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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI SHAMIM YAHYA (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the revenue against the order dated 03.08.2016 passed by the Ld. Commissioner of Income Tax (Appeals)-12, Mumbai, for the assessment year 2012-13, whereby the Ld. CIT (A) has allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).
2. Brief facts of the case are that the assessee engaged in the business of designing, installation, commissioning and maintenance of water and sewage treatment plant and other infrastructure and related activities including consultancy, filed its return of income declaring the total income of Rs. 1,79,83,750/-under the normal provisions of the Act and Rs.1,44,61,526/- under section 115 JB of the Act. Since the case was selected for scrutiny, notices under section 143(2) and 142(1) of the Act were issued. In response to 2 Assessment Year: 2012-13 the said notices the authorised representative (AR) of the assessee attended the proceedings from time to time and submitted details/explanation as called for. It was noticed that the assessee had shown the amount of Rs.75,79,336/- outstanding as on 31.03.2012. Accordingly the assessee was asked to produce the evidence of payments of service tax paid and further asked to show cause as to why disallowance under section 43B of the Act should not be made for outstanding of service tax payment as on 31.03.2012. The AR submitted that it was not routed through P&L account therefore the same cannot be disallowed. The AO rejecting the contention of the assessee made disallowance of the said amount and added back to the income of the assessee under section 43B of the Act and determined the total income at Rs. 2,55,63,090/-. In the first appeal, the Ld. CIT(A) decided this issue in favour of the assessee relying on the decision of the Hon’ble Bombay High Court rendered in M/S Ovira Logistics Pvt. Ltd. in of 2013 dated 17.04.2015 and the decision of ITAT, Mumbai rendered in the case of Pharma Search Vs ACIT (Mum ITAT) 21 taxman.com 44 .
Aggrieved by the order of Ld. CIT (Appeals), the revenue has preferred this appeal before the Tribunal on the following effective grounds:-
1. “On the facts and in the circumstances of the case and in law, the ld. CIT (A) erred in deleting disallowance of unpaid service tax of Rs. 75,79,336/-u/s 43B of the Income Tax Act ignoring the fact that expenditure on account of service tax comes under provisions of 43B of the Act.
On the facts and in the circumstances of the case, the order of the Hon’ble Bombay High Court in M/S Ovira Logistics Pvt. Ltd. in of 2013 dated 17.04.2015 relied upon by CIT (A) to give relief to the assessee has not been accepted on merit though no SLP has been filed on grounds of low tax effect.”
3 Assessment Year: 2012-13
This case was fixed for hearing on 23.04.2018. On the said date, when the case was called for hearing, none appeared on behalf of the assessee. Even no application for adjournment was received. Since, the assessee did not appear despite the knowledge about the date of hearing, we decided to dispose of the appeal on the basis of material on record after hearing the departmental representative (DR).
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 made by the AO ignoring the fact that expenditure on account of service tax comes under provisions of section 43B of the Act. The Ld. CIT(A) has further ignored the fact that the Department has challenged the decision of the Hon’ble Bombay High Court relied upon while deciding the present appeal.
We have heard the submissions of Ld. DR and also perused the material on record including the cases relied upon by the Ld CIT(A). We notice that the issue involved in the present case is covered in favour of the assessee by the decision of the Hon’ble jurisdictional High Court rendered in the case of CIT Vs Ovira Logistics Pvt Ltd. in of 2013 dt.17.4.2015 and the decision of the Mumbai Tribunal rendered in the case of Pharma Search Vs ACIT (Mum ITAT) 21 taxman.com 44. The Ld. CIT(A) has decided the sole issue involved in this case in favour of the assessee holding as under:- “I have carefully perused the assessment order and the appellant’s written submission. It is seen that outstanding services tax payable of Rs. 75,79,336/-has been disclosed in the tax audit report. However it is not rooted through its Profit and Loss Account since the appellant company is following mercantile system of accounting. Attention was invited to Hon’ble ITAT, Mumbai order in case of Pharma Search Vs ACIT (Mum ITAT) 21 taxman.com 44, wherein the honorable ITAT has opined as under:
4 Assessment Year: 2012-13 “ whether rigor of section 43B might we applicable to case of sales tax or excise duty but same could not be said to be position in case of service tax because of two reasons, firstly, a service providers is never allowed deduction on account of service tax which is collected by it on behalf of Government and is paid to Government account accordingly and secondly, liability arises to make payment only after service providers has received payments and if there is no liability to make payment to credit of Central Government because of non-receipt of payments from receiver of service, it cannot be said that such service tax has became payable in terms of clause (a) of section 43B because that clause specifically mentions ‘sum payable by the assessee’. Held, yes – Whether, therefore if liability to pay service tax does not exist, service tax cannot be said to be payable and, therefore, provisions of section 43B could not also be invoked – held yes [in favour of the assessee]”
Attention was also invited to Hon’ble Mumbai High Court ordered in the case of CIT Vs Ovira Logistics Pvt Ltd. in of 2013 dt.17.4.2015 wherein the ‘Hon’’ble High Court has directed as under (in Para 9 at Page 6-7) and dismissed the revenue appeal as under:-
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 assessee. 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 levity to pay the service tax in respect of the consideration payable will 5 Assessment Year: 2012-13 arise only upon the receipt of such consideration and not otherwise Therefore, respectfully following the above quoted jurisdictional High Court and ITAT decisions, grounds of appeal No 1 to 5 are allowed.”