Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, PUNE BENCHES “A” :: PUNE
Before: SHRI S.S.GODARA & DR. DIPAK P. RIPOTE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This appeal filed by the Assessee is directed against the order of ld.Commissioner of Income Tax(Appeals), National Faceless Appeal Centre[NFAC], Delhi dated 07.02.2023 under section 250 of the Act for the A.Y.2016-17 emanating from the Assessment Order u/s 143(3) of the Act dated 21.12.2018. The Assessee has raised the following grounds vide revised Form No.36 dated 16.06.2023 : Intox Private Limited [A] “1. The learned CIT(A), National Faceless Appeal Center. Delhi (hereinafter called as 'learned CIT(A)') erred in law and on facts in confirming disallowance made by learned AO, Circle 11, Pune (hereinafter called as 'learned AO') on account of payment of service tax liability to the tune of Rs. 2,63,49,863/- only for the reason that the said service tax payment is not made in the year under consideration. The learned CIT(A) and learned AO (hereinafter called 'learned IT authorities' together) ought to have appreciated that, the service tax liability was crystalized during the year though the payment for the same was made in an earlier year i.e. A.Y.2015-16.
2. The learned CIT(A) and the learned AO erred in law and on facts in interpreting the provisions of section 43B incorrectly without appreciating that, allowance of deduction of expenditure covered under provisions of section 43B on payment basis only applicable to such deductions which are otherwise allowable under ITA, 1961. The learned IT authorities ought to have appreciated that, expenditure of service tax liability is allowable as a deduction only in the year of crystallization & incurrence the said expenditure i.e. A.Y.2016-17, and the same was paid only as an advance in earlier years.
3. The learned CIT(A) erred in law and on facts in holding that, expenditures covered under provisions section 43B are allowable only in the year of payment, irrespective of the fact that, the said expenditure is incurred or crystalized in the subsequent year.
2 Intox Private Limited [A]
The learned CIT(A) erred in law and on facts in holding that, the appellant has claimed levy of penalty on service tax as an expenditure without appreciating that, claim of expenditure is with respect to service tax and no any component of penalty included in the said claim.
Alternatively, and without prejudice to the above grounds of appeal
, the learned CIT(A) erred in law and on facts in not directing the learned AO to grant such deduction in year of payment as per the provisions of section 43B of ITA, 1961.
6. The appellant craves leave to add, alter, clarify, explain, modify, delete any of the grounds of appeal, and to seek any just and fair relief.”
Brief facts of the Case : 2. The assessee company e-filed its original return of income for A.Y.2016-17 on 08.09.2016 declaring a loss of Rs.3,13,80,561/-. The assessee’s case was selected for scrutiny. The Assessing Officer(AO) issued various notices. The AO noted that assessee had claimed service tax liability of Rs.3,69,88,541/- as allowable expenditure during the year. The AO called for the details. The AO noted that the service tax amount of Rs.3,69,88,541/- was paid in earlier financial years as under :
3 Intox Private Limited [A] Year Liability Payment year FY 12-13 & 13-14 1,77,08,559.00 FY 14-15 (July 12 - March 14) FY 14-15 86,41,304.00 FY 14-15 FY 14-15 1,89,490.00 FY 15-16 FY 15-16 89,43,823.00 FY 15-16 FY 15-16 6,46,874.00 Service tax credit not availed Interest 8,58,491.00 FY 15-16 3,69,88,541.00 2.1 Before the AO, the assessee has claimed it as expenditure, because the order of Service Tax Commissioner was received on 30.10.2015 i.e. during the year. However, the AO noted that the demand notice for service tax payment for period July, 2012 to September, 2013 of Rs.1,51,04,487/- was issued by Superintendent, Central Excise and Service Tax, Pune-3 on 07.05.2014. The assessee filed certain objections against the order of Superintendent, before the Commissioner’s Central Excise and Service Tax.
2.2 The Commissioner’s, Central Excise and Service Tax, Pune-3 issued show cause notice raising demand of Rs.1,77,08,549/- for a period from July, 2012 to March, 2014 on 01.10.2014. The assessee challenged the order of Commissioner, Central Excise and Service Tax before ld.Principal Commissioner, Service Tax. The ld.Principal 4 Intox Private Limited [A] Commissioner, Service Tax, Pune passed the order in the month of October, 2015 confirming the demand and interest. The assessee had paid the service tax as per the show cause notice issued by the Commissioner, Central Excise and Service Tax, Pune-3 dated 01.10.2014. Similarly, assessee had paid Rs.86,41,000/- pertaining to F.Y.2014-15, during the F.Y.2014- 15. The AO held that payment of service tax is covered under section 43B of the Income Tax Act and same is allowable in the year of payment only. Since the assessee paid the service tax in earlier years, the AO disallowed the assessee’s claim of Rs.2,63,49,863/- which was paid in earlier years. The AO allowed assessee claim of Rs.1,06,38,678/- on account of service tax paid during the year, as per provision of section 43B of the Act.
