THE ACIT, VALSAD CIRCLE,, VALSAD vs. M/S. SAVITA CONSTRUCTION PVT. LTD.,, VALSAD

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 3495/AHD/2015 (AY 2009-10) (Hearing in Virtual Court) Asstt. Commissioner of M/s Savita Construction Income tax, Valsad Circle Pvt. Ltd., Vs Room No.208, 2nd Floor, New GIDC, Income Tax Office, “PALAK Gundiav, Valsad ARCADE” Shnatinagar, PAN : AAFCS 3408 Q Tithal Road, Valsad-396001 Revenue / appellant Assessee /respondent

Assessee by Shri P.M.Jagasheth, C.A Revenue by Ms. Anupama Singla – Sr-DR Date of hearing 06.07.2021 Date of pronouncement 26.07.2021 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by Revenue is directed against the order of ld. Commissioner of Income tax (Appeals), Valsaddated 08.10.2015for assessment year (AY) 2009-10. The Revenue has raised the following grounds of appeal:- “1. On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs.1,88,77,981 u/s 43B in respect of unpaid statutory dues of service tax, Excise and PF by changing the method of accounting. 2. On the facts and in the circumstances of the case, the ld. CIT(A) erred in not appreciating the fact that the assessee cannot avoid disallowance u/s 43B in respect of unpaid statutory dues of service tax, Excise and PF by changing the method of accounting. 3. On the facts and in the circumstances of the case, the ld. CIT(A) erred in not appreciating the fact that the as has changed the

ITA No. 3495/AHD/2015 M/s Savita Construction Pvt. Ltd. method of accounting from inclusive to exclusive only to avoid addition u/s 43B. 4. On the facts and in the circumstances of the case, the ld. CIT(A) erred in not appreciating that in inclusive method of accounting the statutory dues received by the assessee are required to be included in the turnover and the deduction in respect of the same can be claimed only on actual payment, as provided in section 43B of the IT Act. The assessee cannot escape the vigour of section 43B by excluding statutory dues from its turnover. The provision of section 43B refers to ‘any sum payable by the assessee by way of tax, duty, cess’ and accordingly, such unpaid dues are required to be added to the income of the assessee. 5. On the facts and in the circumstances of the case, the ld. CIT(A) erred in not appreciating the fact that the ratio of the judgment of Delhi High Court delivered in the case Noble & Hwitte [2008] 166 Taxmann 48 (Del) do not apply to the fact of the case of the assessee as in the said judgment, the method of accounting followed by the assessee is not discussed.” 2. Brief facts of the case are that assessee is a company engaged in business of manufacturing of boilers, pressure / reaction, vessels, heat exchangers, storage tanks, piping fabricated structural steel (M.S./S,.S.) etc. for chemical, power plant and other processing industries. The assessee is also provided services various to its customers. For assessment year2009-10 the assessee filed its return of income on 30.09.2009 declaring income of Rs.1.12 crores. Initially the return was processed under section 143(1) without making any adjustments. Thereafter, the case was re-opened under section 147of the Act.

ITA No. 3495/AHD/2015 M/s Savita Construction Pvt. Ltd. Notice under section 148 dated 21.01.2013 was issued and served on the assessee. In response to notice under section 148, the assessee field its reply and submitted that return filed on 30.09.2009 may be treated as return in response to notice under section 148 of the Act. The assessee asked for reasons recorded. The reasons recorded was supplied to the assessee. The Assessing Officer after serving statutory notice under section 143(2) r.w.s. 142(1) of the Act proceeded for re-assessment. The Assessing Officer during assessment proceeding while going through the auditor’s report noted that certain dues were not paid by assessee-company till date of filing of return of income as confirmed by auditor. The assessee has not paid following dues:-

SL Nature of Govt. dues Amount of due Amount Date of payment Balance payable paid VAT payable Rs.5,81,284 Rs.5,81,284 Paid on NIL 1 21.07.2009 Service Tax Payable Rs.1,20,36,201/- NIL Not paid till date Rs.1,20,36,201/- 2 of report Excise Rs.15,62,499 Rs.795963/- paid on Rs.7,66,536/- 3 06.04.2009 PF payable Rs.98,437/- Rs.5956 Date 13.04.2009 Rs.58,682/- 4 Rs.33,799 Date 16.04.2009 Total payable till date of report Rs.1,28,61,419/-

