JAGANNATH TUKARAM MRAGAJALE,AURANGABAD vs. COMMISSIONER OF INCOME-TAX,

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ITA 693/PUN/2015Status: DisposedITAT Pune02 November 2018AY 2009-108 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal condoned the delay subject to payment of costs, finding that the Commissioner of Income Tax had erred in invoking revisional jurisdiction. The Tribunal held that Section 43B disallowance for unpaid service tax does not arise when it is not debited to the P&L account and is accounted for as a liability.

What were the facts?

The assessee's appeal was filed with a significant delay, attributed to wrong advice from a tax consultant. The Commissioner of Income Tax had initiated revision proceedings under Section 263, citing unpaid service tax and a mismatch in gross receipts as reasons for the assessment order being erroneous and prejudicial to revenue.

What were the issues?

Whether the Commissioner of Income Tax wrongly invoked Section 263, and whether unpaid service tax is disallowable under Section 43B when not claimed as an expenditure.

Which sections of the Income-tax Act were involved?

Section 263,Section 43B,Section 139(1),Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B” BENCH, PUNE

Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM

For Appellant: Shri Pramod Jadhav
For Respondent: Shri A.K. Modi

PER VIKAS AWASTHY, JM :

This appeal by the assessee is directed against the order of Commissioner of Income Tax, Aurangabad dated 21-03-2014 passed u/s. 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2009-10. 2

2.

The appeal has been filed with an inordinate delay of 351 days. The assessee has filed an application seeking condonation of delay supported by an affidavit. A perusal of affidavit shows that the delay has been attributed to the wrong advice given by the Tax Consultant. However, in the entire affidavit there is no mention of the name of Consultant who has given wrong advice.

The ld. DR vehemently opposed the application of assessee seeking condonation of delay. The ld. DR pointed that the assessee has been non compliant before the Commissioner of Income Tax. Despite service of notice and repeated opportunity of hearing neither the assessee nor any authorized representative of the assessee appeared before the Commissioner of Income Tax. No written submissions or the letter seeking adjournment was filed either. The ld. DR further pointed that in First Appellate proceedings arising from assessment order passed u/s. 143(3) r.w.s. 263, the assessee never appeared before the Commissioner of Income Tax (Appeals). The assessee has been recalcitrant.

Both sides heard on the issue of delay in filing of appeal. A perusal of the documents on record reveal that the assessee has been non- cooperative before the Commissioner of Income Tax. He never bothered to appear before the Revisional Authority and the Appellate Authority. Even in the affidavit filed by the assessee seeking condonation of delay details of Consultant on whom the assessee has thrown entire guilt for delay in filing of appeal has not been mentioned. The Hon’ble Supreme Court of India in the case of Ram Nath Sao @ Ram Nath Sahu and Others Vs. Gobardhan Sao and Others reported as 2002 AIR 1201 has held that acceptance of explanation furnished seeking condonation of delay should be the rule and refusal an exception, more so when no negligence or inaction or want of bonafide can be imputed to the defaulting parties. Taking a pedantic and hyper technical view of the matter, the explanation furnished should not be rejected when stakes are high and/or arguable points of facts and law are involved in the case, causing enormous loss and irreparable injury to the party against whom the lis terminates either by default or inaction. The Hon’ble Apex Court in various other decisions has taken similar view in accepting the explanation furnished by the assessee for condoning the delay in filing of appeal. Taking into consideration facts of the case, the law laid down by the Hon’ble Apex Court and the reasons furnished by the assessee/appellant, the delay of 351 days in filing of appeal is condoned subject to payment of Rs.5,000/- as cost. The assessee shall deposit the cost in accordance with Rule 32A(2) of the Income Tax Appellate Rules, 1963 within a period of one month from the date of receipt of this order. The assessee shall furnish the proof of deposit with the Registry of Tribunal within a week thereafter and shall also furnish the proof of same before the Assessing Officer. Subject to deposit of cost the appeal is admitted to be heard and disposed of on merits.

3.