2.3. Aggrieved by the order of the AO, the assessee filed appeal before the ld.CIT(A), where the ld.CIT(A) confirmed the addition.
Aggrieved by the order of the ld.CIT(A), the assessee filed appeal before this Tribunal.
5 Intox Private Limited [A] Submission of ld.Authorised Representative(ld.AR) : 4. The ld.AR filed a paper book. Ld.AR submitted that the assessee had paid service tax liabilities in F.Y.2014-15 under protest. The assessee had filed appeal against the order of Superintendent, Central Excise and Service Tax. The ld.AR therefore, pleaded that the liability was not crystalised in F.Y.2014-15 and hence, as per section 43B, only the crystalised liability can be claimed, hence, assessee has claimed the said liability during the year i.e. F.Y.2015-16. The ld.AR also submitted that it is a revenue neutral exercise. Therefore, ld.AR pleaded that it should be allowed in the year F.Y.2015-16 as claimed by the assessee. The ld.AR relied on the decision of the Hon’ble Supreme Court in the case of Maruti Suzuki India Ltd(Earlier known as Maruti Udyog Ltd.,) Vs. CIT, Delhi in Civil Appeal No.11923 of 2018 dated 07.02.2020. 4.1 The ld.AR alternatively pleaded that the AO may be directed to allow these service tax liabilities in the year of actual payment as mentioned in the Audit Report.
6 Intox Private Limited [A] Submission of ld.Departmental Representative(ld.DR) : 5. The ld.DR for the Revenue relied heavily on the order of the Lower Authorities. Ld.DR submitted that the decision of the Hon’ble Supreme Court in the case of Maruti Suzuki India Ltd.,(supra) relied by the assessee is distinguishable on facts. In the case of Maruti Suzuki India Ltd., the question was about the unutilized credit under MODVAT Scheme. Ld.DR further submitted that even the assessee’s alternate plea is not maintainable as assessee has not demonstrated that assessee had not claimed these amounts as deduction in earlier year. Ld.DR submitted that there is always a possibility of double deduction in the absence of the relevant facts.
Findings & Analysis : 6. We have heard both the parties and perused the records. It is an admitted fact by the assessee that the impugned Service tax Liability was paid in the earlier Financial years and not in FY 2015-16(AY 2016-17).
Section 43B as applicable for AY 2016-17 is as under : 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of— 7 Intox Private Limited [A]
(a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, or (c) any sum referred to in clause (ii) of sub-section (1) of section 36, or (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State financial corporation or a State industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing , or (e) any sum payable by the assessee as interest on any loan or advances from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advances, or (f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, 8[or] Following clause (g) shall be inserted after clause (f) of section 43B by the Finance Act, 2016, w.e.f. 1-4-2017 : (g) any sum payable by the assessee to the Indian Railways for the use of railway assets, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :
Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return9. Explanation 1.—For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to 8 Intox Private Limited [A] the assessment year commencing on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.
Explanation 2.—For the purposes of clause (a), as in force at all material times, "any sum payable" means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law. (emphasis supplied)
7.1 The Hon’ble Supreme Court in the case of Maruti Suzuki India Ltd vs CIT [2020] 421 ITR 510(SC) has analysed the provisions of Section 43B and explained the law as under : Quote, “When weanalyse provision of section 43B of the Act the provision indicates that deduction thereunder isto be allowed on fulfilment of the following conditions: "a. there should be an actual payment of Excise Duty whether "by way of tax, duty, cess orfee, by whatever name"; b. such payment has to be "under any law for the time being in force"; c. the payment of such sum should have been made by the assessee; d. irrespective of the method of accounting regularly employed by the assessee,deduction shall be allowed while computing the income tax for the previous year "inwhich sum is actually paid" by the assessee; e. the expression "any such sum payable" refers to a sum for which the assessee incurredliability in the previous year even though such sum might not have been payable withinthat year under the relevant law."
12. The fulfilment of the above statutory conditions is necessary for allowing deduction undersection 43B. ” Unquote.
9 Intox Private Limited [A]
Thus, in the light of the Law enunciated by the Hon’ble Supreme Court, as above, we have to analyze the facts of the present case.
8.1 There is no dispute that the payment of Service Tax had been actually paid by the assessee in earlier years, we have already mentioned the dates.
8.2 The payment made by the Assessee on account of Service Tax is under the provisions of Section 73(1) Finance Act 1994, read with Service tax Rules. Thus, it is as per Central Government Act.
8.3 According to the Service Tax Authorities the Assessee incurred liability to pay the Service Tax Amount the day services were provided.
8.4 The Hon’ble Supreme Court has explained ‘any sum payable’means the assessee incurred liability in the previous years even such sum might not have been payable within that year under the relevant statute. Therefore, in this case whether the assessee had to pay the service tax liability in that year or not as per service tax rules will not change the allowability u/s 43B 10 Intox Private Limited [A] of the Income Tax Act as long as the Assessee had actually paid it.
