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Income Tax Appellate Tribunal, LUCKNOW BENCH ‘SMC’, LUCKNOW
Before: SHRI T. S. KAPOOR
This is an appeal filed by the assessee against the order of learned CIT(A) dated 01/02/2021 pertaining to assessment year 2018-2019. In this appeal the assessee has raised the following grounds:
“1. That the income returned should have been accepted. 2. The application filed u/s 154 should have been accepted. 3. That addition made by CPC was beyond the scope of adjustments which could be made in intimation u/s 143(1)(a).
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That when the amount of GST payable was not routed through the profit & loss account the same was not liable to be disallowed and added in the income. 5. That the order passed is against the merit, circumstances and legal aspects of the case.”
Learned counsel for the assessee, at the outset, submitted that in this case the addition has been made on account of GST payable which was outstanding in the balance sheet but which was not routed through profit & loss account. It was submitted that CPC (AO) added this amount in income as disallowable u/s 43B of the Act. Learned counsel for the assessee submitted that the said outstanding amount of GST was not routed through the profit & loss account and in this respect our attention was invited to the copy of profit & loss account, placed at pages 4 to 6 of the paper book. Our attention was invited to the copy of extract of auditor’s report, placed at page 3 of paper book where the auditor has specifically mentioned that no amount of Sales Tax/GST, Customs Duty, Excise Duty or any indirect tax has been passed through the profit & loss account. Learned counsel for the assessee submitted that when the amount was not debited to profit & loss account and was not claimed as an expenditure, the disallowance is not warranted. Learned counsel for the assessee placed reliance on the following case laws for the proposition that when the amount is not debited in the profit & loss account, the disallowance of outstanding statutory dues, cannot be made u/s 43B. (i) India Carbon Ltd. vs. ACIT 200 ITR 759 (Gau) (ii) ACIT vs. Modern Motors 82 Taxmann.com 63 (I.T.A.T., Jaipur) (iii) Dynavision Ltd. vs. ACIT 121 ITD 461 (Chennai Tribunal, 3rd Member) (iv) Selvel Advertising P. Ltd. vs. CIT 75 Taxmann.com 249 (Kolkata I.T.A.T.)
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Our specific attention was invited to the order of Hon'ble Allahabad High Court in the case of CIT vs. S. B. Foundry 185 ITR 555 (All). 3. Learned D. R., on the other hand placed reliance on the orders of the authorities below.
I have heard the rival parties and have gone through the material placed on record. I find from the profit & loss account, placed at pages 4 to 6 of the paper book, that no such expenditure, representing GST, has been debited to the profit & loss account. The extract of auditor’s report in Form 3CB is placed at pages 2 and 3 of the paper book wherein at page 3, auditors have specifically answered as “NO” to the question as to whether any Sales Tax/GST, Customs Duty, Excise Duty or any indirect tax has been passed through profit & loss account. In response to intimation u/s 143(1), the assessee submitted that GST payable was not routed through the profit & loss account and therefore, disallowance u/s 43B was not warranted but these contentions were not accepted. The assessee also filed application u/s 154 mentioning the facts of the case. However, the application u/s 154 was also rejected and aggrieved by the intimation u/s 154, the assessee filed this appeal. I find that the documents placed on record prove that the GST outstanding declared in the balance sheet was not routed through the profit & loss account and therefore, the addition sustained by learned CIT(A) u/s 43B is not warranted. The Hon'ble Allahabad High Court in the case of CIT vs. S. B. Foundry (supra) has dismissed the appeal of the Revenue wherein under similar circumstances the additions were made by the Assessing Officer and Appellant Assistant Commissioner had deleted the same which were confirmed by the Tribunal. The findings of Hon'ble Allahabad High Court are reproduced below:
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“Having heard learned counsel for the Revenue, we are not satisfied that any statable question of law arises in this case. In the assessment year 1984-85 which is in dispute, the ITO added a sum of Rs. 10,003 with the following remarks : "Balance-sheet tallies at Rs. 10,42,319. Liabilities of Rs.8,312 and Rs. 1,961 are shown as U. P. sales tax and Central sales tax, the same shall be added under s. 43B." 2. The assessee appealed to the AAC who deleted the addition. The order passed by the appellate authority was confirmed by the Tribunal. As the reference under s. 256 was refused, the present application has been filed. 3. The appellate authority has found that the amount in dispute represented the sales tax realisation of the last month of the previous year relevant to the assessment year in dispute. Under the provisions of the sales tax law, the amount was payable in the next month and the same was actually paid in the month of November, 1983. The addition is on the finding that the assessee had not claimed the disputed amount as deduction nor has it charged that amount to the profit and loss account. On this factual position, the Tribunal held that there was no question of disallowing the amount taken to the balance-sheet on the liabilities side and, in these circumstances, the question of any "add back" from the profit and loss account did not arise. The Tribunal, therefore, refused to interfere with the order of the AAC. No error in the approach taken by the Tribunal was pointed out to us. Accordingly, the application under s. 256(2) is rejected.” 4.1 Similarly, Hon'ble Gauhati High Court in the case of India Carbon Ltd. vs. ACIT 200 ITR 759, vide order dated 22 September, 1992 held as under:
“Sec. 43B declares that taxes and duties shall not be allowed as deduction from the income unless they are actually paid. It removes the doubt as to the meaning of the word "paid" according to the method of accounting regularly employed by an assessee, in so far as deduction claimed in respect of any sum payable by way of tax or duty. The declaration does not,
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however, place any restriction on the business activities and on the system of accounting. Therefore, s. 43B shall only be attracted when the assessee claims deduction for any sum payable by way of tax or duty under any law for the time being in force, and, as such, where no such deduction is claimed nor charge made to the profit or loss account, there was no question of disallowing the amount taken to the balance-sheet on the liabilities side as well as of "add back". In the instant case, the question was whether section 43B would apply and not the question whether or not the sales tax collected formed part of the business or trading receipts. What would be the effect of showing such sum as payable by way of tax on the liabilities side in the balance sheet without actually paying the same was a different question. The petition, was, therefore, allowed and the addition was quashed.” 5. In view of the facts and circumstances and in view of the judicial precedent, relied on by the assessee, the appeal of the assessee is allowed.
In the result, the appeal of the assessee stands allowed. (Order pronounced in the open court on 29/12/2021)
Sd/. ( T. S. KAPOOR ) Accountant Member Dated:29/12/2021 *Singh
Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. The CIT(A) 5. D.R., I.T.A.T., Lucknow Assistant Registrar