INCOME TAX OFFICER-1, KORBA, KORBA vs. M/S BUDHIA AUTO, MAIN ROAD

82. ITR 363 (SC), where it was held that the liability does not cease to exist merely because it was not debited in the books of accounts, and if a statutory liability remains unpaid within the prescribed time limit, it attracts disallowance under section 43B. (5) Any other ground which may be adduced at the time of hearing.

3 Income Tax Officer-1, Korba vs. M/s Budhia Auto 3.1 Subsequently, the case of assessee has been taken up for reopening assessment u/s 147 for the reason that the assessee has shown liability of Rs. 2,63,772/- towards service tax payable in Schedule ‘5’ “provisions” of Balance sheet. It is observed by the Ld. AO that as per service tax challans available on record, the tax was paid on 31.03.2013 i.e., after the due date of filing of Income Tax Return (ITR) and also the VAT of Rs.3,92,55,069/- has not been paid till the date of filing of return under Income Tax Provisions.

3.2 A notice u/s 148 was issued on 26.03.2019 which was not responded by the assessee even by filing of a return or by way of any submission. Another notice u/s 142(1) of the Act was issued on 13.09.2019 calling assessee to furnish certain information, however, no compliance has been made. Accordingly, show cause notice was issued to assessee on 01.10.2019 but again there was no compliance. Further, considering the principle of natural justice, Ld. AO issued one more notice u/s 142(1) to comply on or before 29.11.2019 and thereafter a final show cause notice issued to the assessee for making compliance on or before 05.10.2019. However, the assessee has chosen not to respond towards all the aforesaid opportunities. Under aforesaid facts and circumstances, Ld. AO decided the matter ex-parte on merits, on the basis of material available on record.

4 Income Tax Officer-1, Korba vs. M/s Budhia Auto 4. It is observed by Ld. AO that the assessee had shown its purchase and sales net of taxes i.e. excluding VAT and service tax. It is further observed that the applicability of provisions of Section 43B are clearly attracts on search transaction, however, as the assessee had not paid the amount of payable taxes as at the date of end of year regarding VAT and service tax before filing of ITR. Hence, according to provisions of Section 43B such amount is liable to be disallowed. Accordingly, an amount of Rs. 4,00,18,841/- (7,63,772+3,92,55,069) was added to the total income of the assessee and the assessment was completed enhancing the assessed income of the assessee at Rs.4,17,77,681/-.