ITA No. 3495/AHD/2015 M/s Savita Construction Pvt. Ltd. excise duty of Rs.7,66,536/- and PF of Rs.58,682/- should not be disallowed and added to the income of assessee. In response to show cause notice, the assessee contended that they have followed the exclusive method of accounting and have neither included the service tax in gross receipt nor claim any expenses on account of VAT, service tax and excise duty and same cannot be disallowed as per the provision of sec. 43B of the Act. The reply of assessee was not accepted by Assessing Officer by taking view that these are the statutory government dues and has to be paid before due date of filing of return. The Assessing Officer further held that for unpaid PF, no explanation is offered by the assessee. Accordingly, aggregate of service tax, excise and unpaid PF which comes to Rs.1.88 crores was added to the income of assessee under section 43B of the Act. 4. Aggrieved by the additions the assessee filed the appeal before the Ld. Commissioner of (Appeals) [CIT(A)]. Before Ld. CIT(A) the assessee filed detailed written submission. The submission of assessee is recorded para-5 of the order of Ld. CIT(A). In the submission, the assessee stated that they are following exclusive method of accounting and has neither included service tax in its gross receipt not claimed any expense or VAT, service tax or excise duty and the same cannot be disallowed u/s 43B of the Act. The assessee further explained that sec. 43B states that certain payment should be allowed

ITA No. 3495/AHD/2015 M/s Savita Construction Pvt. Ltd. to be claimed an expense only in the year in which they have been paid and not in the year in which the liability to such sum was incurred. The provision of sec. 43B shall not reply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing its return under section 139 in respect of previous year, in which liability paid such sum was incurred by the assessee. It was further explained that assessee has changed the method of accounting from inclusive to exclusive method from the total income of fabrication job work and erection, the total service portion is exclusive. However, service tax expenditure was again considered on cash basis whenever received from the customers. The assessee has consider service tax expenditure Rs. 0.00 in the profit and loss account (PLA) and discharged the service tax liability through CENVAT credit amounting to Rs.10,62,138/- and through PLA Rs 0.00.The balance which was though received from the customers and on that amount of service tax portion which was not paid amounting to Rs.120,36,201.17/- was reflected as service tax payable and Rs.15,62,498.18 as excise duty payable in the balance sheet as on 31.03.2009. The same was discharged through PLA in the assessment year 2011-12. Since the assessee has neither included the service tax, excise and VAT in his income nor claimed service tax, excise and VAT as expenditure therefore question of disallowance under section

ITA No. 3495/AHD/2015 M/s Savita Construction Pvt. Ltd. 43B of the Act does not arise. The assessee also relied upon various case law. The Ld. CIT(A) after considering the submission of assessee deleted the entire addition by holding that assessee followed exclusive method of accounting and whatever liability / expenses debited to profit and loss account had been paid through CENVAT credit and profit and loss account. Aggrieved by the order of Ld. CIT(A) the Revenue has filed present appeal before the Tribunal. 5. We have heard the submission of Ld. Senior Departmental Representative (Sr DR) for the Revenue and Ld. Authorized Representative (AR) for assessee and have gone through the order of lower authorities. The Ld. Sr.DR for the Revenue supported the order Assessing Officer and submits that as normal accounting policy consistently followed by assessee till preceding year, service tax whenever form part of total turnover and the receipt would have increased to that extent. No actual payment was made by the assessee. Therefore, no deduction was allowable. The assessee has changed the method of accounting only to avoid the payment of tax which would have become payable following the inclusive method of accounting consistently followed by the assessee till preceding year. The Ld. CIT(A) failed to appreciate this crucial aspect. The Ld. CIT(A) has not given proper reasoning before allowing the relief to the assessee.

ITA No. 3495/AHD/2015 M/s Savita Construction Pvt. Ltd. 6. On the other hand, Ld. AR of the assessee submits that assessee has followed exclusive method of accounting for the year under consideration. The assessee has neither claimed the service tax in their gross receipt nor claimed any expenses on account of VAT service tax and excise duty. The assessee have not sought the deduction of PF and excise. No disallowance under section 43B can be made in his part. The Assessing Officer merely calculated the service tax by taking total service tax collected by assessee and deducted the service tax paid after claiming the expense. The Ld. AR of the assessee submits that the assessee has not claimed liability in their balance-sheet. To support his submission, the Ld. AR of the assessee relied upon the decision of Hon'ble Delhi High Court in the case of CIT vs. Noble & Hewitt (I) (P) Ltd., (2008) 305 ITR 324 (Del) wherein Hon'ble court held that when assessee neither claimed any deduction nor it debited amount as an expenditure in profit and loss account and the assessee was following mercantile system of accounting no addition to the income of assessee can be made. Total income strengthen his submissions the learned AR for the assessee relied on the following case laws;  CIT vs. Noble & Hewitt (I) Ltd., (2008) 166 Taxman 48 (Del)  ITO Vs. Shri Sanjay Rampayare Prajapati ITA No.2401/Ahd/2017 (ITAT Ahd)  SDCE Projects Pvt. Ltd. Vs DCIT, ITA No.2556/Ahd/2017 (ITAT Ahd)

