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Income Tax Appellate Tribunal, MUMBAI BENCHES “C”, MUMBAI
Before: SHRI B.R. BASKARAN (AM) & SHRI RAM LAL NEGI (JM)
O R D E R PER RAM LAL NEGI, JM These are the appeal and cross objection filed by the revenue and the assessee respectively against the orders dated 02.12.2016 passed by the CO No. 209/Mum/2018 Assessment Year: 2010-11 Commissioner of Income Tax (Appeals)-12, Mumbai pertaining to the Assessment Year 2010-11, whereby the Ld. CIT (A) has partly allowed the appeal filed by the appellant/assessee against assessment order passed u/s 143 (3) r.w.s. 147 of the Income Tax Act, 1961 (for short ‘the Act’). Brief facts of the case are that the assessment in this case was completed u/s 143 (3) of the Act determining the total income of Rs. 16,87,75,740/-. Subsequently, the case was reopened u/s 147 by issuing notice u/s 148 of the Act on the ground that since the assessee was following accounting policy on accrual basis the component of service tax should also be accounted on accrual basis, however, the assessee has accounted the service tax on payment basis and by doing so the assessee debited less amount of Rs. 59,30,090/-. The assessee objected the reopening on the ground that section 145A of the Act is applicable on valuation of sale and purchase and inventory of goods and not on services and since, the assessee is an advertising agency working on commission basis, the provisions of 145A of the Act are not applicable. AO rejected the contention of the assessee and made addition of the aforesaid amount and determined the income of the assessee at Rs.17,47,05830/-. The assessee challenged the assessment order before the CIT(A). The Ld. CIT(A) after hearing the assessee deleted the addition. Against the findings of the Ld. CIT(A) the revenue has preferred the present appeal.
The revenue has challenged the impugned order on the following effective ground:- 1. “On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition of Rs. 59,30,090/- on account of Services made by the A.O. by invoking section 145A of the Act, as discussed in para 3 of the assessment order.”
CO No. 209/Mum/2018 Assessment Year: 2010-11
Before us, the Ld. Departmental Representative (DR) relying on the assessment order passed by the AO submitted that the Ld. CIT (A) has wrongly deleted the addition of Rs. 59,30,090/-. Since, the provisions of section 145A are very clear and all taxes, duties, cess or fee by whatever name called, come within the ambit of the said section, the Ld. CIT(A) ought to have confirmed the addition made by the AO. On the other hand, the Ld. counsel for the assessee relying on the order of the Ld CIT(A) submitted that since the findings of the Ld. CIT(A) are based on the decision of the Mumbai Bench of the ITAT rendered in Ind. Global Corporation Finance Pvt. Ltd. reported in 33.taxmann.com 388, there is no merit in the revenue’s appeal.
We have heard the rival submissions and also perused the material on record. The only grievance is the revenue is that the Ld. CIT (A) has wrongly deleted the addition of Rs. 59,30,090/- made by the AO by invoking section 145A of the Act. During the appellate proceedings, the assessee reiterated its contention that since the assessee is in the business of providing advertising services and not in trading or manufacturing business, the provisions of section 145A cannot be applied. The Ld. CIT (A) has decided the said ground of appeal in favour of the assessee by following the decision rendered by the coordinate Bench in the case of Ind. Global Corporate Finance Pvt. Ltd. (supra). The Ld. CIT(A) has decided the issue in favour of the assessee holding as under:- “6.2 I have carefully perused the assessment order and the submission of the appellant. It is seen from the assessment order that the AO has noted difference of service tax as per service tax register and actual service tax paid. The AO then linked this difference to section 145A of the Act. The service tax is different than sales tax, excise duty. The service tax is the tax collected by the appellant on behalf of the government when such bill raised was raised by the appellant. Therefore, no question of service tax CO No. 209/Mum/2018 Assessment Year: 2010-11 being included arises, as when the appellant raised the bill and charged the service tax it is collectible but the liability of payment of such service tax arises when the appellant received such payment from the concerned party and then it has to pay the tax to the Government Account. The AO has not stated in the reopening as how much payment of service tax was collected and paid and whether and whether there is any difference on account of service tax collect by the appellant or paid to the government account. The liability of such payment is disallowed u/s 43B of the Act but the question as to whether service tax is included to the closing stock for valuation purpose does not arise as the liability of service tax arises when the bills are raised and the amount collected and valuation of closing stock arises prior, ie, no such bill is raised. The AO has not explained as to how the difference of service tax would be includible in the valuation of stock and whether the appellant has paid the service tax on the services taken from other party and for valuation purposes such service tax was not considered then in such circumstances the AO is right to include the service tax for valuation purpose in view of section 145A of the Act but no such circumstances is appearing in the instant case. The Hon’ble Jurisdiction ITAT in the case of Ind Global Corporate Finance Pvt. Ltd. reported in 33 taxmann.com 388 held as under:-
“The third dispute which is relevant only the appeal of the assessee is regarding addition of Rs. 2,25,000 on account of service tax charged by the assessee from the customer. The assessee had not credited the service tax charged from the customers in the profit and loss account and had also not claimed any expenditure on this account. The Assessing Officer held that service tax had to be treated as an integral part of the assessee’s income and accordingly the same was added by him to the total income. The assessee disputed the decision of the Assessing Officer and submitted before the Commissioner of Income Tax (Appeals) that service tax had been received by the assessee on behalf of the Revenue and has to be paid within the prescribed time limit. The assessee had, therefore, consistently been excluding the same from the purview of the profit and loss account. The Commissioner of Income Tax (Appeals) however did not accept the contention raised. It was observed by him that service tax has to be treated as an integral part of the receipts in the same manner as sales tax is treated as part of sales proceeds.
