M MONKS DIGITAL MEDIA PRIVATE LIMITED,BANGALORE vs. ACIT, CIRCLE-6(1)(1), BANGALORE

Briefly stated facts of the case are assessee being a company filed its return of income on 21.01.2021 declaring a loss of Rs.1,83,49,484/- for the Assessment Year 2020-21. The return was summarily processed under section 143(1) of the Act. Later, the case was selected for “limited scrutiny” under CASS for the following 2 issues:

Thereafter, notice under section 143(2) of the Act dated 29.06.2021 was issued and served on the assessee. Subsequently, notice under section 142(1) of the Act on various dates were issued and served on the assessee. Since the assessee did not respond, the learned AO issued show cause notices on 23.03.2022 and 02.08.2022. Since there was no response, a final show cause notice dated 16.09.2022 was issued and served on the assessee. In response, the assessee furnished its submissions. On perusal of the submissions furnished by the assessee, the learned AO observed that the assessee has not paid Good and Services Tax (GST) amounting to Rs.45,65,465/- which was outstanding as on 31.03.2020 and was belatedly paid on 22.04.2021. The learned AO therefore issued a show cause notice dated 23.03.2022 requiring the assessee to submit acceptance / objection for adding the amount of Rs.45,65,465/- which was not paid within the due date. The assessee, in its submission, stated that GST was not routed through the profit and loss account and it is only an outstanding GST liability and hence it cannot be disallowed under section 43B of the Act since the same has not been claimed as deduction in the profit and loss account. Similarly, the learned AO also noticed that the assessee has not deducted tax at source with respect to the expenditure by way of professional fees amounting to Rs.1,96,37,418/- incurred during the impugned Assessment Year. After examining the submissions filed by the assessee, the learned AO proceeded to frame the assessment by making addition of Rs.1,96,37,418/- and Rs.45,65,465/-.

On being aggrieved by the Order of the learned AO, assessee carried the matter before the learned CIT(A). Similar submissions were made before the learned CIT(A). On examining the submission made by the assessee, the learned CIT(A) partially 2 allowed an amount of Rs.99,65,952/- while sustaining the additions of 96,71,466/- and Rs.45,65,465/-.

On being aggrieved by the Order of the learned CIT(A), assessee is in appeal before us by raising various grounds. The issue emanating from the above grounds raised by the assessee are as follows:

On the issue of disallowance of GST payable, the learned AR submitted that GST payable being a liability, is not routed through profit and loss account and claimed as expenditure in the profit and loss account. Therefore, the disallowance under section 43B of the Act shall not be attracted. On this issue, he relied on the decision of the Co- ordinate Bench of the Tribunal in the case of Ken Consulting Private Ltd., Vs. DCIT in ITA No.300 and 301/Bang/2019.

Per contra, the learned DR heavily relied on the Orders of the lower authorities.

We have heard the rival contentions and perused the material available on record. It is an admitted fact that the assessee has not routed the GST payable through the profit and loss account and claimed it as an expenditure while filing the return of income. The learned AO invoked the provisions of section 43B of the Act stating that GST being a tax and non-payment of the same within the due dates or within the date of filing of return of income under section 139(1) of the Act shall be disallowed and added to the total income of the assessee. However, we note that the GST not being an expenditure claimed in the profit and loss account but only collection of taxes from customers to be paid to the Govt. within the due date.

The Hon’ble High Court of Delhi in the case of Noble & Hewitt (I) (P.) Ltd., held as follows:

Similarly, in the case relied on by the learned AR, the Co-ordinate Bench has followed the judgment of the Hon’ble High Court of Delhi as cited above and held that outstanding service tax liability is not liable to be added under section 43B of the Act, since the same has not been claimed as a deduction. Respectfully following the decision cited above, we are of the view that GST payable, being a liability, does not attract the provisions of section 43B of the Act and hence we direct the learned AO to delete the addition of Rs.45,65,465/-.

On the second issue, the learned AR submitted that assessee has made reimbursement of legal and professional fees to its parent company in Netherlands. The learned AR also further submitted that Form 15CA is attached to the Paper Book stating the payment as reimbursement of expenses. He therefore further submitted that these reimbursements shall not be considered as fee for technical services and hence not taxable in India. He therefore prayed that the addition on account of reimbursement amounting to Rs.96,71,466/- shall be deleted.

Per contra, the learned DR relied on the Orders of the lower authorities.

We have heard the rival contentions and perused the material available on record. Admittedly the assessee has made payments to Mediamonks BV (MMBV), Netherlands, as reimbursement of expenditure which is evident from Form 15CA submitted by the assessee. However, the contention of the Revenue is that assessee has not produced any documentary evidences to prove that the expenditure has actual reimbursement without any markup. The learned CIT(A) has also called for details. However, the same was not furnished by the assessee before the learned CIT(A) as well as before us. In these facts and circumstances, we are of the view that since the reimbursement of expenses 4 incurred by the assessee is not supported by the documentary evidences, we do not find any infirmity in the Order of the learned CIT(A) and hence no interference is required. Accordingly, this ground raised by the assessee is dismissed.

In the result, appeal of the assessee is partly allowed. Pronounced in the open court on the date mentioned on the caption page.