2020 (2) TMI 80 - AT - Income Tax

Disallowing service tax collected by the assessee u/s 43B - HELD THAT - Service tax collected by the assessee and not paid to the Government exchequer before the due date of filing of return, is to be disallowed, though it was not charged to the profit and loss account and it attracts the provisions of section 43B of the Act and the present provisions of section 145A of the Act cannot be applied in view of non obstante clause in section 43B of the Act. Assessee raised an alternative plea before us that it should be allowed on actual payment in the assessment year in which it was actually paid. We accept this plea of the assessee and direct accordingly. Disallowance of brought forward loss arises due to additions made u/s 43B 36(1)(va) - HELD THAT - According to the assessee, it is consequential and the income of the assessee for those years has computed after giving effect to the appellate orders for the respective assessment years. On this count, the CIT(A) also has given direction to the A.O. to verify the brought forward losses and consider the same in accordance with law. Since the CIT(A) has already given a direction to consider the above claim of the assessee, not find it necessary to give any further directions on this issue.

Summary

Issues Involved:
1. Applicability of Section 145A to service contracts.
2. Inclusion of service tax in gross receipts under Section 145A.
3. Disallowance of unpaid service tax under Section 43B.
4. Consideration of service tax not passed through the Profit & Loss Account.
5. Disallowance of brought forward losses due to additions under Sections 43B and 36(1)(va).
6. Opportunity for the assessee to present its case.
7. Levy of interest under Section 234B.

Issue-wise Detailed Analysis:

1. Applicability of Section 145A to Service Contracts:
The appellant contended that the provisions of Section 145A apply only to the valuation of purchase and sale of goods and inventory, not to service contracts, especially for transactions prior to 01/04/2017. The Tribunal, however, emphasized that Section 145A's non-obstante clause does not override the applicability of Section 43B, which mandates the disallowance of unpaid taxes, including service tax, irrespective of whether they are included in the Profit & Loss Account.

2. Inclusion of Service Tax in Gross Receipts under Section 145A:
The appellant argued that service tax should not be included as part of trading receipts under Section 145A. The Tribunal referenced the case of M/s. Hemkunt Infratech (P) Ltd. and other precedents, concluding that service tax collected but not remitted to the government should be treated as income. This is because the service tax, once collected, becomes a liability payable to the government, and its non-payment by the due date attracts disallowance under Section 43B.

3. Disallowance of Unpaid Service Tax under Section 43B:
The Tribunal upheld the disallowance of ?48,82,245/- under Section 43B, as the service tax collected was not remitted to the government before the due date of filing the return. The Tribunal cited the case of M/s. Bartronics India Ltd., affirming that any tax payable by the assessee, including service tax, falls under Section 43B, and non-payment within the stipulated time attracts disallowance.

4. Consideration of Service Tax Not Passed Through the Profit & Loss Account:
The appellant contended that since the service tax was not claimed as an expense in the Profit & Loss Account, the provisions of Section 43B should not apply. The Tribunal, referencing the Supreme Court case of Chowringhee Sales Bureau P. Ltd. v. CIT, held that the treatment of service tax in the accounts is not decisive. The moment service tax is realized, it becomes payable to the government, and non-payment converts it into income.

5. Disallowance of Brought Forward Losses Due to Additions under Sections 43B and 36(1)(va):
The appellant argued that disallowance of brought forward losses due to additions under Sections 43B and 36(1)(va) for previous years was unjustifiable. The Tribunal noted that the CIT(A) had already directed the Assessing Officer to verify the brought forward losses and consider them in accordance with the law. Thus, no further directions were necessary.

6. Opportunity for the Assessee to Present Its Case:
The appellant claimed that the CIT(A) did not provide an adequate opportunity to present its case. The Tribunal did not find this argument compelling, as the case had already been remanded for fresh adjudication, and sufficient opportunities were provided.

7. Levy of Interest under Section 234B:
The appellant contested the levy of interest under Section 234B, arguing that the quantum, period, and rate were not discernible from the assessment order. The Tribunal did not provide a specific ruling on this issue, focusing instead on the primary grounds of appeal.

Conclusion:
The Tribunal partially allowed the appeal, upholding the disallowance of unpaid service tax under Section 43B but accepting the appellant's alternative plea to allow the deduction in the year of actual payment. The Tribunal directed the Assessing Officer to verify and consider the brought forward losses in accordance with the law. The appeal was thus partly allowed, with specific directions for future assessments.