ITA No. 3495/AHD/2015 M/s Savita Construction Pvt. Ltd.  ACIT vs. Real Image Media Techonologies (P) Ltd., (2008) 114 ITD 573 (Chennai) (ITAT, Chennai)  DCIT, vs. M/s TSG Global Service Pvt. Ltd. ITA No.185/Kol/2019 (ITAT, Kol) 7. We have considered the rival submission of both the parties. We have also perused the order of lower authorities. We have also deliberated of various case law relied by Ld. AR of the assessee. The Assessing Officer made addition of aggregate amount of Rs. 1.88 crore, which consist of the unpaid service tax of Rs.1.80 crores, excise duty of Rs.7,66,536/- and PF of Rs.58,682/-, by taking view that these are the statutory government dues and has to be paid before due date of filing of return. And that no explanation for unpaid PF, is offered by the assessee. Accordingly, aggregate of service tax, excise and unpaid PF which comes to Rs.1.88.Before Ld. CIT(A) the assessee filed detailed written submission. The Ld. CIT(A) after considering the submission of assessee and held that the assessee’s service tax disallowance and added by Assessing Officer has never been claimed as expenses by assessee in its profit and loss account but claim as liability in the balance-sheet. The Assessing Officer has not brought this fact in the assessment order. The Assessing Officer merely calculated the service tax by taking total tax collected by deducting the amount of service tax paid. The Ld. CIT(A) concluded that no disallowance under section 43B can be made

ITA No. 3495/AHD/2015 M/s Savita Construction Pvt. Ltd. in this case because no expense on this count has been claimed. The assessee followed the exclusive method of accounting and whatever liability or expense debited in the profit and loss account had been paid through CENVAT credit and profit and loss account so no addition under section 43B on account of unpaid service tax is warranted. 8. We find that Hon'ble Delhi High Court in CIT vs. Noble & Hewitt (I) (P) Ltd. (supra) held that when the assessee was following mercantile system of accounting and had not deposited parts of service tax collection with the authorities concerned. The assessee neither claimed the deduction in this regards nor it debited the amount as expenditure in profit and loss account, there is no question for disallowance of said amount. 9. Further the co-ordinate Bench of Tribunal in ITO Vs. Shri Sanjay Rampayare Prajapati (supra) held that a statutory levies was required to be claimed by assessee then the deduction of such claim could be claimed in the year in which they were actually paid. It was observed that in that case, the assessee has not paid service tax ability, thus it cannot claim deduction. It was held that the assessee has not claimed the deduction in its account. Therefore nothing was to be disallowed by the Assessing Officer. Considering the aforesaid factual and legal discussion, we do not find any infirmity in the order passed by the Ld. CIT(A), which is affirmed.

ITA No. 3495/AHD/2015 M/s Savita Construction Pvt. Ltd. 10. The objection of Ld. DR for the revenue is that no payment was made by the assessee, therefore, no deduction was allowable. We find that Ld. CIT(A) while granting relief to the assessee has taken not of the fact that no disallowance under section 43B can be made in this case because no expense on this count has been claimed. The assessee followed the exclusive method of accounting and whatever liability or expense debited in the profit and loss account had been paid through CENVAT credit and profit and loss account so no addition under section 43B on account of unpaid service tax is warranted. Thus, the grounds of appeal raised by the revenue are dismissed. 11. In the result, the appeal of the Revenue is dismissed. Order pronounced on 26/07/2021 as per Rule 34(5) of Income Tax (Appellate Tribunal) Rules-1963. Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 26/07/2021 Dkp. Sr.P.S. O.S Copy to: 1. Appellant 2. Respondent 3. CIT(A)-Valsad 4. CIT 5. DR 6. Guard File True copy/ By order

Assistant Registrar, ITAT, Surat