ARDEE HI-TECH PRIVATE LIMITED,VISAKHAPATNAM vs. PRINCIPAL COMMISSIONER OF INCOME TAX, VISAQKHAPATNAM

Ground Nos. 1 and 2 are not pressed by the Ld.AR during the appeal hearing, therefore Ground Nos. 1 and 2 are dismissed as not pressed.

Ground Nos.3 to 8 are against the order passed by the Pr.CIT u/s 263 of the Income Tax Act, 1961 (hereinafter called as ‘Act’). In this case, assessment was completed u/s 143(3) determining the total loss of Rs.45,12,981/- on 09.03.2015. Subsequently, the Ld.Pr.CIT found that the assessee had debited a sum of Rs.9,02,287/- towards the interest payment but not deducted the tax at source. Similarly, the assessee also debited a sum of Rs.9,14,594/- towards the service tax payable for the assessment year 2012-13. The Ld.CIT(A) observed that out of the service tax, only a sum of Rs.3,95,274/- was paid before the due date of filing the returns of income and the balance amount of Rs.5,19,320/- was remained unpaid and required to be disallowed and added back to the income u/s 43B of the Act. The Ld.Pr.CIT observed that the Assessing Officer (AO) has not examined the issue while passing the assessment order. Therefore, the Pr.CIT issued show cause notice and not being convinced with the explanation of the assessee set aside the assessment order passed u/s 143(3) dated 09.03.2015 and directed the AO to redo the assessment afresh on both the issues after affording reasonable opportunity of being heard to the assessee.

Aggrieved by the order of the Ld.Pr.CIT, the assessee is in appeal before this Tribunal. During the appeal hearing, the Ld.AR brought to our notice with regard to the issue of interest on loans of Rs.9,02,287/-, that the assessee has deducted the tax at source on the interest payment of 6,60,159/- against the sum of Rs.7,18,508/- which attract the TDS. The remaining amount of Rs.58,350/- was added back to the income by the AO in the assessment, thus the assessment passed by the AO under section 143(3) is neither erroneous nor prejudicial to the interest of revenue.

We have heard both the parties and perused the material placed on record. In this case as seen from the assessment order, the AO has examined the issue with regard to the TDS on the borrowings and observed that the assessee has not deducted the TDS on a sum of Rs.58,350/- and the same was added back to the income u/s 40(a)(ia) of the Act. As per the details submitted by the Ld.AR during the hearing, the total amount of interest paid was Rs.9,02,287/- out of which for the sum of Rs.7,18,508/- the provisions of section 194A are applicable and the assessee had deducted the TDS on the payment of Rs.6,60,159/- and the remaining amount of Rs.58,350/- was disallowed by the AO in the assessment proceedings. Therefore, there is no error in the assessment order which is prejudicial to the interest of the revenue. Hence, the order of the Ld.CIT(A) passed u/s 263 on this issue is set aside and the assessee’s appeal on this ground is allowed.

The next issue for taking up the case for revision u/s 263 is service tax payable. The assessee has debited a sum of Rs.9,14,594/- under the head ’service tax’ and the details of the service tax debited to the Profit & Loss account, outstanding as at the end of the financial year, paid before the due date of filing the return of income and the remaining balance to be paid is as under :

From the above, a sum of Rs.1,15,694/- remained unpaid under the head ‘service tax liability’. During the appeal hearing, the Ld.AR fairly conceded that the unpaid service tax attracts the disallowance u/s 43B of the Act and the AO has not verified issue therefore, there was an error in the assessment order passed by the AO u/s 143. However, the Ld.AR argued that though there was an error in the assessment order for non- disallowance of unpaid service tax but the same is not prejudicial to the interest of the revenue since the return of income of the assessee resulted into loss and even after making disallowance of the service tax, the taxable income would be Nil reducing the loss. Therefore, the Ld.AR was of the view that the disallowance which reduces the loss does not result into positive income and cannot make the assessment prejudicial to the interest of the revenue, hence, requested to set aside the order of the Ld.Pr.CIT and allow the appeal of the assessee.

On the other hand, the Ld.DR supported the order of the Ld.Pr.CIT.

We have heard both the parties and perused the material placed on record. The assessee has debited a sum of Rs.9,14,594/- under service tax and a sum of Rs.1,15,694/- remained unpaid at the end of the year which required to be disallowed under section 43B of the act.. There was no dispute that the said amount attracts disallowance u/s 43B of the Act and the issue was not verified by the AO. The contention of the Ld.AR that the disallowance of a sum of Rs.1,15,694/- results into reducing the loss and finally does not result in positive income and the same is not prejudicial to the interest of the revenue is not acceptable and has potential tax effect to the extent of income under assessed. Therefore, not making the addition of unpaid service tax is erroneous as well as prejudicial to the interest of the revenue, and hence, we uphold the order of the Ld. Pr.CIT on this issue and dismiss the appeal of the assessee.

In the result, appeal of the assessee is partly allowed.