2015 (2) TMI 587 - HC - Income Tax

Disallowance of unpaid service tax u/s 43B - Tribunal deleted the addition - Held that - Unable to appreciate the grievence of the Revenue as the Delhi High Court in Noble & Hewitt Pvt. Ltd. ( 2007 (9) TMI 238 - DELHI HIGH COURT) has considered both Section 43B of the Act and also the issue of mercantile system of accounting followed by the assessee before it. The revenue is not able to point out why the decision of Delhi High Court requires reconsideration. In our view, the Delhi High Court s decision in Noble & Hewitt Pvt. Ltd. (supra) has correctly held that Section 43B of the Act is a provision for allowing deduction of tax on payment but this can only be triggered if deduction with regard to taxes payable is claimed for arriving at taxable income and the issue raised in this appeal is conclusively covered by this decision above - Decided against revenue.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding disallowance of unpaid service tax under Section 43B of the Income Tax Act for Assessment Years 2007-08 and 2008-09.

Analysis:
The appeal by the Revenue challenges the Tribunal's order regarding the disallowance of unpaid service tax under Section 43B of the Income Tax Act for the Assessment Years 2007-08 and 2008-09. The main question of law raised is whether the Tribunal was justified in deleting the disallowance without appreciating the clear disallowability of the liability under the said Section. The respondent-assessee had made a provision for service tax in its Balance Sheet but had not paid the amount. The Assessing Officer added the unpaid service tax to the income of the assessee under Section 43B. The CIT(A) upheld this decision but restricted the addition to the amount payable at the time of filing the income tax return. However, the Tribunal allowed the appeal based on the Delhi High Court decision in CIT Vs. Noble & Hewitt Pvt. Ltd., which held that unless the tax payable is debited to the Profit and Loss Account, Section 43B does not apply. The Tribunal directed the Assessing Officer to examine whether the service tax was debited to the Profit and Loss Account before applying the Delhi High Court decision.

The Revenue contended that the Delhi High Court decision was not applicable to the present case as it did not consider Section 43B or the mercantile system of accounting. However, the High Court of Bombay found that the Delhi High Court decision did consider both aspects and correctly held that Section 43B allows deduction only when taxes payable are claimed for arriving at taxable income. The High Court held that the issue in the present appeal is conclusively covered by the Delhi High Court decision and concurred with its view. Therefore, the High Court dismissed the appeal, stating that no substantial question of law arises in this case.

In conclusion, the High Court upheld the Tribunal's decision based on the Delhi High Court precedent, emphasizing that Section 43B of the Act allows deduction only when taxes payable are claimed for calculating taxable income. The High Court found no reason to reconsider the Delhi High Court decision and dismissed the appeal by the Revenue, stating that no substantial question of law was present in this matter.