2016 (12) TMI 452 - AT - Income Tax

NP determination - rejection of books of accounts - Held that - It is not the case of the Assessing Officer that, the expenses claimed by the appellant are excessive or bogus. Thus, rejecting books only on the ground that the vouchers were unsigned, or the bills were hand written is unwarranted and bad in law, especially when the books are audited and no discrepancies have been pointed. CIT(A) has closely examined the assessee s books of accounts and has come to a well-reasoned order that the same are not reliable and rightly held to be rejected under section 145(3) of the Act. As far as estimation of profits is concerned, it is noted that no basis has been given by the AO while estimating the N.P rate and making an addition of ₹ 12,00,000 and thereafter by the ld CIT(A) while reducing the N.P rate at 7.5% as against 6.60% declared by the assessee. Further, given the past history of the assessee, it is noted that it has disclosed N.P before depreciation at 10.75 % which is higher as compared to past two years. In light of above, we see no reason to interfere with the N.P rate declared by the assessee. Hence, the trading addition made on this account is deleted. Addition on account of service tax - AO made the addition invoked the provisions of section 43B given that the service tax has not been deposited before the due date of filing of return of income - Held that - Undisputedly, the service tax has been collected by the assessee from its customers during the year and the same has not been paid before the due date of filing of return of income. The ratio of the Hon ble Supreme Court decision in the case of Chowringhee Sales Bureau 1972 (10) TMI 4 - SUPREME Court that the Sales tax collected and not deposited with the treasury would form part of the assessee s trading receipt is clearly applicable to the facts of the case. In the instant case, the assessee has contended that it has followed the exclusive method of accounting where the service tax has not been routed through the profit/loss account. In our view, in light of decision in case of Chowringhee Sales Bureau, such contention will not hold good and irrespective of method of accounting followed by the assessee, service tax collected and not deposited will be considered as part of professional receipts. Thus we confirm the order of the ld CIT(A) who has rightly confirmed the disallowance of service tax collected by the appellant from its customers and didn t deposit the same before the due date of filing of return of income. The appellant shall be at liberty to claim the same in the subsequent year of payment as per provisions of section 43B of the Act.

Summary

Issues Involved:
1. Invocation of provisions of section 145(3) of the Income Tax Act, 1961 and sustaining the addition by applying a higher GP rate.
2. Addition under section 43B of the Income Tax Act, 1961 due to unpaid service tax.

Issue-wise Detailed Analysis:

1. Invocation of Provisions of Section 145(3) and GP Rate Addition:

The assessee challenged the CIT(A)'s confirmation of the AO's action in invoking section 145(3) and sustaining an addition by applying a GP rate of 7.50% as against 6.60% declared by the assessee. The AO observed discrepancies such as unsigned vouchers, lack of bills, and unverified payments, leading to the issuance of a show cause notice under section 145(3). The CIT(A) noted manipulated accounts and discrepancies, leading to the rejection of books under section 145(3) and sustaining an addition of ?7,78,308 by estimating a NP rate of 7.50%.

The assessee contended that the nature of their business involved transactions without proper bills and that payments were made via cheques, ensuring identity verification. The assessee also argued that their NP rate was better than previous years, and the AO's addition was based on flimsy grounds. The tribunal found no basis for the AO's estimation and noted that the NP rate before depreciation was higher than in past years. Consequently, the tribunal deleted the trading addition, finding no reason to interfere with the NP rate declared by the assessee.

2. Addition under Section 43B for Unpaid Service Tax:

The AO observed a difference of ?88,79,713 in total receipts as per Form 26AS and the P&L account, attributed to service tax receipts not routed through the P&L account. The assessee claimed input Cenvat Credit, which was rejected by the service tax department, leading to the payment of service tax after the due date. The AO, invoking section 43B, added ?88,79,713, stating that the service tax collected formed part of professional fees or turnover.

The CIT(A) upheld the AO's decision, referencing the Supreme Court's ruling in Chowringhee Sales Bureau, which held that taxes collected but not deposited form part of trading receipts. The CIT(A) noted that the service tax collected but not paid within the stipulated time should be included in gross receipts and allowed as a deduction when paid. The tribunal agreed, emphasizing that service tax collected and not deposited forms part of professional receipts, irrespective of the accounting method. The tribunal confirmed the CIT(A)'s order, allowing the assessee to claim the deduction in the subsequent year of payment under section 43B.

Conclusion:

The appeal was partly allowed, with the tribunal deleting the trading addition related to the GP rate but upholding the addition under section 43B for unpaid service tax. The tribunal emphasized the importance of accurate and timely payment of statutory liabilities and the inclusion of such liabilities in gross receipts for tax purposes.