 684 - BOMBAY HIGH COURT dismissed the departmental appeal and confirmed the order passed by ITAT wherein disallowance made u/s 43B was deleted. As in the present case it is the case of the assessee that it has not at all received the service tax and Goods Service Tax from the contractee. Since it is the contention of the ld. Counsel for the assessee that it has not at all received the service tax and Goods Service Tax, therefore, we deem it proper to restore the matter back to the file of the ld. Addl./JCIT(A)-3, Bengaluru with a direction to verify as to whether the assessee has actually received the services tax and Goods Service Tax from the contractee and decide the issue in the light of judgements passed by the Hon ble Bombay High Court. Addl./JCIT(A)-3, Bengaluru shall provide due opportunity of hearing to the assessee. The assessee is hereby also directed to respond to the notices issued by the ld. Addl./JCIT(A)-3, Bengaluru and furnish requisite documents and evidences in support of his claim that it has not received the amounts in question. Thus, the grounds of appeal raised by the assessee are allowed for statistical purposes. Appeal filed by the assessee stands allowed for statistical purposes.

Summary

Issues:
1. Disallowance u/s 43B for non-payment of Service Tax
2. Disallowance u/s 43B for non-payment of Goods and Service Tax
3. Appeal against the order of LD. Addl./JCIT(A)-3, Bengaluru

Analysis:

1. The appellant contested the disallowance of Rs. 30,46,456 for non-payment of Service Tax and Rs. 1,77,17,182 for Goods and Service Tax by the Centralized Processing Centre (CPC) under section 43B. The appellant argued that as the taxes were not received from the customer nor debited to the profit and loss account, the additions should be deleted. The appellant's business involved construction activities for BSNL, with pending dues of approximately Rs. 12 crores. The appellant claimed that BSNL's non-payment caused the tax defaults. The appellant cited various judgments to support their case.

2. The first appeal before the LD. Addl./JCIT(A)-3, Bengaluru upheld the disallowances made by the CPC, leading to the appellant's appeal to the Tribunal. The appellant accepted the disallowance of Rs. 27,216 but challenged the larger tax disallowances. The appellant argued that since the taxes were not received, no disallowance under section 43B should apply. The appellant highlighted the difference in facts between their case and the cases relied upon by the LD. Addl./JCIT(A)-3, Bengaluru.

3. The Tribunal noted the appellant's claims that they had not received the service tax and Goods & Service Tax amounts due to cash flow issues with BSNL. The Tribunal found that the judgments cited by the LD. Addl./JCIT(A)-3, Bengaluru were not applicable as they involved cases where the taxes were received but not deposited. The Tribunal referred to the Bombay High Court judgments emphasizing that liability to pay the taxes arises only upon actual receipt of funds. Consequently, the Tribunal directed the matter back to the LD. Addl./JCIT(A)-3, Bengaluru to verify if the appellant had indeed received the taxes and to decide based on the High Court judgments. The appellant was instructed to provide necessary documents and respond to notices. The Tribunal allowed the appellant's grounds of appeal for statistical purposes, ultimately allowing the appeal.

In conclusion, the Tribunal allowed the appeal filed by the assessee for statistical purposes, directing a review based on the non-receipt of taxes as per the High Court judgments cited.