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TMI Blog2022 (7) TMI 1006X X X X Extracts X X X X X X X X Extracts X X X X ..... s income under Sec. 28 r.w.s 5 of the Act - HELD THAT:- As during the year consideration i.e AY 201213 Sec. 145A(a)(ii) only contemplated valuation of purchase and sale of goods and inventory and thus covered cases where the amount of tax, duty, cess or fee was actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation and had no bearing to rendering of services, therefore, no infirmity emerges from the accounting of the contract receipts by the assessee on the basis of exclusion method (i.e net of service-tax), which as observed by us hereinabove had consistently been followed by it since last many years. We, thus, in terms of our aforesaid observations set-aside the order of the CIT(Appeals) who had held that the accounting of the contract receipts by the assessee by adopting the exclusion method (i.e net of service-tax) was not proper. Grievance of the assessee that as he had not claimed any deduction of the amount of service-tax, therefore, there could be no justification for disallowance of the same by triggering the provisions of Sec. 43B - As we have approved the exclusion method (i.e net of service-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appeal." 2. Succinctly stated, the assessee who is a labour contractor had filed his return of income for AY 2012-13 on 31.03.2013, declaring an income of Rs.35,20,780/-. Case of the assessee was thereafter selected for scrutiny assessment u/s 143(2) of the Act. 3. Assessment was, thereafter, framed by the AO vide his order passed u/s 143(3), dated 31.03.2015 determining the income of the assessee at Rs. 98,53,210/- after inter-alia making the following additions/disallowances: Sr. No. Particulars Amt. (Rs.) 1. Disallowance u/s 36(1)(va) r.w.s 2(24)(x) of the delayed deposit of the employee's share of contribution towards EPF. 7,16,,761/- 2. Addition of service tax not paid by the assessee within the 'due date' of filing of return of income. Rs. 54,65,666/- 4. Aggrieved the assessee carried the matter in appeal before the CIT (Appeals) but without any success. 5. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 6. We have heard the Ld. Authorised Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the disallowance of the same as per the mandate of the "Proviso" to Sec. 43B of the Act. 7. Per contra, the ld. Departmental Representative (for short 'DR') relied on the orders of the lower authorities. 8. Having heard the Authorized Representatives of both the parties, we are persuaded to subscribe to the contention advanced by the ld. AR that now when the employees share of contribution towards EPF had been deposited by the assessee prior to the "due date" of filing of his return of income for the year under consideration, therefore, no disallowance of the same was called for in his hands. We find that the aforesaid issue in question is squarely covered by a recent order of the Tribunal in the case of M/s Ind Synergy Limited Vs. The DCIT-1(2), Raipur, ITA No. 312/RPR/2016; dated 10/03/2022 (to which one of us, the JM was a party), wherein after exhaustive deliberations it was held as under : "Adverting to the disallowance of the assessee's claim for deduction of the employees share of contribution towards PF of Rs.2,88,976/-, we find that the same had been disallowed by the Assessing Officer u/s.2(24)(x) of the Act, for the reason that the said amount was deposited beyo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cal) i. CIT Vs. Kichha Sugar Co Ltd (2013) 356 ITR 351 (Uttarakhand) In the backdrop of the aforesaid settled position of law, we are of the considered view that no distinction is to be drawn between the employers as well as employees contribution to PF and ESI, as both are covered u/s 43B of the Act. 11. Before parting qua the aforesaid issue in hand, we think it apt to deal with the scope of applicability of the amendments that have been made available on the statue vide the Finance Act, 2021, i.e, "Explanation 5" to Section 43B and "Explanation 2" to Section 36(1)(va), i.e, as to whether those are applicable prospectively w.e.f A.Y 202122 onwards, or, are to be given a retrospective effect. Issue in hand is squarely covered by the order of a coordinate bench of the tribunal, i.e, ITAT, Amritsar in the case of Vinko Auto Industries Ltd. Vs. DCIT 2021 (12) TMI 636. In its aforesaid order, the Tribunal had after drawing support from the order of the ITAT, Hyderabad Bench in the case of the Value Momentum Software Services Pvt Ltd. Vs. DCIT in ITA No. 2197/Hyd/2017, dated 19.05.2021, had observed, that the amendments in section 36(1)(va) and section 43B of the Act, vide respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore would be