2021 (6) TMI 508 - AT - Income Tax

Addition of outstanding service tax liability u/s 43B - whether the provisions of sec.43B is attracted when no deduction was claimed by the assessee? - assessee filed a rectification application before Ld. CIT(A) submitting that the assessee has not claimed the service tax liability as deduction in the profit loss account and hence, the provisions of section 43B of the Act would not apply - HELD THAT - The co-ordinate bench, in the case of N.R Kumaraswamy 2018 (5) TMI 1962 - ITAT BANGALORE has taken the view that the provisions of sec.43B are not attracted, if the tax liability is not claimed as deduction. The coordinate bench has taken support of the decision rendered by Hon ble Bombay High Court in the case of Knight Frank (India)(P) Ltd 2016 (8) TMI 1096 - BOMBAY HIGH COURT . We also notice that the Ahmedabad bench of Tribunal has taken an identical view in the case of SDCE Projects (P) Ltd 2019 (10) TMI 309 - ITAT AHMEDABAD We notice that in NOBLE AND HEWITT (I) P. LTD. 2007 (9) TMI 238 - DELHI HIGH COURT has considered the decision rendered by Hon ble Supreme Court in the case of Chowringhee Sales Bureau (Pvt.) Ltd 1960 (11) TMI 99 - CALCUTTA HIGH COURT and then expressed the view that the provisions of sec.43B are not attracted, if the particular item is not claimed as deduction. We hold that the outstanding service tax liability is not liable to be added u/s 43B of the Act, since the same has not been claimed as deduction. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the impugned addition. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of outstanding service tax liability under Section 43B of the Income-tax Act, 1961.
2. Condonation of delay in filing the appeal.

Issue-wise Detailed Analysis:

1. Addition of Outstanding Service Tax Liability under Section 43B of the Income-tax Act, 1961:

The primary issue in both appeals relates to the addition of an outstanding service tax liability amounting to ?55.03 lakhs under Section 43B of the Income-tax Act, 1961. The Assessing Officer (A.O.) noticed this liability and disallowed it since the assessee did not disallow it voluntarily as per Section 43B requirements. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this disallowance, prompting the assessee to file a rectification application, which was also rejected by the CIT(A).

The assessee argued that the service tax was maintained as a balance sheet item and not routed through the profit & loss account, hence no deduction was claimed. The assessee cited that Section 43B applies only if an item is claimed as a deduction, referencing the phrase “a deduction otherwise allowable under this Act” in the section's initial part. The assessee supported this argument with precedents from the coordinate bench in the case of N.R. Kumaraswamy and the Hon’ble Bombay High Court in CIT Vs. Knight Frank (India) Pvt. Ltd.

Conversely, the Departmental Representative (D.R.) argued that service tax is a trading receipt, and Section 43B aims to ensure prompt payment of tax liabilities to the Government. Therefore, the provisions should apply even if the service tax collections and payments were not routed through the profit & loss account.

The Tribunal analyzed the rival contentions and noted that the provisions of Section 43B use the expression “a deduction otherwise allowable.” The Tribunal referred to several judgments, including those from the Hon’ble Supreme Court in Chowringhee Sales Bureau (Pvt.) Ltd. Vs. CIT, the Hon’ble Delhi High Court in CIT vs. Noble & Hewitt (I)(P) Ltd, and the coordinate benches in N.R. Kumaraswamy and SDCE Projects (P) Ltd. The consistent view was that Section 43B does not apply if the tax liability is not claimed as a deduction. Consequently, the Tribunal held that the outstanding service tax liability should not be added under Section 43B since it was not claimed as a deduction, and directed the A.O. to delete the impugned addition.

2. Condonation of Delay in Filing the Appeal:

The appeal against the initial appellate order was filed with a delay of 443 days. The assessee requested the Tribunal to condone the delay, explaining that they pursued an alternative remedy by filing a rectification application before the CIT(A) and were advised to appeal against both the initial and rectification orders only after the rectification application was rejected.

The Tribunal, considering the submissions and the fact that the assessee was actively pursuing an alternative remedy, found sufficient cause for the delay. Consequently, the Tribunal condoned the delay and admitted the appeal for hearing.

Conclusion:

The Tribunal allowed the appeal in ITA No.301/Bang/2019, setting aside the CIT(A)'s order and directing the A.O. to delete the addition of the outstanding service tax liability under Section 43B. The appeal against the rectification order (ITA No.300/Bang/2019) was dismissed as infructuous. The order was pronounced in the open court on 15th June 2021.