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TMI Blog2017 (8) TMI 1288X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be in case of service tax. The Ld. CIT(A) held that the assessee’s service provider is merely acting as an agent of the government, he is not entitled to claim deduction on account of service tax, therefore, no disallowance can be made on analogy of service tax . - department appeal is dismissed. Disallowance of bad debts - Held that:- Issue in disallowance of bad debt is covered by the Hon’ble Supreme Court in the case of TRF Ltd. (2010 (2) TMI 211 - SUPREME COURT) that it is not necessary for assessee to establish that the debt in fact has become irrecoverable. When a bad debt occurs it leads to closing of customer account therefore, our interference is not required.- Assessee's appeal is allowed for statistical purposes and department appeal is dismissed. - ITA No.1746/M/2014 And ITA No.2867/M/2014 - - - Dated:- 30-6-2017 - SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER For The Assessee : Shri Sanjay C. Shah, A.R. For The Revenue : Shri Purushottam Kumar, D.R. ORDER Per D.T. Garasia, Judicial Member: The above tilted appeals one by the Revenue and the other by the assessee have been preferred against the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was asked to submit the name and address of sundry creditors along with credits outstanding against party for more than three years. Letters of enquiry were sent on the addresses provided by the assessee and most of the letters were unserved. There are three categories in which the AO has remarked that many letters sent to 117 parties were not traceable at the given address; in 50 cases, the letters were returned by postal authorities and replies were not received from the parties and 42 cases appearing in assessee s book, but he could not identify the parties either by providing the address or otherwise. Therefore, AO has given the name of parties in the assessment order from page 25 to 33. The AO has treated the amount of ₹ 1,56,47,978/- as the creditor ceased to exist and same was added as profit of the assessee under section 41(1)(a) of the Act. 5. The matter carried to Ld. CIT(A) and the Ld. CIT(A) has partly allowed the appeal by observing as under: I. have gone through the AO's contentions on the issue of the creditors and the appellant s submission in this regards. The issue is being deal t in four par ts on the l ines in which AO has made disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook, but he could not identify the parties either by providing the address or otherwise. 1. The appellant has not been able to show as to how and why the liability should be treated as genuine as mentioned in the paragraphs above. Reference is made to the decision in the case of CIT vs Millennium Automation System Ltd. 2012 23 Taxman.com 325 (Del) wherein it was held that addition u/s 41(1)(a) could not be made where the assessee was able to give information as required by the AO with respect to the address/identity of creditors. It may be noted that in the said case the assessee had even furnished copy of income Tax returns of those creditors apart from the ledger account and also the ledger account shows some payments were made to these creditors by cheque or pay orders. In the present case the facts do not show that the assesee has been able to provide any independent evidence to confirm the very expenses of such creditors and therefore I agree with the decision of the AO vis- -vis the 3 categories in which addition has been made. Reference is also made to the ratio of the decision in the case of JR Solvent Industries vs CIT 2012 22 Taxman.com 115 (P H) wherein it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The sundry creditors still had not come before the AO. The assessee failed to produce the party as well as confirmation and creditworthiness. The Hon ble Gujarat High Court has held that merely because liabilities are outstanding for last many years it cannot be inferred that said liabilities have ceased to exist. The Hon ble Gujarat High Court has held that when assessee had continued to show the admitted amount as liability in his balance sheet, the same cannot be treated as assessment of liability merely because the liabilities are outstanding for last many years. Similarly, Ld. A.R. also relied upon the decision of Hon ble Supreme Court in the case of CIT vs. Sugauli Sugar Works (P.) Ltd. (1999) 102 taxman 713 wherein Hon ble Supreme Court has said if the assessee has made an entry of transfer in his accounts unilaterally, it will not enable the department to say that section 41 would apply, therefore, no addition is called for. During the course of hearing, Ld. A.R. has also given one statement before us and submitted that the assessee has submitted the summary of creditor outstanding as on 31.03.09 and they are subsequent right back payments. If this matter is restored to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I find that undisputedly the assessee has been following mercantile system of accounting and the liability of Service Tax is required to be paid only on the value of taxable service after its actual receipt in a particular month or quarter, as the case may be, a n d no t o n th e amo u n t b i l l e d by t he a s s e s s e e o n t he customers. It is also undisputed fact that Service Tax was not passed through prof it loss account nor was taken as par t of income. A similar situation was examined by the Tribunal in the case of ACIT vs Real Image Media Technologies (P) Ltd. (supra) and the Tribunal came to the conclusion that since the Service Tax was not payable by the assessee, the rigour of the provision of Section 43B could not be applied to the facts of the case. The relevant observations of the Tribunal are extracted hereunder: The rigor of the provision of section 43B would be attracted only to a case where an item is allowable as deduction but because of the failure to make payment, such deduction would not be allowed. The rigor of section 43B might be applicable to the case of sales tax or ex ci se duty but the same could not be said to be the position in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner (Appeals) on the issue and the same was to be confirmed. 18. We have heard the rival contentions of the both the parties. We find that the Ld. CIT(A) has deleted the addition on the ground that section 43B would attract only to a case where an item is allowable as deduction but because of failure to make payment such deduction would not be allowed. The section 43B is applicable in the case of sales tax and excise duty but same could not be in case of service tax. The Ld. CIT(A) held that assessee never allowed deduction on account of service tax which is collected on behalf of government and paid to government account, therefore service provider is merely acting as the agent of the government and is not entitled to deduction on account of service tax. We find that the Ld. CIT(A) has also considered that as per rule 6 of Service Tax Rules, the service provider becomes liable to make payment of service tax by 5th of the month immediately following the calendar month in which the payments are received towards value of taxable service. Therefore, Ld. CIT(A) has deleted the addition. The similar issue is covered by the decision of Chennai Bench of the Tribunal in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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