M/S. VIKON ENGINEERING PVT. LTD.,,NEW DELHI vs. ACIT, NEW DELHI

The Revised Ground of appeal are as under:

“That under the facts and circumstances of the case the addition of Rs.49,42,905/- in computation of business profits due to disallowance of service tax payable under section 43B is not justified in law as well as on merits. 2.1. That under the facts and circumstances of the case, the disallowance u/s 14A of Rs.6,64,271/- is absolutely illegal an unwarranted. 2.2 That under the facts of the case, no disallowance should have been made u/s 14A as the exempt income is NIL.”

During the year under consideration, the assessee company received rent from factory building and interest from advances to NBFC. The assessee company filed its return of income for the Assessment Year 2010-11 on 28.09.2010 declaring total income at Rs. 3,73,34,500/-. The notice under Section 143(2) of the Income Tax Act, 1961 dated 15.09.2011 was served to the Assessee company. The assessment was completed on 31.03.2012 under Section 143(3) of the Act at total income of Rs. 4,91,35,889/-. The Assessing Officer made following additions while passing assessment order dated 31.03.2013:

As regards Ground No.1 relating to disallowance of Rs.49,42,905/- u/s 43B, the Ld. AR submitted that the assessee company is maintaining its books of account on accrual basis. As the assessee is also a company, the service tax is payable on the 5th day of every month immediately following the said calendar month. The company has paid the service tax on amounts realized up to 31.03.2010. Thus, the Ld. AR submitted that no disallowance is warranted on the service tax payable shown on outstanding as on 31.03.2010. The Ld. AR submitted that Section 43B would be attracted only to a case where an item is allowable as deduction, but because of the failure on part of any assessee to make such payment, such deduction would not be allowed. But this is not the case of the assessee herein. The Ld. AR submitted that Section 43B might be applicable to the case of sales-tax or excise duty, but the same could not be said to be the position in assessee’s case relating to service tax. The Ld. AR submitted that the assessee never allowed deduction on account of service tax which is collected on behalf of the Government and is paid to the Government

The Ld. DR submitted that the Assessing Officer and the CIT(A) both rightly upheld the disallowance under Section 43B of the Act becasue the assessee company has created account for the service tax in the books of accounts but shown as payable and no documentary evidence was submitted as proof of payment of service tax before the Revenue authorities. The Ld. DR relied upon the Assessment Order and the order of the CIT(A).

We have heard both the parties and perused all the relevant materials available on records. It is pertinent to note that the assessee has never allowed deduction on account of service tax. The income was from the house property and Section 43B is applicable to income from business and not applicable to that of income from house property. From the records, it can be seen that the assessee before the Assessing Officer as well as before the CIT(A), filed the original income tax return giving all the details of income from house property along with profit and loss account / balance sheet. The decision of the Hon'ble Delhi High Court in the case of Noble & Hewitt (supra) would apply wherein it is held that since the assessed did not debit the amount to the Profit& Loss Account as an expenditure nor did the assessee claimed any deduction in respect of the amount and considering that the assessed is following the mercantile system of accounting, the question of disallowing the deduction not claimed would not arise. In the case before us, the assessee has not routed the service tax through the P&L A/c and has not claimed it as a deduction. Therefore, the Assessing Officer was not right in applying Section 43B of the Act in assessee’s case and hence the addition made by the Assessing Officer does not survive. Ground No.1 is allowed.

As regards Ground No.2.1 & 2.2, the Ld. AR submitted that disallowance u/s 14A of the Income Tax Act is not at all warranted because there is no exempt income claimed by the assessee. In fact, the income was derived only from house property and there is no other investment. The Ld. AR relied upon the decision of the Hon’ble Delhi High Court in case of Cheminvest Limited vs. CIT 378 ITR 33 as well as subsequent decision of the jurisdictional High Court in case of PCIT vs. M/s. Oil Industry Development Board (ITA No.197/2018 order dated 16.02.2018) which was subsequently affirmed by the Hon’ble Apex Court in SLP Diary No(s). 2755/2019 order dated 08.02.2019 relying upon Hon’ble Apex Court decision in case of CIT vs. Essar Teleholdings Ltd. (2018) 3 SCC 253.

We have hard both the parties and perused all the relevant materials available on record. There is no exempt income claimed by the assessee as there is only income from house property in the present assessment year and no other investment was made by the assessee. This is reflected in the profit and loss account, therefore, as per the decision of the Hon’ble Jurisdictional High Court in case of Cheminvest Limited and subsequently that of M/s. Oil Industry Development Board (supra), Section 14A disallowances is not just and proper. Ground No.2.1 and 2.2 are allowed.

In result, appeal of the assessee is allowed. Order pronounced in the Open Court on 31st day of December, 2019. Sd/- Sd/- (G. S. PANNU) (SUCHITRA KAMBLE) VICE PRESIDENT JUDICIAL MEMBER Dated: 31/12/2019 Priti Yadav, Sr. PS *