5 Income Tax Officer-1, Korba vs. M/s Budhia Auto 5. Decision: I have carefully considered the facts of the case, contention of the appellant and perused the order passed by LAO against which appeal has been preferred. 5.1 In this case, the appellant has challenged the assessment order passed by the AO, ex- parte, under section 144 of the ITAT, 1961. The only issue raised by the AO in this case is disallowance made u/s 43B of the I. T. Act, 1961. The appellant had filed its return of income on 29.09.2012 declaring income of Rs.15,10,110/-. The case was selected for scrutiny under CASS and the assessment order u/s 143(3) of the I. T. Act, 1961 was passed on 03.02.2015 determining assessed income of Rs.17,58,840/-. Further, the case of the appellant was reopened on the ground that the appellant had paid service tax of Rs.7,63,772/- on 31st March, 2013 i.e., after the due date of filing of return and VAT of Rs.3,92,55,069/- was not paid till date of filing of return. During the assessment proceedings, the appellant failed to file any submission. Therefore, the A.O. passed an ex-parte order u/s 144 r.w.s. 147 of the I. T. Act, 1961 on 14.12.2019 disallowing Rs.4,00,18,841/-(7,63,772+3,92,55,069) u/s 43B of the I. T. Act, 1961 on account of non payment/ paid after due date of VAT and Service Tax. 5.2 In the appeal proceedings, the appellant submitted that during the original assessment proceedings, the A.O vide query letter dated 27.09.2013 at query no. 10 specifically asked justification for unpaid statutory liabilities stipulated u/s 43B of the I.T Act, 1961. The appellant in its reply specifically submitted that as per balance sheet serviced tax payable of Rs.7,63,772/. entry tax payable 18,66,962/- and Vat Payable of Rs. 6,47,69,037/- is outstanding as payable as on 31.03.2012. However, the appellant had not charged the service tax and vat tax in its profit and loss account and had taken the same directly to it as balance sheet item and hence there is no question of disallowance of the said amount directly to balance sheet in liability side. The same fact was accepted by the A.O during the original assessment proceedings and assessment proceedings was completed after making some ad hoc disallowances in expenses. The appellant further submitted that the reasons recorded by the Assessing Officer for resorting to re assessment proceedings u/s.147/148 of the Act, are mainly on facts which are already 6 Income Tax Officer-1, Korba vs. M/s Budhia Auto there at the time of original assessment. It is settled law that such view is not permitted within the scope of Income Tax laws. The Assessing Officer prima facie has to form "reason to believe" that income has escaped assessment before passing re-assessment order u/s. 147 of the Act and satisfaction to that extent has to be recorded. There cannot be any re-assessment on the ground of verification. The reasons recorded by the Assessing Officer are nothing but stating facts which are already in front of the Assessing Officer. There is no specific new material fact brought on record to suggest that income has escaped assessment. The appellant also furnished the copy of questionnaire issued by A.O and the reply submitted during the original assessment with its submission for reference. 5.3 On perusal of the submission of the appellant it is seen that the case of the appellant was reopened on the ground that the appellant had not paid VAT and service tax before due date. During the original assessment proceedings, the A.O vide questionnaire dated-27.09.2013 had specifically asked query regarding unpaid liabilities of Entry Tax, Professional tax, Service Tax, Income Tax TDS and VAT shown in balance sheet. The appellant had also furnished the justification regarding unpaid liabilities of balance sheet in its reply. The same is reproduced as follows:

7 Income Tax Officer-1, Korba vs. M/s Budhia Auto In view of the above, it is observed that the case was reopened on the same issue, without any new material fact, which was already discussed during the original assessment proceedings, and 'hence the reopening is based on the change of opinion of the AO. Further, it is observed, that the notice u/s 148 has been issued beyond a period of 4 years, from the end of the relevant A. Y. where the prerequisite for reopening the assessment is that the assessing officer should established that there was a failure on the part of the assessee to disclose fully all material facts relating to the assessment of the income of the previous year. Any such failure on the part of the assessee has not been established. In fact, the appellant has disclosed the basic fact regarding the outstanding liability shown in the balance sheet vide his reply to the notice u/s 142(1). The apex court in the case of Parashuram Pottery Works Co Ltd reported in 106 ITR 1 has held as follows:- At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that state issue should not 8 Income Tax Officer-1, Korba vs. M/s Budhia Auto be reactivated beyond a particular stage and that lapse of time must induce repose in an set at rest judicial and quasi- judicial controversies as it must in other spheres of human activity. So far as the income tax assessment orders are concerned, they cannot be reopened on the scope of income escaping assessment under section 147 of the Act of 1961 after the expiry of 4 years from the end of the assessment year unless there b$ omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. As already mentioned, this cannot be said in the present case. The appeal is consequently allowed." Respectfully following the above decision of the apex court it is observed that the reopening of the assessment in this case is based on change of opinion and further the AO has also not drawn his satisfaction regarding the failure on the part of the assessee to disclose fully and truly all material facts. Therefore, the reopening of the assessment, in my considered opinion, is not valid as per law. 5.4 Moreover, the appellant has also not debited Service Tax and VAT in Profit and Loss Account hence there is no question of further disallowance, of the said amount u/s 43B of the I. T. Act, 1961. Therefore, the addition made on account of disallowance u/s 43B of the I. T. Act, 1961 is hereby deleted and appeal of the appellant is allowed.

