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TMI Blog2012 (5) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... ndering consultation in pharmaceuticals, chemicals and drugs. In the profit and loss account the assessee has shown receipts for rendering consultancy services at Rs. 28,51,034/-. It is not in dispute that the actual billed amount was Rs. 32.00 lacs on which service tax at 12.24% was Rs. 3,48,966/-. The Accountant of the assessee erroneously reduced Rs. 3,91,680/- from the consultation charges of Rs. 32.00 lacs receivable by the assessee and had shown in the P&L Account a sum of Rs. 28,51,034/-. This sum was arrived at by the formula 32/112.24 x 100, which gives a figure of Rs. 3,48,966/-. This sum was reduced from Rs. 32.00 lacs and a sum of Rs. 28,51,034/- was reflected in the P&L Account as receipts from consultation. When this was pointed out by the AO in the course of assessment proceedings the assessee admitted the error and offered a sum of Rs. 3,48,966/- as income. 3. Thereafter the AO was of the view that on the sum of Rs. 32.00 lacs which was consultation fee receivable by the assessee service tax at 12.24% which works out to a sum of Rs. 3,91,680/- should be added to the total income. It is not in dispute that the aforesaid sum was included in the invoice raised by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 32,00,000/- and not an amount of Rs. 28,51,034/-. It has been admitted by Ld. AR in written submission dated 12.08.2010 in the Appellate proceeding, proves the furnishing of inaccurate, particulars of income and wrong explanation before the Assessing Officer. Therefore, there is two angle involved in this matter, one is suppression of basic consultation charges of Rs. 3,48,996/- and second one is of non-inclusion of service tax of Rs. 3,91,680/- in gross receipts. Obviously, the first part is regarding suppression of consultation charges itself by Rs. 3,48,996/- which is to be included in total income of the Appellant without any confusion. As such an amount of Rs. 3,48,996/- is found to be concealment of income by the Appellant. 5.2 As regards balance amount of Rs. 3,91,680/- claimed to be service tax receivable from the principal is not to be includible in gross receipts, it can be seen from the Ledger A/c submitted by the LD. AR through letter dated 12.08.2010 that there was a service tax receivable as on 01.04.2006 of Rs. 13,28.,798/- and thereafter upto 31.10.2006, there has been further credit of Rs. 3,48,966/- totaling to Rs. 16,77,764/- out of which Appellant has shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant firm has not received the sum till the end of the financial year i.e. 2006-07 question of paying the same did not arise at all. As already stated the fact of non-realization of fees is not disputed by the AO in his order. If for any reason the payment for services rendered is not realized (bad debts), there was no liability as to payment of service tax. Thus service tax law stands on a different footing as compared to other laws like Central Excise or VAT. 8. The Assessing Officer opined that, as per section 145A of the Income-tax Act 1961, taxes and duties should form part of the Gross Receipts. Application of section 145A is restricted to purchase and sale of goods only, and does not extend to service contracts. Thus, application of said section is completely misplaced in the case under consideration. The provisions of section 145A of the Income-tax Act 1961 that read as under: "Notwithstanding anything to the contrary contained in Section 145, the valuation of purchase and sale of goods')and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be- (a) in accordance with the meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is collected on behalf of the Government and is paid to the Government account, accordingly. Therefore, a service provider is merely acting as an agent of the Government, and is not entitled to claim deduction on account of service tax Hence, on this account alone addition under section 43B could not have been made, and the same had been correctly deleted by the Commissioner (Appeals). Secondly, section 43B(a) uses the express on 'any sum payable'. For making any disallowance, first of all it has to be established that such sum is payable. The word 'payable' used in section 438 means that there is a kind of obligation on the part of payee to make the payment which is already due. A plain reading of rule 6 of the Service Tax Rules would show that service provider becomes liable to make the payment of service tax by the 5th of the month immediately following the calendar month in which the payments are received towards the value of taxable service. The first proviso provides for an exception in case of individuals or proprietary firms or partnership firms, and in such cases, service tax has to be paid to the credit of the Central Government by the 5th of the month immediately foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Calcutta High Court in Chowringhee Sales Bureau P. Ltd's case [1977] 110 ITR 385 was not in the context of the applicability of section 43B of the Act. 6. In our opinion, since the assessee did not debit the amount to the profit and loss account as an expenditure nor did the assessee claim any deduction in respect of the amount and considering that the assessee is following the mercantile system of accounting, the question of disallowing the deduction not claimed would not arise. 