Lets try to under stand the exact nature of the impugned Service Tax Liability. As noted from submission of the Assessee made before the Service Tax Authorities, The Assessee is a Contract Research Organization based in Pune, it offers a wide range of Animal and other pre-clinical safety studies for novel pharmaceutical, agrichemical, biotechnological products to enable their registration with Governmental Agencies. The assessee provides these services to its clients in India and abroad. The Service Tax Authorities held that these services attract Service Tax even if clients are abroad as ‘Place of provision of services’ is in India Pune.
9.1 Assessee has filed an Appeal before the Customs Excise Service Tax Appellate Tribunal and it is pending.
Be it as it may be, when we analyse the facts of the case in the light of the law enunciated by Hon’ble Supreme Court(supra), it is observed that the Assessee had paid the impugned service Tax Liability in earlier Financial Years earlier to F.Y.2015-16. The Service Tax liability pertained to earlier 11 Intox Private Limited [A] financial years. For ready reference the details are again reproduced here :
Year Liability Payment year FY 12-13 & 13-14 1,77,08,559.00 FY 14-15 (July 12 - March 14) FY 14-15 86,41,304.00 FY 14-15 FY 14-15 1,89,490.00 FY 15-16 FY 15-16 89,43,823.00 FY 15-16 FY 15-16 6,46,874.00 Service tax credit not availed Interest 8,58,491.00 FY 15-16 3,69,88,541.00 10.1 Out of the Service Tax claimed of Rs.3,69,88,541/-, the Assessing Officer has not allowed only an amount of Rs.2,63,49,863/- which was paid in FY 2014-15. Year Liability Payment year FY 12-13 & 13-14 1,77,08,559.00 FY 14-15 (July 12 - March 14)
FY 14-15 86,41,304.00 FY 14-15 Total 2,63,49,863/- 10.2 The impugned service Tax liability of Rs.2,63,49,863/- was actually paid by the Assessee in FY 2014-15. As per Section 12 Intox Private Limited [A] 43B and as per the law enunciated by Hon’ble SC (supra), the amount of deduction is available only when it is actually paid during the year irrespective of the accrual of actual liability as per the relevant statute.
The assessee had claimed that the Liability was not crystallized in FY 2014-15 and assessee paid the amount under protest. The Assessee claimed that the impugned service Tax Liability was crystallized only in F.Y.2015-16 after the Order of Pr.Commissioner Service Tax Pune dated 30/10/2015. However, the service Tax Liability arises when the services are performed. The impugned services were actually performed in financial years prior to F.Y.2015-16. There is no dispute about these facts. The Superintendent of Central Excise & Service Tax had passed the order in F.Y.2014-15 directing the assessee to pay the Service Tax for the Services provided from July, 2012 to March, 2014. Therefore, the liability to pay the service Tax had arisen in earlier financial years and the contention of the assessee is rejected that the demand was not crystallized.
13 Intox Private Limited [A] 11.1 The Hon’ble Supreme Court in the case of CIT Vs. United Glass Mfg. Co. Ltd., [2012] 28 taxmann.com 429 (SC) [12-09- 2012] has held as under : Quote, “ 1.4 There is not dispute that the assessee has paid tax which was calculated on estimation under the Karnataka Sales Tax Act, 1957. In the circumstances, Section 43B of the Income Tax Act, 1961, squarely applies. 1.5 We see no reason to interfere with the impugned judgement. The civil appeal filed by the Department is, accordingly, dismissed with no order as to costs” Unquote.
11.2 Thus, in the case of United Glass Manufacturing CO the Hon’ble Supreme Court allowed deduction u/s 43B, of Sales tax paid on estimate basis.
11.3 Therefore, we do not find any merit in the argument of the assessee that the Liability of Service Tax was not crystallized during F.Y.2014-15 and it was crystallized only in F.Y.2015-16, though the Service Tax amounts were paid in F.Y.2014-15. 11.4 In this case since the amount of Rs.2,63,49,863/- was not paid during the F.Y. 2015-16, but it was actually paid in F.Y.2014-15 and earlier years the AO has rightly disallowed the impugned amount as un-allowable expenditure u/s.43B of the Act for A.Y.2016-17. 14 Intox Private Limited [A] 11.5 Therefore, in these facts and circumstances of the case we agree with the AO and upheld the disallowance of Rs.2,63,49,863/-
Accordingly, Ground Numbers 1 to 4 raised by the Assessee in the revised Form No.36 are dismissed.
Ground No.6 raised by the assessee is General in nature and it is dismissed.
The Assessee has taken the plea that Ld.CIT(A) should have directed the AO to allow these amounts as deductions in earlier years. We do not find any merits in the said submission. The Ld.CIT(A) have no jurisdiction under the Act to issue any directions to the AO for any other AY other than the one under appeal before him. Therefore, the Ground Number 5 is dismissed.