ANUPTECH EQUIPMENTS PRIVATE LIMITED,RABALE, NAVI MUMBAI vs. INCOME TAX OFFICER, WARD 15(1)(1), MUMBAI, MUMBAI

The brief facts of the case are that the assessee, M/s Anuptech Equipments Pvt. Ltd., is a company engaged in the business of trade testing services, vocational training and allied activities. The original assessment for A.Y. 2014-15 was completed under section 143(3) of the Income-tax Act, 1961 (“the Act”) on 10.12.2016, wherein the Assessing Officer computed the loss at ₹20,18,603/- and the tax liability under section 115JB of the Act on book profit of ₹75,72,349/-.

Thereafter, on verification of the assessment records, the Assessing Officer noticed that the assessee had claimed deduction of ₹1,05,93,143/- under section 43B of the Act on the ground that the amount was towards service tax pertaining to earlier years which had been disallowed in those years and was paid during the year under consideration. The Assessing Officer further noticed that this amount included ₹64,47,183/-, being 50% of the service-tax liability of ₹1,28,94,366/- declared by the assessee under the Voluntary Compliance Encouragement Scheme, 2013 ("VCES"). According to the Assessing Officer, the payment of ₹64,47,183/- under VCES appeared to be over and above the service-tax amounts disallowed in the earlier years and, therefore, the deduction claimed under section 43B of the Act was required to be verified. The Assessing Officer also noticed that, though the tax audit report stated that unpaid service tax of ₹42,38,982/- had been paid before the due date of filing the return, payments aggregating to ₹31,64,083/- were actually made after the due date. On this basis, the Assessing Officer reopened the assessment by issuing notice under section 148 dated 27.03.2019.

During the reassessment proceedings, the Assessing Officer examined the VCES declaration filed by the assessee on 29.10.2013, under which service-tax dues of ₹1,28,94,366/- had been declared. He also noted that the assessee had paid ₹64,47,183/- on 30.12.2013 through 36 challans, being 50% of the amount declared under VCES.

The Assessing Officer also examined the service-tax disallowances made by the assessee under section 43B in the earlier years. The Assessing Officer observed that the assessee had made disallowances of ₹34,53,733/- for A.Y. 2008-09, ₹7,94,760/- for A.Y. 2010-11, ₹16,80,985/- for A.Y. 2011-12, ₹14,30,836/- for A.Y. 2012-13 and ₹41,73,459/- for A.Y. 2013-14. After reducing ₹5,63,944/-, which as per the assessee had been allowed earlier on payment basis, the Assessing Officer computed at the outstanding liability of the earlier years at ₹1,09,69,829/-. He compared this figure with the VCES declaration of ₹1,28,94,366/- and found that the two amounts did not match.

The Assessing Officer was of the view that this explanation showed that the payment of ₹64,47,183/- under VCES did not form part of the liabilities disallowed under section 43B in the earlier years. According to him, unless the assessee established that the liability had already been recorded in its books and had been disallowed under section 43B of the Act in the earlier years, the subsequent payment by itself would not entitle the assessee to deduction.

The assessee carried the matter in appeal before the CIT(Appeals). The CIT(Appeals) examined the disallowance of ₹64,47,183/- under section 43B of the Act and confirmed the action of the Assessing Officer. The CIT(Appeals) held that section 43B allows deduction on payment basis only where the statutory liability is allowable and had been disallowed in an earlier year because of non-payment. The CIT(Appeals) noted that the assessee itself had stated that only ₹22,27,127/- out of the VCES declaration had been debited in the books during the year. According to the CIT(Appeals), the assessee had not established that the amount of ₹64,47,183/- paid under VCES had earlier been routed through the Profit & Loss Account or had formed part of the service-tax liabilities disallowed under section 43B in the earlier years. He therefore held that payment of ₹64,47,183/- by itself was not sufficient to allow deduction under section 43B of the Act and confirmed the disallowance. The CIT(Appeals) accordingly dismissed the appeal.

The assessee is in appeal before us against the order passed by the CIT(Appeals) dismissing the appeal of the assessee.

