2022 (9) TMI 145 - AT - Income Tax

Depreciation on Buildings - Adoption of WDV of the Building Block of Assets based on a valuation report prepared for a different purpose - HELD THAT - As per the provisions of section 43(1)(6) WDV of an asset as per the books of accounts has to be arrived at only by adding to opening WDV assets acquired during the previous year and reducing the value of assets sold or discarded during the previous year and thereafter closing WDV has to be arrived at after providing for depreciation. Sec.32 of the Act mandates depreciation to be allowed as deduction on the WDV as understood under section 43(1)(6) of the Act. The AO therefore could not have tampered with the WDV of the Building Block of Assets based on a valuation report prepared for a different purpose. The addition is not warranted in the facts and circumstances of the case and hence, the same is directed to be deleted. Addition being unpaid service tax liability u/s 43-B - HELD THAT - After hearing the rival submissions, we are of the view that the addition cannot be sustained. In CIT Vs Noble And Hewitt (I) (P) Ltd.. 2007 (9) TMI 238 - DELHI HIGH COURT the assessee maintained a mercantile system of accounting and held in view of the provisions of Section 43B since the assessed had not claimed a deduction there was no question of disallowing the deduction which was not even claimed. The case of Boraiah Shivanajaiah 2022 (4) TMI 1015 - ITAT BANGALORE the decision rendered in the case of M/s. Wyzmindz Solutions Private Ltd. 2020 (2) TM has I 80 - ITAT BANGALORE was followed and it was held that if the assessee has received the service tax from its customers, then the amount has to be disallowed under section 43B, if not paid to the credit of the Government. The aspect that section 43B will apply only when a deduction is claimed by the assessee and not otherwise not been considered by the Bench in the aforesaid case. Hence, the decision of the Hon ble Delhi High Court on this issue is being followed. Consequently, the disallowance made by the AO and sustained by CIT(A) is directed to be deleted. Appeal of assessee allowed.

Summary

Issues:
1. Disallowance of Depreciation on Buildings
2. Addition of unpaid service tax liability under section 43-B of the Act

Issue 1: Disallowance of Depreciation on Buildings:
The assessee appealed against the disallowance of Depreciation on Buildings amounting to Rs.3,19,208/-. The Assessing Officer (AO) contended that the opening WDV should have been adopted at Rs.3,48,00,000/- based on a valuation report, not at Rs.3,57,47,371/- as per the books of accounts. The AO recalculated the allowable depreciation resulting in disallowance of Rs.3,19,208/-. The CIT(A) upheld the AO's decision due to lack of evidence from the assessee. However, the Tribunal ruled in favor of the assessee, stating that the AO cannot alter the WDV based on a valuation report prepared for a different purpose. The Tribunal directed the deletion of the disallowance.

Issue 2: Addition of unpaid service tax liability under section 43-B of the Act:
The AO added Rs.29,00,637/- as unpaid service tax liability under section 43-B since it was not paid but shown in the balance sheet. The CIT(A) confirmed this addition. However, the Tribunal disagreed, citing precedents where non-claiming of deduction by the assessee led to no disallowance under section 43B. The Tribunal referenced judgments from various High Courts and held that section 43B applies only when a deduction is claimed. Consequently, the disallowance made by the AO and upheld by the CIT(A) was directed to be deleted.

In conclusion, the Tribunal allowed the appeal of the assessee, overturning both the disallowance of Depreciation on Buildings and the addition of unpaid service tax liability under section 43-B of the Act. The judgments emphasized the importance of following the provisions of the Income Tax Act and clarified the application of section 43B regarding deductions and disallowances.