applicable to the previous assessment years as well. We may observe that various benches of the ITAT including Hyderabad Bench in the case of Value Momentum Software Services Pvt. Ltd. (ITA No.2197/Hyd/2017 decided on 19.05.2021), have taken into consideration the identical issue qua applicability of the amendment to Section 36(1)(va) and Section 43B of the Act, by inserting Explanations by the Finance Act, 2021 and clearly held that the amendment shall be applicable from 1st April, 2021 onwards . It is also relevant to note that the CBDT has also issued Memorandum of Explanation qua applicability of the amended provisions of Section 36(1)(va) & 43B of the Act w.e.f. 1st April, 2021, and Assessment Year 2021-21 onwards, hence there is no doubt qua applicability of the amended provisions referred above, prospectively. On the aforesaid discussion, the second aspect as considered/determined by the ld. CIT(A) qua retrospective application of the amended provisions of Section 36(1)(va) and 43B of the Act wherein Explanations have been inserted by Finance Act, 2021 qua employees' share in respect of PF & ESI Act, is also unsustainable . 5.4 In view of the above dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid by treating the same as his business income under Sec. 28 r.w.s 5 of the Act. Succinctly stated, it was observed by the AO that the balance sheet of the assessee revealed "Service Tax Payable" of Rs. 1,53,78,341/-. It was gathered by the AO from a perusal of the service-tax register that the assessee qua the services provided by him as a labour contractor had during the year under consideration received service-tax amounting to Rs. 54,65,666/-. Although the assessee produced before the AO challans evidencing deposit of service tax of Rs.9,25,972/-, but the period for which the same were deposited was not found mentioned on the same. Backed by the aforesaid facts the AO called upon the assessee to explain that now when the service-tax had not been deposited prior to the 'due date' of filing of his return of income, then, why the same may not be disallowed and added to his returned income. In reply, it was submitted by the assessee that as he had not claimed any deduction for the amount of service-tax in his return of income, therefore, no disallowance of the same was called for in his hands. However, the AO was not persuaded to subscribe to the aforesaid explanation of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to deposit the amount of service-tax collected during the year in the government exchequer, therefore, the same had rightly been disallowed by the AO. 11. We have given a thoughtful consideration to the aforesaid issue in hand in the backdrop of the contentions advanced by the ld. Authorised representatives of both the parties. As observed by us hereinabove, both the lower authorities had drawn adverse inferences in the hands of the assessee for the reason that he had upto the 'due date' of filing of his return of income as contemplated in sub-section (1) of Sec. 139 of the Act failed to deposit the amount of service-tax. Before proceeding any further we deem it fit to cull out Sec. 43B(a) (relevant extract) which had as a matter of fact been triggered by the lower authorities for making an addition/disallowance of the amount of service-tax of Rs. 54,65,666/- (supra) that was though collected by the assessee from his customers during the year but had not been deposited with the government exchequer upto the 'due date' of filing of his return of income, as under : "43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of service-tax in the amount of contract receipts, the CIT(Appeals) was of the view that as the assessee had failed to deposit the aforesaid amount of tax by the 'due date' for filing of his return of income as provided in sub-section (1) of Sec. 139 of the Act, thus, a corresponding claim for debit of the same was not be allowed to him as per the mandate of Sec. 43B of the Act. 12. We shall now deal with the sustainability of the observation of the CIT(Appeals) that the assessee was not justified in following the exclusive method for accounting his contract receipts (i.e net of service-tax) and was obligated to follow the inclusive method and include the amount of service-tax in the contract receipts credited in his profit & loss a/c. Before proceeding any further we would herein cull out the observations of the CIT(Appeals) qua the aforesaid aspect, as under : " 3.3 Facts being as above. I have perused the assessment order and gone through the submission of the assessee. I find that service tax received as part of sale proceeds has to be credited in Profit & loss account and then a claim has to be made on debit side as and when the tax is paid to government. Appellant cannot e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.2016. Before the Hon'ble High Court the following question of law was, inter-alia, raised : "(i). Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in deleting the addition u/s 145A of the Income Tax Act, 1961 due to inclusion of service tax as part of trading receipts, by holding that the provisions of Section 145A of the Act are applicable to manufacturing segment of business and not to a service provider company?" Answering the aforesaid question, it was observed by the Hon'ble High Court that a perusal of Sec. 145A(a)(ii) of the Act, revealed, that the same would only cover cases where the amount of tax, duty, cess or fee is actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Notably as the assessee before them was rendering services and had admittedly not paid or incurred any liability for the purpose of bringing any goods to the place of its location, it was observed by the Hon'ble High Court that as the service-tax billed neither has relation to any goods nor does it have anything to do with bringing the goods to a particular location, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a particular location. (e). The Explanation to Section 145A(a) of the Act does not expand its scope. An Explanation normally does not widen the scope of the main section. It merely helps clarifying an ambiguity. (See Zakiyr Begam v/s. Shanaz Ali &Ors., 2010 (9) SCC 280). The main part of the Section specifically restrict its ambit only to valuation of purchase and sale of goods and inventory. Rendering of service is not goods or inventory. Goods would mean movables and inventory would mean stock of goods. Therefore, the Explanation would only apply for valuation of sales and purchase of goods and stock of goods as provided in the main part. The Explanation in this case clarifies/ explains that any tax, duty, cess or fee paid or incurred will have to be taken into account for valuation of goods even if such payment results in any benefit/ right to the person making the payment. This Explanation was necessary as otherwise in terms of Accounting Standard - (AS-2) issued by the Institute of Chartered Accountants of India provides that cost of goods would include the duties and taxes paid, other then the duties and taxes which give a right to recover the same from the taxing author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, it was observed by the Hon'ble High Court that the said purposive omission by the legislature clearly revealed its intention to restrict the applicability of Sec. 145A only to goods and not to extend it to services. Accordingly, it was observed by the Hon'ble High Court that Sec. 145A would have no application in cases where services were being provided by the assessee. 13. Before proceeding any further, we may herein observe that it is only through a subsequent amendment made available on the statute vide the Finance Act, 2018 (13 of 2018) w.r.e.f 01.04.2017 that the valuation of purchase and sale of services shall also be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the services to the place of its location and condition as on the date of valuation. For the sake of clarity Sec. 145A, i.e, post amended vide the Finance Act 2018(13 of 2018) w.r.e.f 01.04.2017 is culled out as under (relevant extract) : "S. 145A Method of accounting in certain cases - For the purposes of determining the income chargeable under the head "Profits and gains of business or profession", - (i).... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... government account within the stipulated time period would not entail or lead to any disallowance of the said amount. In fact, the said issue too had came up for adjudication before the Hon'ble High Court of Bombay in the case of Knight Frank (supra), wherein the following question of law was raised : "(ii). Whether on the fats and in the circumstances of the case and in law, the Tribunal was correct in consequently deleting the addition u/s 43B of the Income tax Act, 1961 being unpaid service tax liability disallowed without appreciating the fact that service tax stands on the same footing as excise duty or sales tax vis-a-vis the phrase 'any tax, duty, cess or fee (by whatever name called)' used in Section 43B of the Income-tax Act, 1961 and allowable only on an actual payment basis." Answering the aforesaid question, it was, inter alia, observed by the Hon'ble High Court that now when the assessee admittedly had not claimed any deduction on account of the service-tax payable in order to determine its taxable income, therefore, there could be no occasion to invoke Sec. 43B of the Act. For the sake of clarity the relevant observations of the High Court qua the aforesaid issu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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