We have heard the rival submissions and perused the material available on record. During the course of hearing, the learned Counsel for the assessee submitted that the dispute is mainly factual and has arisen because the service- tax liability appearing in the books, the disallowances made under section 43B of the Act in the earlier years, the liability subsequently declared under VCES and the payments made during A.Y. 2014-15 have not been properly reconciled. The learned Counsel has also given an undertaking before us dated 4th September 2026 to the effect that, in support of the claim of deduction of ₹1,05,93,143/- under section 43B, the assessee shall furnish before the Assessing Officer all the relevant books of account, returns of income, tax audit reports, service-tax records, VCES declaration, challans and any other material required to establish the claim.

The learned Counsel has also placed before us a year-wise chart showing the amounts which as per the assessee had been disallowed under section 43B of the Act in the earlier assessment years. For ready reference, the relevant part of the chart is reproduced below:

The learned Counsel has also furnished details of service-tax payments aggregating to ₹1,05,93,143/-. Out of this amount, the assessee submitted that a sum of ₹41,45,960/- had been paid through various challans between 05.07.2013 and 22.03.2014, while the balance amount of ₹64,47,183/- was paid on 30.12.2013 through 36 challans under VCES. The assessee's case is that the entire amount of ₹1,05,93,143/- was towards payment during the year against service-tax liabilities which had already been disallowed under section 43B of the Act in the earlier years.

After considering the material placed before us, we find that the issue requires a proper reconciliation of the figures from the books and the service-tax records.

The assessee has stated that the opening balance of service-tax liability in the relevant ledger was ₹1,30,03,222/-, as reflected at page 66 of the Paper Book. On the other hand, the chart furnished before us shows the outstanding amount arising from earlier disallowances under section 43B at ₹1,09,69,829/-. The first issue which therefore requires verification is whether the amount of ₹1,09,69,829/- is actually included in the opening balance of ₹1,30,03,222/-. This has to be established from the ledger accounts and the closing balances of the immediately preceding year. The linkage cannot be assumed merely because the figures are broadly in the same range.

The Assessing Officer shall also examine how the opening balance of ₹1,30,03,222/- relates to the VCES declaration of ₹1,28,94,366/-. The two figures are close, but there is a difference of ₹1,08,856/-. The assessee shall explain this difference from the books and the VCES working. It also needs to be verified whether the entire VCES declaration of ₹1,28,94,366/- was towards liability already appearing in the books or whether any part of it was a liability which had not earlier been recorded or claimed.

The Assessing Officer shall identify what part of the VCES liability was already recorded in the books in the earlier years, what part, if any, was recorded for the first time during A.Y. 2014-15 and whether any portion was never reflected in the books.

The Assessing Officer shall thereafter examine whether the amount of ₹64,47,183/- paid under VCES on 30.12.2013 was actually paid against liabilities which formed part of the earlier disallowances under section 43B of the Act. The fact that ₹64,47,183/- was exactly 50% of the VCES declaration of ₹1,28,94,366/- does not by itself prove that the amount had already been claimed and disallowed in earlier years. At the same time, the claim cannot be rejected merely because the payment was made under VCES. If the assessee is able to show that the service-tax with respect to the VCES liability had already been recorded in its books, claimed in the relevant earlier year and disallowed only because it had remained unpaid, the payment made under VCES would have to be examined in that light. The VCES liability therefore needs to be matched with the year-wise service-tax ledgers and the corresponding disallowances made under section 43B of the Act .

The Assessing Officer shall also examine the total payment of ₹1,05,93,143/- claimed as deduction for A.Y. 2014-15. According to the assessee, this amount consists of ₹41,45,960/- paid through various challans during the year and ₹64,47,183/- paid under VCES on 30.12.2013. Each payment should be matched with the service-tax liability to which it relates and, wherever the assessee claims that the liability had earlier been disallowed under section 43B, with the particular assessment year in which such disallowance was made. If the assessee is able to establish this linkage, the claim shall be considered in accordance with law. If any payment relates to a liability which had never been claimed or disallowed in an earlier year, the Assessing Officer shall deal with that part of the claim separately in accordance with law.

Considering these factual issues and the specific undertaking given by the learned Counsel that the assessee shall furnish all the relevant records and explanations before the Assessing Officer, we are of the view that the matter requires fresh examination. We therefore restore the matter to the file of the Assessing Officer for de-novo consideration.

In the result, the appeal of the assessee is allowed for statistical purposes.