2012 (10) TMI 707 - AT - Income Tax

Disallowance u/s 43B - Amount of service tax billed to clients credited directly to Service tax payable A/c under Current Liability hence not credited to P&L A/c - Held that - the amount in question as service tax is covered by the provisions of section 43B. - having neither debited the amount of service tax to the profit and loss account as an expenditure nor having claimed the same as deduction, disallowance u/s. 43B cannot be made. - there is no finding specifically recorded by the AO or by the Ld. CIT (A) regarding the assessee having not debited the service tax to the profit and loss account nor having claimed the same as deduction - Issue remand back to AO. Non deduction of TDS - A revised return was filed by the assessee by making the impugned disallowance u/s. 40(a)(ia) suo motu - Claim was made during the course of the assessment proceedings before the AO - AO however completed the assessment without considering this claim of the assessee - CIT (A) also did not decide the said issue stating that the same was not arising from the order of the self-assessment - Held that - This issue was raised by the assessee during the course of assessment proceedings and the same was not considered by the AO on merits, the assessee cannot be precluded from raising it in the appeal filed against the order of the AO. Merely because the AO has not considered the issue specifically raised by the assessee during the course of assessment proceedings and has not given any finding or decision thereon, it cannot be said that the said issue is not arising from the order of the assessment. Therefore issue remand back to CIT (A) for consideration Addition on account of difference between ITS details and books - The assessee could reconcile the ITS details except an amount of Rs 1,21,032/- Un-reconciled amount was treated by the AO as unexplained cash credit u/s 68 Assessee contended that addition cannot be made merely on the basis AIR Information Held that - As the AIR (ITS) Data was provided by the AO to the assessee with an opportunity to reconcile the said data with the figures appearing in the books of account. A difference of Rs.1,21,032/- remained finally un-reconciled and such difference representing credit balance was rightly added by the AO. Appeal decides in favour of revenue

Summary

Issues Involved:
1. Disallowance of service tax payable under Section 43B for AY 2007-08.
2. Disallowance of service tax payable under Section 43B for AY 2008-09.
3. Disallowance of expenses under Section 40(a)(ia) for non-deduction of tax at source for AY 2008-09.
4. Addition on account of difference between ITS details and books for AY 2008-09.

Issue-wise Detailed Analysis:

1. Disallowance of Service Tax Payable under Section 43B for AY 2007-08
Facts and Arguments:
- The assessee, engaged in supplying skilled manpower, declared an unpaid service tax liability of Rs. 1,33,32,579/- in its balance sheet.
- The AO disallowed this amount under Section 43B, arguing that the service tax should be added to the receipts and debited as expenditure in the profit and loss account.
- The assessee contended that since the service tax was not credited to the profit and loss account, no deduction was claimed, and thus, disallowance under Section 43B was not applicable. The assessee cited cases like CIT v. Noble & Hewitt (305 ITR 324) and CIT v. Viraj Foreigns Ltd (20 SOT 129).

Decision:
- The CIT (A) partly upheld the AO's disallowance but reduced it to Rs. 82 lakhs, acknowledging that part of the service tax was paid before filing the return.
- The Tribunal referred to the Delhi High Court's decision in CIT vs. Noble & Hewitt Pvt. Ltd., which held that no disallowance under Section 43B could be made if the service tax was not debited to the profit and loss account.
- The Tribunal restored the issue to the AO for verification of whether the service tax was debited to the profit and loss account or claimed as a deduction.

2. Disallowance of Service Tax Payable under Section 43B for AY 2008-09
Facts and Arguments:
- Similar to AY 2007-08, the AO disallowed Rs. 1,80,95,036/- as unpaid service tax under Section 43B.
- The CIT (A) upheld the disallowance.

Decision:
- Following the rationale for AY 2007-08, the Tribunal set aside the CIT (A)'s order and restored the matter to the AO for verification, directing similar relief if the service tax was not debited to the profit and loss account or claimed as a deduction.

3. Disallowance of Expenses under Section 40(a)(ia) for Non-Deduction of Tax at Source for AY 2008-09
Facts and Arguments:
- The AO disallowed Rs. 10,16,37,183/- under Section 40(a)(ia) for non-deduction of tax at source.
- The assessee argued before the CIT (A) that the disallowance should not be made, citing a decision in Golden Stables Lifecenters Ltd. vs. CIT.
- The CIT (A) did not entertain this issue, stating it did not emanate from the AO's order.

Decision:
- The Tribunal held that if the issue was raised during assessment proceedings and not considered by the AO, it could be raised on appeal.
- The matter was remitted to the CIT (A) to entertain the ground and decide on the merits, provided the assessee proves the issue was raised during assessment proceedings.

4. Addition on Account of Difference Between ITS Details and Books for AY 2008-09
Facts and Arguments:
- The AO added Rs. 1,21,032/- as unexplained cash credit under Section 68 due to a discrepancy between ITS details and the assessee's books.
- The CIT (A) upheld the addition as the assessee could not reconcile the difference.

Decision:
- The Tribunal found that despite substantial reconciliation, the difference of Rs. 1,21,032/- remained unexplained.
- The addition under Section 68 was upheld, and the CIT (A)'s decision was affirmed.

Conclusion:
- The appeal for AY 2007-08 was allowed for statistical purposes, with the matter remitted to the AO for verification.
- The appeal for AY 2008-09 was partly allowed for statistical purposes, with remittal instructions similar to AY 2007-08 and directions to the CIT (A) to consider the disallowance under Section 40(a)(ia). The addition under Section 68 was upheld.