CO No. 209/Mum/2018 Assessment Year: 2010-11 Therefore, he held that amount had been rightly added to the total income and deduction can be claimed under section 43B as and when payment is made. Aggrieved by the said decision, the assessee is in appeal before the Tribunal.
Before us, the authorized representative of the assessee argued that service tax was payable by the assessee to the Government only when realized and, therefore, position was not similar to sales tax and, hence the same could not be added to the total income. The authorized representative also submitted that the same issue had been considered by the Mumbai Bench of the Tribunal in the case of Pharma Search v. Asstt. CIT [2012] 21 taxmann.com/44/53 SOT 1 for the assessment year 2007-08 order dated May 2, 2012 in which the Tribunal noted that as per existing service tax law liability to pay the same arises only on receipt by the assessee. Since the liability to pay the service tax did not exist in the present case the same cannot be said to be payable during the year and, therefore, the provisions of section 43B could not be invoked. The learned Departmental Representative on the other hand placed reliance on the orders of authorities below.
We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of service tax charged by the assessee from customers. The assessee in the profit and loss account neither had shown any income on account of service tax collected on behalf of the Government nor had claimed any expenditure on this account. The authorities below have held that service tax has to be treated as part of the income and expenditure can be allowed only on payment basis under section 43B of the Act. We find that the same issue has already been considered by the Mumbai Bench of the Tribunal in case of Pharma Search. The Tribunal in that case noted that as per service tax law, service tax is payable as and when the payment/fees for underlying services provided are realized. Therefore, if for any reason the payment for service rendered is not realized, there is no liability as to payment of service tax. The Tribunal, therefore, concluded that service tax laws stand on a different footing from other laws such as sales tax, central excise, etc. As the assessee had not realized any payment for service during the relevant year, it had not liability to pay service tax and once there was no liability for payment of service tax, the provision of section 43B were not applicable as the said provisions can be applied only if any liability has been incurred on account of service tax during the year. The addition made was, therefore, deleted. No CO No. 209/Mum/2018 Assessment Year: 2010-11 distinguishing features have been brought to our notice by the authorized representative. We, therefore, set aside the order of the Commissioner of Income-tax (Appeals) and allow the claim of the assessee. In view of the above discussion, I have no hesitation in holding the view, that the reopening is invalid and wrong. Therefore ground nos. 1 & 2 of the appeal are allowed.”
As pointed out by the Ld. counsel we notice that the Ld. CIT (A) has decided the issue involved in the present case in favour of the assessee by following the decision of the coordinate Bench. Since, the impugned order is in accordance with decision of the co-ordinate Bench, we do not find any merit in the appeal of the revenue. Accordingly, we dismiss the sole ground of appeal of the revenue.
CO No. 209/MUM/2018 (Assessment Year: 2010-11)
The assessee has filed the cross objection against the impugned order. However, the Ld. counsel submitted that the assessee does not want to press its cross objection. The Ld. DR did not oppose the same. In view of the submissions made by the Ld. counsel we dismiss the cross objection as not pressed. In the result, appeal filed by the revenue as well and the Cross Objection filed by the assessee, are dismissed.