7. The sole issue in the present matter qua the unpaid statutory liabilities in the form of Service Tax or VAT which is accounted for by the assessee directly 9 Income Tax Officer-1, Korba vs. M/s Budhia Auto in the balance sheet and, therefore, has not been claimed by debiting the same to P&L Account, is no more res-integra as the same has been decided by Hon’ble Jurisdictional High Court in the case of Assistant Commissioner of Income Tax-I v. M/s Ganpati Motors reported in 2017(4) TMI 1613 and thereafter in the case Grand Motors, NH-200 vs. ITO Ward 2(1) passed in TAXC No. 207 of 2024 has held that , if the appellant / assessee did not claim the amount in his profit and loss account as an expenditure / deduction, nor the appellant claim deduction in respect of that account under Section 43B of the IT Act, the same cannot be added to the taxable income of the assessee. The relevant observations of Hon’ble High Court are extracted hereunder:

2. The appeal was heard on the question of admission and was admitted for final hearing by formulating the following substantial question of law: “Whether the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal are concurrently justified in upholding the disallowance of ₹ 62,32,262/ made under sub-clause (iv) of clause (a) of sub-section (1) of Section 143 of the Income Tax Act, 1961 by wrongly invoking the provisions contained in Section 43B of the IT Act and thereby recorded a finding perverse to the record?

10 Income Tax Officer-1, Korba vs. M/s Budhia Auto 9. In order to consider the plea raised at the Bar, it would be appropriate to notice Section 43B(a) of the IT Act, which states as under: “43B. Certain deductions to be only on actual payment. —Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of— (a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or xxx xxx xxx”

10. In this regard, decision of this Court in M/s Ganapati Motors’s case (supra) would be more relevant in which the issue before the Court was, whether Section 43B of the IT Act is attracted even when the assessee does not claim any deduction on the strength of that provision and considering the said question, this Court held in paragraph 3 as under: “3. The Assessing Authority, on the instant issue, noticed that the assessee’s claim regarding the treatment of VAT in the Books of Accounts has been verified from the Books and that has been found to be in order. The Assessing Authority also found that VAT has been found separately accounted for in the Books of Accounts. The only ground on which the Assessing Authority refused to exclude the VAT collected by the dealer from the profit of business is on the basis that the VAT component was not paid off on or before the due date for furnishing the return in relation to the previous year under Section 139(1) of the Income Tax Act. The First Appellate Authority also noticed that it is an undisputed fact that the Appellant did not charge VAT to the Profit and Loss account. It was therefore noted by the First Appellate Authority that in such circumstances, the liability may still be unpaid, but it cannot be disallowed being not claimed as deduction in the Books of Accounts.”

11. Similarly, the Delhi High Court in the matter of Commissioner of Income-tax v. Noble & Hewitt (I) (P.) Ltd.2 held in paragraph 6 as under:

11 Income Tax Officer-1, Korba vs. M/s Budhia Auto “6. In our opinion since the assessee did not debit the amount to the Profit & Loss Account 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.”

8. Per contra, Ld. Sr. DR submitted that the Ld. CIT(A) was not justified in deleting the addition made by the Ld. AO u/s 43B of the Act as the assessee fail to pay statutory liabilities towards VAT and Service Tax within the due date of filing of return of income. It is further submitted that Ld. CIT(A) has misinterpreted the terminology “Change of opinion” as the assessment was reopened due to failure of assessee in paying the statutory liabilities in terms of provisions of Section 43B. It is also submitted that the assessee failed to disclose fully and truly all material facts 12 Income Tax Officer-1, Korba vs. M/s Budhia Auto necessary for its assessment , therefore, the reopening u/s 147 beyond 4 year was justified. In terms of aforesaid observations, it was the prayer the order of Ld. CIT(A), suffering with errors is liable to be set aside and the additions vacated deserves to be restored.