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Facts
The Revenue appealed against the CIT(A)'s order which deleted an addition of Rs. 3,62,47,086/- made by the AO on account of non-payment of service tax before the due date for furnishing the return. The assessee argued that service tax was paid before the due date and was not routed through the profit and loss account, making Section 43B inapplicable.
Held
The Tribunal held that Section 43B is not applicable to service tax payments if they are not routed through the profit and loss account and are considered on an actual payment basis. Since the CIT(A) did not ascertain how the service tax was routed and whether it was actually received, the order was not justified.
Key Issues
Whether Section 43B applies to service tax liability where payment is made after the due date of return filing, and whether the CIT(A) properly examined the factual aspects regarding payment and routing of service tax.
Sections Cited
250, 143(3), 139(1), 43B, 246A, 154, 46A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, KOLKATA ‘D’ BENCH, KOLKATA
Before: SHRI PRADIP KUMAR CHOUBEY & SHRI RAKESH MISHRA
PER RAKESH MISHRA, ACCOUNTANT MEMBER:
This appeal filed by the Revenue is against the order of the Commissioner of Income Tax (Appeals)-NFAC, Delhi [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2015-16 dated 05.07.2023, which has been passed against the assessment order u/s 143(3) of the Act, dated 28.12.2017. 2. The Revenue is in appeal before the Tribunal raising the following grounds of appeal:
“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A), was erred in allowing the appeal of the assessee by deleting the addition of Rs.3,62,47,086/- u/s 43B without ascertaining whether the assessee actually received the payment on which service tax applicable? I.T.A. No.: 1454/KOL/2023 Assessment Year: 2015-16 Seven Hills Project Private Limited.
That the appellant craves leave to add any new ground or alter or amend any of the grounds and put up necessary arguments to substantiate the above noted grounds.”
Brief facts of the case are that the assessee is a private limited company engaged in the business of mining and transport contractors, trading etc. The books of account of the assessee were audited and the tax audit was also conducted. The assessee had declared the total income of ₹1,92,95,845/- and had also paid advance tax and TDS was made. The Assessing Officer (‘the Ld. AO') assessed the income at ₹5,57,19,180/- by adding the outstanding service tax on account of non-payment of service tax amounting to ₹3,62,47,086/-, besides making other additions. In the course of the appeal before the Ld. CIT(A), the assessee submitted in respect of merits of the case that the service tax had been paid by the assessee through CENVAT/Cash before the due date for furnishing of return u/s 139(1) of the Act. The income tax return of the assessee for the relevant assessment year as well as Form No. 3CA and Form No. 3CD were perused by the Ld. CIT(A). The non-payment of service tax as per section 43B of the Act as determined by the Ld. AO was ₹3,62,47,086/-. Before the Ld. CIT(A), the assessee submitted that the service tax liability may be fixed at ₹2,00,03,409/- instead of ₹3,62,47,086/-. However, this alternate submission was not considered as in view of the Ld. CIT(A), there is no provision u/s 246A of the Act for the same. The ground relating to lack of opportunity was also dismissed by the Ld. CIT(A). However, as regards the addition of ₹3,62,47,086/-, the Ld. CIT(A) has held as under:
“4. Decision:- Ground No.1:- The facts mentioned in the assessment order and the submissions made by the assessee have been perused. The Ld. AO during the course of assessment disallowed a sum of Rs.3,62,47,086/- on account of non-payment of service tax before the due date of furnishing the return of I.T.A. No.: 1454/KOL/2023 Assessment Year: 2015-16 Seven Hills Project Private Limited. income u/s 139(1). In view of the provision of section 43B the same was added back to the income of the assessee. ii. The assessee had also filed an application u/s 154 before the AO. It was contended that an expenditure of Rs 3,81,47,924/- has been wrongly considered as a deposit whilst it was a debit balance, thus, increasing the tax liability. The break-up of the same has also been given by the assessee before me in these proceedings. The assessee also submitted that due to these accounting errors the service tax liability is actually Rs 2,00,03,409/- instead of Rs 3,62,47,086. It is clear that the assessee had filed a belated return and the same could not be revised thereafter. The A.O. had correctly rejected the same being not a mistake apparent from record. The assessee has requested interalia vide his submissions that his service tax liability be fixed at Rs 2,00,03,409/-. The alternate submission, and explanation of the assessee for considering the same as figure of his service tax liability before me cannot be considered as there is no provision u/s 246A for the same. iii. Vide his submission the assessee has also contented that he was not given reasonable opportunity by the AO to submit a reply. Further, it has been stated that his case was in limited scrutiny and no addition should have made in this respect. The contention of the assessee in respect of not being given reasonable opportunity are being addressed since all his submission are now being considered. Further his contention that his case was in limited.scrutiny only is rejected since no ground of appeal has been made out in this respect by the assessee in Form 35. Further the AO is bound to make necessary additions from the ITR/Audit report if he deems it fit as being wrongly claimed by the assessee at the time of scrutiny. Hence this contention of the assessee does not hold any ground. iv. The assessee in respect of merits of his case submitted that the service tax has been paid by the assessee through CENVAT/cash before the due date for furnishing of return u/s 139(1). The income tax return of the assessee for relevant assessment year as well as Form 3CA and Form 3CD have been perused. The non-payment of Service Tax as per section 43B as determined by the Assessing Officer is Rs 3,62,47,086/-. v. Now the only question on merits to be determined is whether the disallowance made by the AO is to be sustained or not. It is true that the liability to make the payment of service tax arises when the payee has received the payment for the same and no liability shall arise until the payment is received by him. The liability of Rs.3,62,47,086/- (stated in ITR) as seen from the P&L account of the assessee has not been claimed by him. The assessee has quoted various case laws (supra) which squarely cover the issue at hand. It is clear that the provision of section 43B is not applicable to service tax payment if not passed through P&L account. I.T.A. No.: 1454/KOL/2023 Assessment Year: 2015-16 Seven Hills Project Private Limited. Further, all such payments are to be considered on actual payment basis and not on accrual.Since no payments have been received by the assessee they remain his liability thereof. vi. It is further stated that Hon'ble Supreme Court has affirmed this proposition laid by Bombay High Court in Principal Commissioner of Income- Tax 11 Vs. Tops Security Ltd (2018) 97 taxmann.com 525 (Bombay) wherein it has been held that "Where amount on which service tax was payable had not been received by assessee from its clients to whom services where rendered and assessee had claimed unpaid service tax as its liability, same could not be disallowed under section 43B" vii. On the basis of the facts and circumstances as stated above the addition of Rs. 3,62,47,086/- (as claimed in ITR) made by the AO is hereby deleted. The ground of appeal of the assessee is allowed.”
Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before this Tribunal.
Rival contentions were heard and the submissions made and the record has been examined. In the course of the appeal before us the assessee has also filed a paper book. The Ld. DR drew our attention to para 4.v on page 4 of the order of the Ld. CIT(A), which has been reproduced in the preceding para 3. Our attention was also drawn by the Ld. AR to page 21 column 26(i)(B)(b) of the Paper Book filed in which the auditor has certified as ‘NO’ in the column to state whether sales tax, customs duty, excise duty or any other indirect tax, levy, Cess, impost, etc. is passed through the profit and loss. The Ld. DR relied upon the order of the Ld. AO and requested that the same may be upheld and the order of the Ld. CIT(A) may be reversed as the Ld. CIT(A) has not ascertained whether the service tax was routed through the profit and loss account are not.
We have heard the rival submissions. The Ld. AO had added the difference between the service tax outstanding and the service tax added in the earlier A.Y. vide order dated 31.03.2014. The assessee had I.T.A. No.: 1454/KOL/2023 Assessment Year: 2015-16 Seven Hills Project Private Limited. submitted before the Ld. CIT(A) that the service tax liability was actually ₹2,00,03,409/- instead of ₹3,62,47,086/- however, the working for the same discrepancy is not mentioned in the order of the Ld. CIT(A). Further, the assessee is also submitted that the service tax had been paid by the assessee through CENVAT/cash before the due date for furnishing the return under section 139(1) of the Act. That being so, it was incumbent upon the Ld. CIT(A) to ascertain as to how much amount was routed through the profit and loss account, which exercise does not appear to have been done by him. Since the Ld. CIT(A) has not examined whether the service tax was routed through the profit and loss account or not, nor has given any detail of how much amount was received and how much was receivable, nor any remand report was called for from the Ld. AO, therefore, in view of the decision of Hon'ble Supreme Court upholding the order in the case of Principal Commissioner of Income-Tax 11 Vs. Tops Security Ltd (2018) 97 taxmann.com 525 (Bombay) in which it has been held held that “section 43B does not contemplate liability to pay service tax before actual receipt of the funds in the account of the assessee. Hence the liability to pay service tax into the Treasury will arise only upon the assessee receiving the funds and not otherwise. Thus the consideration has to be actually received and thereupon the liability will arise” and as this aspect does not appear to have been examined by the Ld. CIT(A) and his order is silent on this issue, the order of the Ld. CIT(A) is held to be not justified.
The order of the Ld. CIT(A) is not a speaking order nor does it mention whether the necessary verification was done, therefore, we deem it appropriate in the interest of justice and fair play that another opportunity needs to be provided to the Revenue before the Ld. CIT(A). We, therefore, set aside the order of the Ld. CIT(A) and remit the appeal I.T.A. No.: 1454/KOL/2023 Assessment Year: 2015-16 Seven Hills Project Private Limited. to him to be decided afresh, who shall allow an opportunity of being heard to both the Ld. AO as well as the assessee and also grant an opportunity of representing the case to the Ld. AO as per rule 46A of the Income Tax Rules, 1962, and thereafter pass an order in accordance with law after examining the facts of the case. For statistical purposes, the appeal of the Revenue is partly allowed.
In the result, the appeal of the Revenue is partly allowed for statistical purposes. Order pronounced in the open Court on 2nd September, 2025. [Pradip Kumar Choubey] [Rakesh Mishra] Judicial Member Accountant Member Dated: 02.09.2025 Bidhan (Sr. P.S.) I.T.A. No.: 1454/KOL/2023 Assessment Year: 2015-16 Seven Hills Project Private Limited. Copy of the order forwarded to:
Deputy Commissioner of Income Tax, Circle-11(1), Kolkata
Seven Hills Project Private Limited, 84, Nimtala Ghat Street, Kolkata, West Bengal, 700006. 3. CIT(A)-NFAC, Delhi.
CIT-
CIT(DR), Kolkata Benches, Kolkata.
Guard File. //// By order