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Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
Before: Shri J. Sudhakar Reddy & Shri S.S. Godara]
Date of concluding the hearing : December 02nd, 2019 Date of pronouncing the order : December 11th, 2019 ORDER
Per J. Sudhakar Reddy, AM:
This is an appeal filed by the Revenue directed against the order of the Commissioner of Income Tax (Appeals)-5, Kolkata [‘CIT(A)’ for short] dated 12.03.2018 u/s 251 of the Income Tax Act, 1961 (‘the Act’ for short) for AY 2014-15.
None appeared on behalf of the assessee despite issuance of notice. Hence we dispose off the case on merits qua the assessee after hearing the ld. DR. 3. Heard the ld. DR. Ground nos. 1 and 2 are on the issue of deletion of addition of ₹1,90,42,053/- by the ld. CIT(A). The facts of the case as stated by the AO in his statement of facts are as follows: “(ii) Disallowance of prior capital adjustment for Rs.1,90,42,053/-:- During the course of assessment proceedings the assessee was asked to furnish details for Rs. 1,90,42,053/- under the head ‘Prior Capital Adjustment’. The assessee explained that the amount of Rs. 1,90,42,053/- was in relation to erstwhile firm M/s.3 Guys and the same was added to Reserve and Surplus after making some adjustment with entries in relation to M/s.3 Guys. The 3 Guys Network Private Limited is inherited from the partnership firm M/s.3 Guys. The AO concluded that since the entire adjustment is in relation to M/s.3 Guys, which is completely a separate entity, the same was added back to the total income of the assessee.
Assessment Year: 2014-15 M/s. The 3 Guys Network Pvt. Ltd. The Ld.CIT(A) held that on verification from the assessment orders passed u/s. 143(3) and 154/143(3) of the I.T. Act, 1961 it is clear that the AO had disallowed service tax to the tune of Rs.6,25,82,177/- and M/s.3 Guys was allowed service tax credit of Rs.4,01,12,934/-. The Ld.CIT(A) concluded that when the erstwhile firm M/s.3 Guys was taken over by the appellant company, the balance amount of service tax amounting to Rs.1,90,42,053/- after adjustments was reflected as prior period capital adjustments in the reserve and surplus account. This amount could not be claimed by the 3 Guys Network Private Limited and hence shown under the heading, reserve and surplus as an entry. Hence, the Ld. CIT(A) deleted the addition. However, the Ld. CIT(A) failed to take into cognizance that the erstwhile firm M/s.3 Guys was still filing return and the assessment proceedings for AY 2014-15 was pending before the concerned Assessing Officer at the time of passing of the assessment order. The fact was confirmed by ACIT, Circle-48, Kolkata vide letter dated 17.11.2016. Since, return was still then filed by M/s.3 Guys for AY 2014-15, treating M/s.3 Guys and M/s. The 3 Guys Network Limited as a single entity is not tenable for the AY 2014-15. Thus the service tax claim of Rs.1,90,42,053/- in respect of M/s.3 Guys cannot be given a reflection as prior period capital adjustments in the reserve and surplus account. The Assessing Officer has rightfully disallowed the amount and the same has not been considered by the Ld CIT(A).”
The ld. CIT(A) at para 6.1 of the order held as follows:
“6.1 I have considered the submission of the appellant and perused the relevant assessment records. On verification of the assessment order passed u/s 143(3) and 154/143(3) of the I T Act, 1961, it is seen that the A.O. has disallowed service tax for the following assessment year as under: Allowed Unclaimed Service Tax Difference claimed as A.Y. Disallowed Allowed deduction 2010-11 12,853,954.00 2,835,770.00 10,018,184.00 2011-12 19,358,316.00 8,203,433.00 11,154,883.00 2012-13 30,369,907.00 29,073,731.00 1,296,176.00 62,582,177.00 40,112,934.00 22,469,243.00 On verification from the assessment order M/s 3 Guys amounting to Rs.6,25,82,177/- was disallowed u/s 43B of the Act. The firm M/s 3 Guys could claim credit of Rs.4,01,12,934/- subsequently. When the firm M/s 3 Guys was taken over by the appellant company, M/s The 3 Guys Network Pvt. Ltd., the balance amount of Service Tax amounting to Rs. 1,90,42,053/- after adjustments was reflected as prior period capital adjustments in the reserve and surplus account under the sub-heading surplus (P&L account). The A.O. had added back the entire amount of Rs. 1,90,42,053/- on the ground that the amount relates to separate entity M/s 3 Guys. However, the A.O. could not appreciate the fact that the amount had already been disallowed in the assessment order of M/s 3 Guys in the relevant assessment years. The balance credit which could not be claimed by M/s 3 Guys Network Pvt. Ltd. was shown under the heading, reserve and surplus as an entry. The appellant had not claimed the amount as a deduction. Therefore, there was no question of disallowing the amount of Rs. 1,90,42,053/-. After consideration of the submission of the appellant and perusal of the relevant assessment record, the addition of Rs. 1,90,42,053/- is deleted. This ground of appeal succeeds and is, therefore, allowed. The A.O. is directed accordingly.”
5. The ld. DR could not controvert the factual finding of the ld. CIT(A) that the assessee has not claimed this amount of ₹1,90,42,053/- as a deduction and hence the question of disallowing the expenditure of the same does not arise. When there is no Assessment Year: 2014-15 M/s. The 3 Guys Network Pvt. Ltd. claim of deduction the question of disallowance does not arise. Thus we uphold the order of the ld. first appellate authority and dismiss these grounds of the Revenue.
6. Ground no. 3 is on the issue of deletion of addition of ₹3,60,528/- on account of late deposit of ESI and PF. The ld. CIT(A) held that the amount was paid prior to the due date of filing of the return and hence liable as deduction. He followed the judgment of the Hon’ble Supreme Court in the case of PCIT Jaipur vs. Rajasthan State Beverages Corporation Ltd. [2017] 84 taxman.com 185 (SC). We find no infirmity in the same and hence dismiss this ground.
In the result, the appeal of the Revenue is dismissed. Kolkata, the 11th December, 2019.