The brief facts of the case as emanating from records are : The assessee is engaged in the business of fabrication and job work. The assessee filed his return of income for the impugned assessment year on 30-09-2009 declaring total income of Rs.25,41,760/-. The income of the assessee was assessed at Rs.26,38,790/- by the Assessing Officer vide order dated 28-11-2011 passed u/s. 143(3) of the Act. Thereafter, the Commissioner of Income Tax invoked the provisions of section 263 and issued show cause notice dated 29-01-2014. In revision proceedings the Commissioner of Income Tax observed that the assessee has paid service tax amounting to Rs.8,22,919/- after the due date of filing of return u/s. 139(1) and has unpaid service tax of Rs.20,58,823/-. Thus, unpaid service tax/service tax paid after due date aggregating to Rs.28,71,742/- is liable to be disallowed u/s. 43B of the Act. The Commissioner of Income Tax further held that there is mismatch of the Revenue to the tune of Rs.3,42,22,670/-. The total receipts as disclosed by the assessee in trading account is Rs.6,41,09,791/-, as against the actual gross receipts of Rs.9,83,32,461/-. The Commissioner of Income Tax held that the assessment order is erroneous and prejudicial to the interest of revenue as the Assessing Officer has failed to examine the above issues.

Aggrieved against the order of Commissioner of Income Tax (Appeals), the assessee is in appeal before the Tribunal and has raised following grounds : “Ground 1 : On validity of revision proceedings The learned CIT has erred in initiating the revision proceedings under section 263 of the Act, without appreciating the fact that the said proceedings cannot be initiated when any of the two condition i.e. assessment order must be erroneous and prejudice to the interest of revenue, has not been satisfied. Ground 2 : Without prejudice to the above Ground, on merits of the case The learned CIT has erred in directing the AO to make disallowance of Rs.28,71,742/- under section 43B of the Act on account of unpaid service tax.”

4.

Shri Pramod Jadhav appearing on behalf of the assessee submitted at the outset that in ex-parte proceedings the Commissioner of Income Tax raised two issues : i. Unpaid service tax to be disallowed u/s. 43B of the Act. ii. Mismatch of gross receipt.

4.

1 In assessment proceedings consequent to the order of Commissioner of Income Tax u/s. 263, the Assessing Officer made no addition in respect of alleged variation in the revenue as per trading account and total receipts as pointed by the Commissioner of Income Tax. However, the Assessing Officer made addition of Rs.28,71,742/- on account of unpaid service tax. The ld. AR assailing the findings of authorities below in respect of said addition submitted that whatever service tax received by the assessee was deposited to the Government Treasury. The assessee did not collect balance service tax in assessment year under appeal, therefore, there was no question of depositing the same to the Government exchequer. To further buttress his submissions the ld. AR filed written submissions. The same are as under :

“34. On the merits of the case the Appellant most respectfully submits the following factual backdrop – The Appellant is consistently following mercantile accounting  system; The Appellant following consistent practice of showing  sales/receipts in the books of account net of service tax;  Such Service taxes paid (input) or receivable/received (output) were never routed through P&L account i.e. to say no claim of expenditure is taken on account of payment of service tax neither the same is credited in P& L account. The Appellant is having practice of accounting this service tax  directly in the balance sheet under the head "current liabilities payable".  The Appellant is following practice of discharging service tax liability on the receipt basis as envisaged in the Finance Act, 1994 governing service tax liability.  The Appellant is not having any closing stock in hand or any value of stock u/s. 145A of the Act and therefore there is no question of adverse impact on the revenue as contemplated by the learned CIT.

35.

In view of this factual backdrop, the Appellant most respectfully submits that this Unpaid service tax is not claimed as tax deductible expenditure nor due for payment and therefore there is no question of 438 disallowance in the instance case.

36.

In support of the above preposition the Appellant relies on the following judicial precedents wherein it has been held that the unpaid service tax, not debited to P&L account as an expenses nor claimed any expenditure regarding the same, the question of disallowance u/s. 43B does not arise CIT vs Nobel & Hewitt India Private Limited (2008) 305 ITR  254(Delhi HC) (Copy is enclosed herewith at Page 113 to 115)  CIT vs Ovira Logistics Pvt Ltd (2015) 377 ITR 129 (80m) (copy is   (copy is enclosed herewith at Page 144 to 148).

