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TMI Blog2017 (6) TMI 920X X X X Extracts X X X X X X X X Extracts X X X X ..... e legislature, the same cannot be held applicable to the assessee for the year under consideration. - Decided against assessee. Disallowance of unpaid service tax and VAT under section 43B - Held that:- Firstly, regarding VAT, the issue is no more rest intergra in view of the decision of Hon’ble Supreme Court in case of Chowringee Sales Bureau [1972 (10) TMI 4 - SUPREME Court]. In context of section 43B, how the said ruling continues to hold good has been discussed by the Coordinate Bench in case of SVG Express [2016 (12) TMI 452 - ITAT JAIPUR] as held case of Chowringhee Sales Bureau continues to hold good except that its rigour has been slightly modified to the extent that the taxes collected can be deposited before the due date of filing of return of income and in case there is a delay, it will be added to the professional receipts of the assessee and will be allowed to claim deduction of the amount in the year of payment” . Thus disallowance of VAT payable has rightly been made by the Assessing officer Disallowance regarding to service tax - Held that:- We prima facie find force in the contentions of the ld AR that where amount on which service tax was payable was not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts of the case are that the AO disallowed expenses incurred by the assessee under various heads u/s 40(a)(ia)of the Act amounting to ₹ 22,09,267/- on account of non deduction of TDS. During the appellate proceeding, the assessee took the plea that the provisions of Section40(a)(ia)are applicable only to the expenditure which is payable as on the balance sheet and hence cannot be applied on the expenditure which has already been paid during the year. However, the contention of the assessee were not accepted and hence, the present appeal before us. 3. The subject matter is no more rest intergra. The Hon ble Supreme Court decision in its recent decision in case of M/s Palam Gas Service (Civil Appeal No. 5512 of 2017) dated 03.05.2017 has held that Section 40(a)(ia) covers not only those cases where the amount is payable but also those cases where the amount has been paid during the financial year without deduction of TDS. The relevant finding are contained in para 15 of its order which are reproduced as under:- We approve the aforesaid view as well. As a fortiorari, it follows that Section 40(a)(ia) covers not only those cases where the amount is payable but also w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable to a resident shall be disallowed as against 100% disallowance made earlier should be applied in the instant case and disallowance restricted to 30% of the total amount. On perusal of the Finance Act, 2014, it is noted that the said amendment has been brought in and made effective from 01.04.2015 and there is nothing which suggest such amendment is made effective or to be read as retrospective in nature. In view of the clear wordings as enacted by the legislature, the same cannot be held applicable to the assessee for the year under consideration. Regarding the reliance by the ld. AR of the decisions passed by the Coordinate Benches in case of Rajendra Prasad (ITA 895/JP/2012) and subsequent decision in case of Smt. Sonu Khandelwal (ITA No. 597/JP/2013), on perusal of these two decisions, it is noted that though the Coordinate Benches have acknowledged the fact that the said amendment has been brought only w.e.f. 01.04.2015 but at the same time, it was held to be applicable retrospective in those cases without providing any rationale or reasoning to support the retrospective applicability of the said amendment. There is no discussions or justification that we find in the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed of the Vat payable and Service Tax by the assessee for the relevant previous year, provisions of section 43B are not applicable. 3.3 Under similar set of facts, Noble Hewitt (I)(P.) Ltd. [2008] Taxman 48 (Delhi-HC) (Case law page-39-40) collected service tax during the relevant previous year. Out of the service tax so collected it did not deposit part of the service tax amount with the concerned authorities. However, the company did not claim any deduction in this regard nor did it debit the amount as an expenditure in the Profit and Loss Account. Departmental Authorities relaying on the case of Chowinghee Sales Bureau (P.) Ltd. (Supra) disallowed the amount and added it back to the income of the company. Hon ble Delhi High Court under such circumstances held that We are unable to agree. In that case it was held that the liability to pay sales tax arose the moment a sale or purchase was effected and if an assessee was maintaining accounts on the mercantile system it would be entitled to deduction of the estimated liability of sales tax, even though such sales tax had not been paid to the sales tax authorities. The question there concerned was the entitlement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted.. 3.6 It is pertinent to note that the assessee did not receive the amount on which service tax was payable from the parties to whom services were rendered and thus, the provisions of section 43B were not attracted. 3.7 Hon ble ITAT Chennai Bench in the case of Real Image Media Technologies (P.) Ltd. [2008] 114 ITD 573 (Chennai) on the issue of Service Tax getting covered by the provisions of section 43B was of the view that the rigours of section 43B might be applicable to the case of sales-tax or excise duty but the same could not be said to be the position in case of service-tax because of the following two reasons:- (i) The assessee is never allowed deduction on account of service tax which 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. (ii) Section 43B(c) uses the expression any sum payable . For making any disallowance, first of all it has to be established that such sum is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.10. Hon ble Bombay High Court vide its order dated 17.04.2015, in case of Ovira Logistics (P.) Ltd. took cognizance of the above mentioned judgment in the case of Pharma Search (supra) and also the ratio laid down by the Hon ble Supreme Court in the case of Chwringhee Sales Bureau (P.) Ltd. (supra) held that Having perused the aforesaid decisions, we are clearly of the view that section 43B does not contemplate liability to pay the service tax before actual receipt of the funds in the account of the assessee. In our view, liability to pay service tax into the treasury will arise only upon the assessee receiving the funds and not otherwise. Accordingly, when services are rendered, the liability to pay the service tax in respect of the consideration payable will arise only upon the receipt of such consideration and not otherwise. 3.11. Hon ble ITAT Jaipur Bench, under identical set of facts, in the case of Ashok Parnami, ITA No. 777/JP/2013, relied on the ratio laid down by the Hon ble Delhi High Court in the case of Noble Heitt (I) (P) Ltd. (Supra) and held that We have heard the rival contentions of both the parties and perused the material available on the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble ITAT Banglore bench in the case of Jain Christopher (2013) CCH 0011, which distinguished the decision of Hon ble Delhi High Court in the case of CIT vs. Noble and Hewitt (I) P. Ltd. [2008] 305 ITR 324 ( Delhi). In Jain Christopher also the amount of Service Tax was realized by the assessee. Facts of Assessee s Case: Related to A.Y. 2009-10 i.e. F.Y. 2008-09, the year in which point of taxation rules were on cash basis only. The assessee did not collect the amount of Service tax and as a result of which did not deposit the same with the Government. 7. We have heard the rival contentions and perused the material available on record. The provisions of Section 43B has been invoked in respect of VAT as well as service payable by the assessee at the end of the relevant financial year and not paid before the due date of filing of return of income. Firstly, regarding VAT, the issue is no more rest intergra in view of the decision of Hon ble Supreme Court in case of Chowringee Sales Bureau. In context of section 43B, how the said ruling continues to hold good has been discussed by the Coordinate Bench in case of SVG Express (ITA No. 987/JP/15) (where one of u ..... 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