7. Learned counsel for the Revenue submits that the assessee has sought to evade tax under the mercantile system of accounting. We are of the view that it is not for the Revenue authorities to tell the assessee how to maintain its accounts." In the case of Chowringhee Sales Bureau 110 ITR 385 (Cal), the Hon'ble Calcutta High Court has held that unpaid sales tax liability has to be included as part of receipts of an Assessee but at the same time the Assessee would be entitled to deduction of the same under mercantile system of accounting even without actual payment. But this position would now stand modified because of provisions of Sec.43B of the Act. But as far as Service Tax is concerned, as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f your Appellant was Rs. 3.17 Crore. In the fist year, premium paid was Rs. 5,000,000/-, and thereafter, the Assessee made a net profit of Rs. 20,514,046 before remuneration to partners. After remuneration to partners, the net profit was Rs. 13,314,046/-. It was pointed out that Vikas Pun and Chitra Aiyer were educationally qualified. Mr. Vikas Puri, was an expert in Chemical Technology and had completed masters in Chemical Technology UDCT (UICT) at Mumbai in 1996 and Mrs. Chitra Aiyer Puri, an expert in Chemical Technology and had completed bachelor in Chemical Technology in the year 1996. It was also pointed out that they were successful in generating gross receipts of approximately Rs. 3 crores for the firm in the F.Y. 2005-06. In order to sustain such growth of the business in the future in case of casualty of partners' life, the firm proposed to insure the lives of the working partners with the ICICI Prudential Life Insurance Co. The insurance policy was proposed by the Assessee firm i.e. Pharma Search and the life assured was that of the partners i.e., Vikas Purl and Chitra Aiyer, and it was clearly mentioned on the face of the policy that the benefits of the policy on the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the adjudication of the same. It was further held that Sec. 10(1OD) recognize the existence of other types of relationship apart from employer-employee relationship for claiming deduction on account of premium paid on Keyman Insurance Policy as business expenditure. The Hon'ble Bombay HC in the case of B. N. Exports 323 ITR 178 also held that allowability of expenditure incurred on premium paid towards a Keyman Insurance Policy cannot be confined only to a situation where policy is in respect of life of an employee. The Hon'ble Court held that Keyman Insurance Policy obtained on life of a partner to safeguard firm against a disruption of business that may result due to premature death of a partner and expenditure which is laid out for payment of premium on such a policy is allowable as business expenditure. 19. On the issue of assignable nature of the policy, the Hon'ble Delhi HC in the case of Commissioner of Income-tax v. Escorts Health Institute & Research Centre Ltd. ITA 398/ 2009 held that expenditure incurred on Keyman insurance premium is to be allowed as business expenditure. The High Court also emphasized that the entire arrangement cannot be considered as a "colourab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as business expenditure by the Department itself and recognized as such in Circular dated 18.2.1998. The expenditure is to be seen at the time it is incurred. Merely because the policy was assigned after sometime would not mean that the expenditure incurred in the first instance would lose the flavor of it being business expenditure. (vi) Once the legal provisions and the outlook of Department itself based on such legal provisions permit the assessee to have the tax planning of this nature, and the course of action taken by the assessee is permissible under law, the argument of colourable device cannot be advanced by the Revenue. When expenditure of this nature is treated 'business expenditure' per se by the Department itself, there cannot be any question of raising the issue of want of business expediency. The learned counsel for the respondent is right in his submission that the Department could not sit on the armchair of the assessee and decide as to whether it was appropriate on business expediency for the assessee to incur such an expenditure or not, If the transaction is otherwise valid in law and is a part of tax planning, merely because it has resulted in reduction o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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