37.

On without prejudice basis the Appellant further submits that disallowance u/s 43B of unpaid service tax will be consequently need to be allowed on actual payment basis.”

5.

On the other hand Shri A.K. Modi representing the Department vehemently defended the order of Commissioner of Income Tax. The ld. DR submitted that during regular assessment proceedings the Assessing Officer after receiving information from the assessee has failed to examine the issue and has not applied his mind on the issues while passing the assessment order.

6.

We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The assessee in appeal has assailed the action of Commissioner of Income Tax in invoking the revisional jurisdiction as well as challenged disallowance of unpaid service tax u/s. 43B of the Act. The contention of the assessee is that the assessee is consistently following the practice of showing sales/receipts in the books of account net of service tax. The service tax paid or receivable/received was not routed through the P & L Account. Once, the service tax paid has not been claimed as expenditure there is no question of disallowing the same u/s. 43B of the Act. The Hon’ble Delhi High Court in the case of Commissioner of Income Tax Vs. Nobel & Hewitt India Private Limited (supra) has held that where the assessee is following mercantile system of accounting, nor payment to Government part of service tax collected by it, neither debiting the same to P & L account as an expenditure nor claiming any deduction in respect of the said amount, the question of disallowing the same u/s. 43B does not arise. The relevant extract of the findings of Hon’ble High Court are as under :

“6. In our opinion since the assessee did not debit the amount to the P&L a/c as an expenditure nor did the assessee claim any deduction in respect of the amount and considering that the assessee is following the mercantile system of accounting, the question of disallowing the deduction not claimed would not arise.”

7.

The Hon’ble Bombay High Court in the case of Commissioner of Income Tax Vs. Ovira Logistics Pvt. Ltd. (supra) after considering the ratio laid down in the case of Commissioner of Income Tax Vs. Nobel & Hewitt India Private Limited (supra) reiterated that when services are rendered, the liability to pay service tax in respect of consideration payable will arise only upon receipt of such consideration and not otherwise. The Hon’ble High Court held : “9] Having perused the aforesaid decisions, we are clearly of the view that section 43B does not contemplate liability to pay the service tax before actual receipt of the funds in the account of the assesee. In our view, liability to pay service tax into the treasury will arise only upon the assessee receiving the funds and not otherwise. Accordingly, when services are rendered, the liability to pay the service tax in respect of the consideration payable will arise only upon the receipt of such consideration and not otherwise.”

8.

Thus, in view of un-rebutted facts and the decisions discussed above we find merit in the submissions of assessee. Accordingly, ground No. 2 raised in appeal is allowed.

9.

In so far as the validity of revision proceedings is concerned, we are of considered view that the Commissioner of Income Tax has erred in substituting his own view in respect of both the issues raised in revisional jurisdiction. Prima-facie the assessment order passed u/s. 143(3) of the Act is neither erroneous nor prejudicial to the interest of revenue. Thus, the Commissioner of Income Tax has wrongly invoked the provisions of section 263 in the instant case. Accordingly, we allow ground No. 1 of the appeal as well.

10.

In the result, the impugned order is set aside and the appeal of assessee is allowed.

11.

Before parting we would like to reiterate that this appeal of assessee is allowed subject to payment of cost Rs.5,000/- as mentioned in earlier part of the order. In the event of non-compliance of the directions of the Tribunal, the appeal shall be considered as dismissed.

Order pronounced on Friday, the 02nd day of November, 2018. (डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 02nd November, 2018 RK आदेश की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent.

2.3.

The Commissioner of Income Tax, Aurangabad ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, “बी” बेंच, 4. ऩुणे / DR, ITAT, “B” Bench, Pune. गाडड फ़ाइऱ / Guard File. 5. //सत्यावऩत प्रयत //// आदेशानुसार / BY ORDER,

यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune

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